Aunt has bequeathed a house intended for my son to me

Q&A: Dominic Coyle

The first option is that you could avoid the bill – at least initially – by renouncing the inheritance

The first option is that you could avoid the bill – at least initially – by renouncing the inheritance

 

My aunt has just passed away and I believe she has left me her house valued at approx €250,000. She was a widow and had no children. I am a single parent (aged 71) of one son.

I own my own home at this time. My son has been living in my aunt’s property for three years as she was a resident of a nursing home and it was her wish that he would look after her property for her.

To be honest, we understood that my son would inherit her property but now, it appears, this is not the case. Is there any way, I can pass my inheritance to him without incurring a huge tax bill ?

Ms PL, email

I can see how the situation came about but I am afraid I cannot see any way that would allow you to pass the inheritance to your son without paying tax.

This does show the importance of taking professional advice when framing a will to make sure it precisely reflects your wishes

As you suspect, he cannot benefit from dwelling home exemption because he has not been named as the beneficiary in the will. So, while he would otherwise meet the eligibility criteria – living in the home for three years and not owning any other property – the fact he is not named in the will as receiving the property makes the issue of the dwelling home exemption moot.

As an aside, this does show the importance of taking professional advice when framing a will to make sure it precisely reflects your wishes and of revisiting the terms of a will when your circumstances change – as your aunt’s did when she had to enter a nursing home.

But, for you and your son, that is all now spilt milk. What can you do to avoid or minimise any tax bill? There are two scenarios:

The first option is that you could avoid the bill – at least initially – by renouncing the inheritance. This is an option open to any beneficiary though, understandably, it is rarely invoked.

By rejecting the inheritance, you do not receive the property and therefore face no bill.

However, any relief could be short-lived. The property goes back into the estate and then forms part of the residue that is distributed according to the terms of the will. Generally, after specific bequests have been made to relatives, friends and/or charities, a will states that the residue be divided equally between a number of people.

Residue

You say your aunt was a widow with no children. I have not seen the will but it could be that you and/or your son will also inherit under the residue – which would now be larger by virtue of the renounced bequest of the home.

"The best I can suggest is that you take the inheritance and sell the property – which you will probably have to do anyway to meet the tax bill. Then you can gift your son the balance after tax – €167,500 or more – which he could use as a deposit on a home."

It is open to you to renounce any part of the estate but the greater likelihood is that you would face a tax bill which would be paid out of your inheritance leaving you with the balance – but not the hassle of organising the sale of a property to meet a tax bill.

Your second option is to accept the inheritance. As you are a niece of the deceased, you fall into Category B for inheritance tax purposes. This includes anything you receive in inheritances (or gifts greater than €3,000) from a grandparent, a sibling, an aunt or an uncle. The lifetime exemption under category B is €32,500.

The best I can suggest is that you take the inheritance and sell the property – which you will probably have to do anyway to meet the tax bill

That means you would be facing a liability to capital acquisitions tax for at least €217,500 of the value of this property (assuming you have not previously inherited from any grandparent, sibling, aunt or uncle). At 33 per cent, that is a tax bill of almost €72,000.

If you have to pay tax on the full amount because of previous inheritances, the tax bill will be €82,500.

Sell the property

The best I can suggest is that you take the inheritance and sell the property – which you will probably have to do anyway to meet the tax bill. Then you can gift your son the balance after tax – €167,500 or more – which he could use as a deposit on a home.

The gift from you to your son will not attract any tax bill as you can gift or bequeath up to €335,000 to your child before they pay inheritance tax. Again, this is a cumulative lifetime limit.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.

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