Will my son pay higher rate of inheritance tax?

Q&A: I have a house which is probably worth, depending on luck, €350,000 which I intend to leave to my son who is presently occupying same but there is a mortgage (interest-only) of €300,000 on it. My question is: if my son gets the house valued at €350,000, which would be over the tax allowance of €250,000, but because of the mortgage the net gift is only €50,000, would the Revenue in calculating value of inheritance have regard to the mortgage on house which would fall to be paid by son?

Because of his low income, my son would have to take out a loan to pay inheritance tax if the full value of house is used.

Mr P.G., email

I am aware that there are some mortgages on which life assurance is not applied but these are very much the exception. To be honest, I would imagine just a handful of Irish mortgages are not covered by insurance – and all these would effectively be remortgages for older people.

I would be certain that someone in your position would have a life policy attached to the mortgage under the terms of which the mortgage will be paid off in the event of your demise.

Thus, your son would be receiving the property unencumbered and could therefore be liable to capital acquisitions tax.

However, you also note that he is living with you in the property. If he has done so for the three years ahead of your death, has no financial interest in any other property and stays living in the property for a further six years after your death, then he qualifies for an exemption to CAT.

Of course, if he breaks the terms of the exemption, the tax would fall due, even if it was several years after your death.

What threshold applies to kids of divorced couple?

A divorced (in Ireland) couple marry (in Ireland), both of them having had children with their previous partners, but have none together.

If one of them dies and leaves an inheritance equally between the children, what is the threshold level applicable?

Are they all entitled to the €250,000 child/parent threshold? Or is it only the direct blood descendants who are entitled to this and the others only get the “stranger” threshold of €16,750?

Mr K.O., Dublin

To be frank, I though I had by now covered every possible permutation on inheritance tax but I certainly haven’t come across this one before and, in modern Ireland, it is surely a matter relevant to a growing number of people.

Category A threshold is designed to cover inheritances and gifts specifically between a parent to their children, not children of a subsequent partner.

However, if these two divorced people subsequently marry, all their respective children are deemed to become stepchildren and the Revenue assures me that, as such, they would each be able to avail of the category A threshold.