Can mum gift wife her home without any tax bill?
Q&A: Property gift could incur liability under gift tax or capital acquisitions tax
The relief from capital gains of the sale of someone’s principal private residence is one of the best known tax reliefs A person can receive cumulative gifts and/or inheritances from their parents of €310,000 under current rules without incurring a tax liability. Photograph: iStock
My wife and I have a question about gift tax. We have lived with my wife’s mother for more than three years in her mother’s house, the family home. We are hoping to buy/be gifted the house and are looking at ways to avoid inheritance tax.
We have been pre-approved a mortgage of €200,000 (which is under the value of the house) and ideally would use this for renovations. We have no other property in any form.
The mortgage on the home is fully paid. The current plan is to renovate the property to accommodate my mother-in-law in a self-contained space on ground floor. We would live in the rest of the house
What is our position on tax?
Mr N.C., email
It sounds to me like you are going to have a gift tax bill – and you might also have an issue drawing down the mortgage.
From the framing of your letter, I assume you are eyeing up the prospects of relief under the dwelling house exemption. This applies to people who have been living with their elderly relatives in the relative’s home for three years prior to their death and who do not have any interest in any other property.
The problem for you and your wife is that this applies only in the case of inheritance, and not under the provisions for gifting during a donor’s lifetime.
There used to be more latitude under the rules but Revenue became concerned that this was being abused by wealthier parents effectively to fund their children’s lifestyle.
Essentially parents were buying second properties and gifting them to their children. Ironically, under this now discarded regime, to receive a house as a gift, you could not actually live in the family home unless you were a carer for your parents – which made a nonsense of the original logic for the dwelling home exemption.
Anyway, that is now history and of no use to you. If you continue to live with your mother-in-law until she dies and if she leaves your wife, or both of you, the property, the relief would apply at that stage, assuming you still had no interest in any other property. But until then, any gift by your mother-in-law of the property to your wife would potentially raise a liability under gift tax, or capital acquisitions tax (CAT).
There are two things that will affect this: the value of the property; and whether your wife has received any inheritance from her father or any gift in excess of €3,000 from either parent already.
Your wife is allowed to receive cumulative gifts and/or inheritances from her parents of €310,000 under current rules. That figure may change but the key thing will be the figure in place at the date any transfer is made.
If the property is worth less than that, it may be covered by her CAT tax-free exemption.
However, that €310,000 lifetime limit also covers any inheritance she might have got from her father or any large gifts. If, in addition to previous gifts or parental inheritances, the value of this home brings her above the €310,000 limit, she may be facing a tax bill of 33 per cent on any excess.
The second area of concern for you is the mortgage approval. As you say, this is not sufficient to allow you to buy your mother-in-law out of her home but it might help you fund the necessary alterations to allow all three of you live in the property with reasonable privacy, and also refurbish the home.
That’s fine, as long as the lender is agreeable to it. As it stands, you are seeking a mortgage-length loan at lower mortgage rates to cover the sort of spending that a bank might ordinarily cover by way of a term loan at higher rates.
You’ll need to make sure the bank is okay with you using the money in this way. They would generally want to see contracts of sale to release the loan; in your circumstances and with your current plans, they might object and simply refuse to release the money.
It’d be better to clear that up first before finding yourselves in an awkward situation on a half-finished project.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email email@example.com. This column is a reader service and is not intended to replace professional advice