Q I am supposed to be left a house by an aunt that is worth around €600,000 today. My aunt has no children or other nieces or nephews. Since I can only inherit tax-free up to €32,500 from my aunt, I face a large inheritance tax bill if she leaves this house to me alone. I live in my own home with my husband and two children, so I cannot take advantage of the residential property tax exemption here. I am also not eligible for favorite nephew or niece relief as I have no business relationship with my aunt and in fact she has never run a business of her own. Is there a more tax-efficient way for my aunt to bequeath her property to me? A friend has suggested that it might be more tax efficient for my aunt to let my two children (both under the age of 12) have her house in a trust. Would that be correct and would such a trust relationship have disadvantages? Emily, City of Dublin
A The answer really depends on whose hands the property ultimately ends up in. In general, a Capital Acquisitions Tax (CAT) of 33 per cent is payable on a gift or inheritance where a beneficiary or the person making the transfer (in this case your aunt) is an Irish tax resident, or the subject of the gift or inheritance is an Irish resident Irish fortune is.
Assuming one of these tests is met, if you inherit the house from your aunt, you will have a sizable tax bill. The first €32,500 would be tax-free, but the balance (taking into account some allowable expenses) would be subject to 33 percent CAT.
If you transfer the assets to your children in the future, CAT will also arise for them. Parents can currently transfer up to €335,000 CAT-free to their children. If the intention is that the children ultimately inherit the property, it may be more tax-efficient if your aunt leaves the property to them in her will. This would avoid two hits from CAT.
Trusts are often used to hold assets on behalf of minor children, but their tax treatment varies. Tax advice should always be sought when considering this route as other taxes such as income tax (if property is rented out), stamp duty and capital gains tax (CGT – a tax paid on capital gains or gains from the sale of property) may be payable. may accrue assets) to be considered.
What is known as a bare trust can result in an immediate CAT fee for the children as they will own the property once it is placed in a trust. In a discretionary trust, on the other hand, the trustees control the assets and decide how much the beneficiaries should receive and when. However, this defers CAT to the children until ownership is assigned to them (i.e. when ownership of the property passes to them). There are also annual and one-off tax charges associated with discretionary trusts to consider.
Although trusts can be tax efficient, tax advice should generally be sought, and remember that bills will also depend on the market value of the property at the time of transfer, the tax-free thresholds in effect at the time, and the proportion of the property each child gets.
My advice is to decide where the property will ultimately end up and work from there.
Is it tax efficient for ex-spouses to formalize a separation?
Q My partner and I have decided to go our separate ways – but not officially, for the sake of the kids. Could either of us lose taxes if we don’t have a formal separation or divorce? Tom, Co. Wexford
A You mention divorce so I am assuming you and your partner are married and currently filing jointly. When spouses separate permanently (whether formally or informally), it may affect how they are taxed, depending on the circumstances.
First of all, remember that the tax office expects you to inform them of your change of circumstances, even if you have separated informally. Second, many married couples are no better off in tax terms than single or separated people, given how much a working couple earns. Savings are possible, for example, if both spouses are employed but only one pays the higher tax rate or has unused tax credits, or if only one spouse is employed.
How couples are taxed in the year of separation depends on how they were taxed when they married.
So if you were assessed together in the year of separation, you can continue to be treated in this way for the rest of that year.
This means that one spouse (known as the “taxable” spouse) is responsible for tax purposes.
In the year of separation, as a taxable spouse, you will be taxed on your own income for the whole year and on your spouse’s income for the year up to the date of separation. You are entitled to the marriage tax credit (€3,400) and the married couple’s rate of 20 for the whole year that you separate.
If you are the non-taxable spouse, you will be taxed on your own income from the date of separation until the end of that year.
There is the personal tax credit for single people (€1,700) and the single-parent level (€36,800) as well as the single-parent tax credit (€1,650) under certain conditions. (The basic tax rate is the amount of money you can make before you’re hit for the higher 40 percent income tax rate).
In both cases, employee tax credits are also possible if one of the spouses is employed.
Since your case is an informal separation, it is assumed that alimony payments are voluntary and not legally enforced. If you are separated, the voluntary alimony payments are not tax deductible – so the alimony recipient is not taxed and the alimony payer is not entitled to a tax deduction.
In subsequent years, an informally separated couple will generally be treated as single by the tax authorities, unless legally enforced alimony is paid (in which case treatment as a married couple applies).
Eligibility for tax bonus for Covid health workers
Q I’ve been working as a nurse in a public hospital for the last few years – even during the pandemic. I’ll get my €1,000 tax-free bonus on my next paycheck. My husband worked as a cardiologist in a private clinic during the pandemic – is he also eligible for the tax-free bonus? Geraldine, Co Cork
A The Covid-19 Recognition Payment is paid to public health workers who worked on-site in Covid-19 exposed healthcare settings between March 1, 2020 and June 30, 2021.
The payment doesn’t extend to private hospitals and will likely exclude workers like your husband.
The exact details of the admission requirements are still being worked out.
However, it is understood that those who qualify for the payment and have worked 60 percent or more of their contracted full-time hours will receive a bonus of €1,000; while those who worked less than 60 percent of full-time hours are entitled to a €600 bonus.
The government has confirmed that the payment is not subject to income tax, USC, or PRSI.
https://www.independent.ie/business/personal-finance/would-tax-be-saved-if-my-aunt-left-her-property-to-my-kids-rather-than-me-41623294.html Would taxes be saved if my aunt left her property to my children and not to me?