Q My father recently died. In his will, he bequeathed the old family home to me, his only son, with a value of 300,000 euros. I also have a sister to whom my father left his little savings – 5,000 euros. Our mother passed away a long time ago. My sister and I have not lived in the family home for many years. I intend to sell the family home and in the interests of fairness I would like to split the proceeds of the sale between my sister and myself. But will my sister or I face a heavy tax burden if I do this? Neither of us ever received an inheritance or gift from our parents before my father died, so I was able to inherit the family home tax-free. If my sister (or myself) was going to have a large tax bill because I split the proceeds from the sale of the old house, is there a more tax efficient way to split those proceeds? Sean, Co.Donegal
A This very laudable intention of splitting your inheritance with your sister would actually trigger a tax bill for your sister if mishandled.
If you gave your sister a post-inheritance gift of €150,000 and then sold the house, that gift falls within category B (blood relatives) of the tax-free Capital Acquisitions Tax (CAT – the Tax on Gifts and Inheritances) thresholds. In group B there is a tax-free threshold of €32,500. Assuming your sister has not received any previous gifts or inheritances in this category and takes advantage of the annual small gift exemption (which allows anyone to receive gifts worth up to €3,000 per year from any person without having to pay CAT) . In addition to her Group B threshold of €32,500, €35,500 of your gift to her is exempt from the CAT. This means €114,500 is taxable – giving her a tax bill of €37,785 as a CAT at a rate of 33 per cent.
However, there is another option. If the ultimate intention is to split the estate half between you and your sister, and there are no other siblings, you can both waive your statutory right in the will – which includes the two inheritances, the house and the €5,000 savings, means. falls back into the estate. Assuming that you and your sister were the sole beneficiaries of the will, after being rejected by the two beneficiaries, the estate is distributed according to the rules of the intestacy (i.e., as if there had never been a will).
As your mother is already deceased, under the rules of inheritance the estate would be divided equally between your father’s children – in this case you and your sister (assuming there are no other siblings). So they would each inherit €152,500. This inheritance is deemed to have come from your father and would therefore be below the €335,000 tax exemption limit for inheritances left by a parent to a child. The €152,500 inheritance would therefore be tax-free for both of you.
There are a number of rules regarding disclaimers, so I recommend that you seek specific professional advice to guide you through this process.
Do I get a tax bill if I sell farmland and a house my mother left me?
Q I recently inherited the family home – and about 25 acres of adjacent land – from my mother. I have lived with her in the home for the past five years as her health has deteriorated and she required care. She has been a widow for many years. My father was a farmer before he died and he farmed the ten acres of land surrounding the house – but it has not been farmed since his death. I want to sell the house I inherited from my mother in time. Am I eligible for an estate tax exemption from home ownership tax if I were to sell the house and adjacent property in the coming years? Does the home tax exemption extend to the ten acres of land surrounding the house, and if not, is there a way to limit the tax burden that might arise on the sale of that land? Also, could there be other tax implications for me (e.g. capital gains tax) if I sell the family home and adjacent land? Marie, Co. Tipperary
A First of all my condolences on your loss. These are delicate matters to negotiate in grief.
With respect to the home, the home exemption includes up to one acre of the home and grounds.
On the basis that you have no economic interest in another property at the time of inheritance, you should qualify for the dwelling house exemption for the house – as well as one acre.
If you are under 65 there are claw back provisions if you decide to sell the property within six years of the inheritance. (The clawback does not apply if you are 65 years of age or older at the time of the inheritance or have to live elsewhere due to illness or work). However, these clawback provisions can be relaxed if you use the sale proceeds to purchase a replacement primary residence.
As to the question of the remaining 9 hectares, the first thing to consider is whether the value of the 9 hectares exceeds the €335,000 tax exemption limit for inheritances left by a parent of a child, given that the home is exempt from inheritance tax, provided you have previously no gifts or inheritances accepted from your parents? If the value of the nine hectares does not exceed €335,000, you are not subject to inheritance tax.
However, if this triggers an estate tax bill, you should consider whether you are eligible for an agricultural relief. In order to be able to claim this relief, certain conditions must be met.
Firstly, the land in question must be agricultural property – as it was previously farmed by your father it should be an option, but you would need to check this in detail.
Secondly, the agricultural property in the inheritance must be at least 80% of the value of your estate on the valuation date of the inheritance (this is usually the date on which the grant of the estate or administration is issued).
These assets include not only the assets you inherited, but also any other assets that were in your possession at the time. A point to note is that if the inheritance includes agricultural land with a house in the country, that house is considered “farm property” for the purposes of this 80 percent rule.
Third, the agricultural property must be actively farmed for six years – either by you as an active or qualified farmer, or leased to a qualified farmer as tenant.
If you qualify for agricultural relief, the market value of the property is reduced by 90 percent, which is a significant relief.
Finally, getting to the heart of your biggest concern: What if you sold the house and lands? If it is sold within six years you could lose the home exemption (subject to the clawback exceptions above) and also the farm exemption and there would be a reclaim of unpaid estate tax.
Both clawbacks can be avoided if the money from the sale is reinvested in your primary residence and farm property.
If the home you inherited has increased in value since you bought it from your mother, but it has been your primary private residence throughout the ownership period, it is exempt from Capital Gains Tax (CGT).
However, if the lands have increased in value, again from the value at which you inherited them, that increase in value will be subject to the CGT.
https://www.independent.ie/business/personal-finance/will-i-trigger-tax-bill-for-my-sister-if-i-share-half-of-home-left-to-me-with-her-41489079.html Will I raise a tax bill for my sister if I share half of the house I have left with her?