Mother-in-law lives in our house and we live in hers

Q&A: Pragmatism should prevail in relation to potential tax liability over PPR

Under Revenue rules, you can only have one principal private residence. It is a property acquired by and occupied by you as your main home.

Under Revenue rules, you can only have one principal private residence. It is a property acquired by and occupied by you as your main home.

 

My wife and I recently purchased her family home from her mother at below market value (but within the thresholds) in the hope that she would use the proceeds to buy another house. It has now transpired that – after the sale went through – she does not wish to move to another house and she wants to remain where she is. Instead, she has suggested that she buys a house with the proceeds and we as a family use that as our family home.

So basically, my wife’s mother will be living in the house that we own and we will be living in a house that she owns.

Can both of these scenarios fall under the principal private residence (PPR) exemption as neither of us are earning income from each other and we both only own one house. It just happens that we are living in each other’s houses. Mr J.O’F., email

There are a couple of issues here. First up, as you are aware, is the fact that the property has been acquired by and your wife from your wife’s mother at less than its market value.

Clearly, in those circumstances, your mother-in-law will be deemed to have gifted the pair of you the balance of the market value. The point to be careful of here is that you and your wife have very different thresholds under gift tax. While she can receive up to €310,000 over her lifetime from her parents (in aggregate), this is not your parent. She is not even a linear relative. In terms of gifts from your mother-in-law, you fall into the category of “stranger”, category C, where the lifetime limit of all gifts you can receive is just €16,250.

And why is that important? I am assuming that this purchase of a family home is being made jointly. As such, any gap between market value and the price you paid would generally be allocated evenly between you. That might leave you, if not your wife, with a self-assessed bill to pay under capital acquisitions tax.

As you have already bought this property, this is now a crystallised position and, if you have a liability, there are deadlines on when you pay it.

If the transaction happened this year, you will have to pay any tax due by the end of October. If it happened late last year (after August 31st), you again have until October 31st of this year to settle any Revenue bill. If it was earlier, then you are already overdue and should have paid by last October.

Moving on to the slightly unconventional arrangement you are now considering. Effectively, as you say, you will be living rent free in a house that your mother-in-law will purchase and she is living rent-free in what is now your home.

Under Revenue rules, you can only have one PPR. It is a property acquired by and occupied by you as your main home.

There is, however, one key exemption. You can have a second principal private residence under Irish tax law when the second property is being provided rent free to a dependent relative – dependent either by age, infirmity, or a parent of the homeowner who is a widow(er).

This seems to cover your position nicely in relation to your mother-in-law’s former home that she has now sold to you but in which she wants to continue to live.

However, this exception appears to be in relation to a “second” principal private residence. . . and of course, this is your only residence. The home you now propose to live in will not be yours at all – and it won’t count under the exemption as you are neither unable to care for yourself by reason of age or infirmity – nor are you your mother(-in-law)’s widow or widower, obviously.

As I understand it, in law, it is not your principal private residence because you will not have bought it – even though it would be your main family home.

For all that, I suggest that pragmatism should prevail. You and your mother-in-law each have a principal private residence but – for reasons of sentimentality – your mother-in-law wishes to stay where she is and, for reasons of practicality, you need a home.

When your mother-in-law passes away, presumably either her house (in which you are now living) is sold as part of her estate, or is retained as part of the estate at which point it becomes an investment property (assuming it passes to your wife). Either position, of course, could have capital acquisition tax/inheritance tax implications for her.

Could the Revenue be a stickler on this arrangement. Yes. Would they be? In my view, no, not as long as this is simply a practical family arrangement and not perceived as tax planning.

You have indicated that you intend to seek professional advice on this situation and I think that is a good idea. Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.

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