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I want my niece to live with me and to own my home when I die. Will she be liable for tax?

Property Clinic: Would my relative be liable for inheritance tax if she is already living in my house?

While it may seem like a good idea to provide a home for one's relatives, there are implications in terms of taxation for the beneficiary.

Suzanne O'Neill
Mon Mar 11 2024 - 05:45

My niece is single with two young children and a mortgage on her house. I am in my 80s and live alone nearby in my own home, which is mortgage-free. If she and her children were to come and live with me, she could sell her property, pay off her mortgage and have some money in her pocket for a change. If I was to leave her my house when I die – I’m hoping to leave it to her whether she comes to live with me or not – would she still be liable for inheritance tax, even though she would already be living in the house?

Capital Acquisitions Tax (CAT) applies on the inheritance of a property. In the absence of any tax relief, the normal CAT is as follows: your niece falls under Category B for gifts/inheritances, which means a cumulative tax-free threshold of €32,500 applies. If she has received no prior benefits from relatives within Category B, then, upon inheriting the property, she would be liable to CAT on the property value over €32,500. The rate of CAT is 33 per cent.

The relief that could potentially be claimed is Dwelling House Relief. It is a full relief from CAT where a number of detailed conditions are met by you/your niece which are broadly as follows:

  • The house was the only or main home of the person at the date of his or her death. There is an exception to this requirement where a person is absent from their home because of ill-health at the date of death, for example, if the person has moved into a nursing home.
  • The person inheriting lived in the house as their only or main home for the three years immediately before the date of the inheritance.
  • They do not own, or have an interest in, any other home.
  • They do not acquire an interest in any other home from the same disponer between the date of the inheritance and the valuation date.
  • The house continues to be their only or main home for six years after the date of the inheritance (though trading up and moving house is allowed).

Suzanne O’Neill is a tax partner at  RSM Ireland.

If your niece lives rent-free with you, this is seen as a taxable benefit each year, based on the market value of the rent, on which CAT can arise. The first €3,000 of an annual gift is tax-free, so each year so the first €3,000 of the benefit can be excluded. No tax would arise until the tax-free threshold of €32,500 was used up over a number of years. The balance that is taxable would be taxed at 33 per cent. Of course, your niece could pay some rent to you in order to reduce the benefit. You can receive up to €14,000 per annum tax-free under the rent-a-room scheme.

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Your niece would need to consider Capital Gains Tax (CGT) on the sale of her house, but if the house was always used by her as her Principal Private Residence (PPR), no CGT would arise. From a practical perspective, having sold her own house, your niece would not have the security of owning a home until she inherited your house under the terms of your will in the future.

Suzanne O’Neill is a tax partner at RSM Ireland

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