Inherited home likely to leave you with a capital gains tax bill

Q&A: Dominic Coyle

He is only liable for the increase in the value of the property – the capital gain – since he acquired ownership. Photograph: Gareth Fuller/PA

My partner and his brother inherited the family home after their parents passed in 2019. He has not lived there for five years and has left a younger sibling to mind it as he was still living in it.

Will my partner be subjected to capital gains tax now that the property has gone up in value since the passing of his parents and probate?

Ms LK, email

In a word, yes. Family homes are exempt from capital gains so there was no issue with the tax while your partner’s parents were alive and living in the property.

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As it happens, even if it had been an investment property, which is liable to capital gains tax on disposal, any liability would have died with his parents and so he and his brother would have inherited the home free of any capital gains tax.

Depending on the size of the estate that they shared, they may have had to pay capital acquisitions tax but this would have been done at the time and is nothing to worry about now.

What he does have to think about is the tax liability he may have built up since inheriting the family home. This depends on what has happened to its value in the interim. He is only liable for the increase in the value of the property – the capital gain – since he acquired ownership.

The estate will have had to get a valuation done on the property for probate purposes so there is a record of what it was worth at that time. If the property has increased in value since, he will be responsible for half of that given the shares ownership with the brother.

Property value

But any capital gain only becomes a tax issue when the property is sold. The fact that the property has risen in value – or quite possibly fallen – since he inherited it to this point is irrelevant. It only matters when he decides to sell the home.

Clearly, he does not live there so, for him, it is not a family home and there is no exemption from capital gains tax.

Of course, he only inherited the property last year. Prices at that stage were slowing down: in fact, in Dublin they were in reverse in certain places.

And since then, we have had the cooling impact of Covid-19. That has effectively shut down the market so there is no real evidence as to what has happened to property values. However, the general assumption is that they will have fallen as buyers – and their banks – become even more cautious in dealing with home purchase.

So for now, it is unlikely to be much of an issue.

You should also bear in mind that capital gains tax is levied at 33 per cent – and that the first €1,270 of any capital gain in a given year is exempt as well. That means that two-thirds of any gain on his half share still comes to him, and two-thirds of something is better than nothing at all.

It is worth bearing tax in mind. Clearly, you don’t want to be budgeting on the basis that all the money made from a sale of this property will clear debts or meet the cost of home upgrades or other investments, but two-thirds of it will still be available to do so.

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. No personal correspondence will be entered into.