Vacancies are surprisingly common, but it pays to be aware of the tax implications of inheritance

We now have more financial data on the role of gifts and inheritance in housing. For example, we know that for one in ten households, the family home has been inherited. Again a larger number (15 percent) received property as a gift, either from a parent or another relative.

One in three have received “significant” gifts or inheritances that can contribute to the purchase of real estate, and in fact in many cases the difference between buying and not buying is €80,200 on average.

Especially in rural areas, 19 percent of households have received land or land to either build their own home or sell to help buy a home.

This intergenerational flow of money is not unique to the Irish, but it is culturally strong and only a brave government interferes with our deep-seated desire to pass wealth and property down to our children.

Steps to lower tax-free thresholds, increase taxation on wealth and limit what can be given generously are being taken by the Tax Commission in particular.

Thresholds have been lowered significantly over the years – gifts to children up to €542,544 were allowed in 2009; today it is “only” €335,000.

Despite the fact that gifts and inheritances are highly unjust – the wealthier in society have far more to leave behind – this remains the main feature of the generational transfer of wealth across all demographic groups.

The main asset of the vast majority of families is their family home. But with a younger generation struggling to buy a home, dependency on future inheritances becomes less likely.

People buy later in life, have longer mortgages, and the opportunity to build and pass on property is much less than ever before.

So, while the situation is true, how should gifts and inheritances best be used? What is allowed and what is not? If you want to give your son or daughter a climb up the property ladder, what’s the best way to do it?

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inheritance thresholds

The tax-free limit of Group A from parents to children is very generous at €335,000, especially when you consider that the next Group B for siblings, nieces, nephews or grandchildren is less than a tenth of that at only €32,500. Group C, which includes nonlinear relationships, is €16,250.

However, the Group A limit applies to both parents combined and each child, which means that if the father dies and leaves you €200,000, the mother can only leave you €135,000 before a tax event is charged.

It also means that a larger family is less likely to fall into a tax trap than a smaller one.

Parents with an estate of €1,000,000 could leave it to four children with no tax burden, but if they only had one child they would end up entitled to €219,450 in their inheritance.

This is why will planning is so important. You may not be able to avoid taxes entirely, but you can certainly distribute the benefits of your estate to ensure the maximum amount is distributed to people you love and not to the IRS.

gifts

Gifts fall under the same legislation and tax umbrella as inheritances – Capital Acquisitions Tax (CAT) and must be declared on an annual tax return where they are made or received.

The overall CAT thresholds include any gifts you may have received during your lifetime and inheritances from the same group.

So if a parent gifted a child €35,000 to help them buy a house in their 30s, that amount would be “deducted” from the total amount they would be entitled to tax-free after the death of their parents.

There is a €3,000 small gift exemption that anyone can give to others in a tax year without hitting the CAT threshold (see below) and if used carefully this is a great way to help Passing on and diminishing wealth during one’s lifetime .

For example, if a parent pays for their child’s education or marriage, this is not considered a gift in the tax sense.

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Capital Gains Tax

CGT, also 33 percent, is usually paid on any profit made from the sale or disposal of an asset.

A painting, stock or an investment property would be typical examples.

There is a tax free CGT threshold of €1,270 per year and in most cases any gain can be offset by losses on disposal of assets elsewhere.

The family home is currently exempt from CGT, but the Tax Commission has recommended that CGT be imposed on increases in the value of assets transferred through inheritance.

This would mean that if someone died holding shares that appreciated in value while alive, the gain would be subject to the CGT. If implemented, it would likely be offset by any CAT due.

Intelligent gift giving

If you’re feeling generous (or are dying to bring your adult children into their own homes), simply gifting your adult children cash may not be enough.

Quantity, timing and logistics can make a world of difference. The income allows giving tax-free gifts up to €3,000 to everyone each year.

Joey Sheehan, author of The Money Coach, shows how potentially up to €48,000 could be given away to a few first time buyers in two months with no tax implications if they keep it until the end of the year. “George” and “Catherine” both have generous parents who are willing to help them with the deposit.

Catherine’s mother gave her and George €3,000 each as a gift in December 2023. She does the same in January 2024. Total: €12,000

Catherine’s father repeats the exercise with the young couple in the same two months: €24,000 in total.

George’s mother gives her son and Catherine €3,000 each in December 2023 and repeats this in January 2024: Total: €36,000.

All of this is repeated by George’s father as the final installment, meaning the happy couple are now getting €48,000.

As long as the lender can satisfy themselves that these are gifts and not loans (usually through the parents signing a gift letter written by a lawyer), they are usually perfectly happy, along with the couple’s own savings Allow for the Help-to-Buy program and even the First Home Shared Equity program.