Can property-owning daughter inherit parents’ home without tax?
Q&A: Dominic Coyle
The dwelling home relief scheme was designed to ensure that someone who had stayed in the family home looking after elderly parents, or relatives, would not find themselves homeless upon the death of their parents/relatives because the property needed to be sold to meet any inheritance tax liability
I have a daughter in America who owns a house in Ireland and another in America. She intends returning home sooner or later to live with my wife and I. My wife owns a holiday apartment which she intends to pass on jointly to our four children.
If my daughter lives with us for the required period to inherit our house free of inheritance tax, does she have to divest herself of all property and does that exclude her from joint ownership of the holiday apartment?
Does owning a second property exclude my wife and I from passing on our home free of inheritance tax?
Mr M.B., email
I think you would be well advised to consult a professional tax adviser on what is a estate planning issue. Clearly all parties here have plenty of assets and the intention is simply to minimise any exposure to inheritance tax.
The dwelling home relief scheme was designed very particularly to ensure that someone who had stayed in the family home looking after elderly parents, or relatives, would not find themselves homeless upon the death of their parents/relatives because the property needed to be sold to meet any inheritance tax liability.
It has been through a number of changes since then which, at times, loosened the rules to a ludicrous degree, and subsequently tightened them again. Most recently, in the last budget, they were again amended to take account of a recent High Court ruling that went against the Revenue.
Essentially, to benefit, the person inheriting the home tax-free must have lived there for three years before inheriting, must not own any other property at the time of inheriting, and must remain in the property – or another property bought with the full proceeds of the sale of the property – for six years after inheriting.
In your daughter’s case, she has not one, but two homes already in her own name. To avail of the relief she would need to sell both of these.
Putting them into a trust is specifically excluded, unless she is not the beneficiary of the trust.
If she did sell both her homes and moved back in with you and your wife, she could inherit the family home – but only if she does not also inherit the holiday apartment, or any portion of it, at the same time, or earlier.
Be careful of being too cute ... as Revenue is very alert to the benefits of, and possibility for abuse of, the dwelling home exemption
Revenue did lose a case this year where someone, otherwise eligible for the relief, inherited more than one property in a will. Unsurprisingly, it amended the rules again in the most recent budget to clarify that you only remain eligible for the relief if you are inheriting the family home and no other physical property or a share in such property.
So, either sell the holiday property and split the proceeds in the will, or exclude this daughter from a share of the property in the will. Be careful of being too cute on this as Revenue is very alert to the benefits of, and possibility for abuse of, the dwelling home exemption. Having lost that case previously, I’m sure they’d welcome a legal precedent bolstering their position.
Finally, owning multiple properties does not exclude your wife and/or you from passing on the family home under the provisions of dwelling home relief.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice.