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Must I be a carer to avoid inheritance tax on family home?

New rules protect people living in the family home when parents die

I live most of the year in the family home with my mother who is a widow. As it is my sole home, it is being left to me in my mother’s will.

I have recently been told that unless I am a carer, I will have to pay Inheritance Tax. Is that correct?

How much could myself and the other children receive without paying inheritance tax? It is annoying to think that people like my parents who paid taxes all their lives have their children paying more, while if they had spent the money on holidays etc, the State would be now unable to claim more tax.

Ms JO’R, Dublin

The issue you are talking about is Dwelling House Relief and the good news for you is that I do not see any inheritance tax issue. The relief was originally put in place precisely to ensure that people like you – who live with an aged parent and do not have property of their own – would not be forced out of their home when the parent dies.

The rules on the relief were changed last Christmas – largely to put a stop to what appeared to be wide-ranging abuse by people with the financial means to acquire homes for their family members.

This seemed to be particularly the case where homes were being transferred as gifts rather than by inheritance. Up to that point, among other things, to receive a house as a gift, you could not actually live in the family home unless you were a carer for your parents. However as long as you lived in a property they had bought and you did not have any of your own, you could avail of the relief. The loophole for tax planning was wide open and people, unsurprisingly, took full advantage.

Since last Christmas, the rules are simpler and more sensible. Most particularly, parents cannot gift a home except to a close family member and, even then, only if they are “permanently and totally incapacitated by reason of mental or physical infirmity, or is over the age of 65”.

In the case of inheritance, which is what you are talking about, the current rules state:

– the donor – in this case your mother – must have lived in the property as their main home at the time of their death. There is a dispensation if your mum had to stay in hospital or a nursing home;

– the beneficiary – ie you – must have stayed in the home as your main residence continuously for three years up to the date you inherit the property;

– the beneficiary can’t have any interest in any other residential property at the time of inheritance;

– and finally, the beneficiary must continue to occupy the donor’s home for six years from the date you inherit it. If you cannot fulfil this requirement either because work forces you to move elsewhere or you yourself become ill, you will not be seen as breaching this condition. Also, you are permitted to sell the house but must use the funds to buy another property that will be your home.

One last point: the six-year rule is relaxed if you are over the age of 65.

As far as I can see, you fill all these criteria, so there should be no issue with you inheriting your mother’s house. The only question I would have is where you say that you live there “most of the year”. Where do you live for the balance?

If we are only talking about brief holiday breaks, that’s fine but if you are splitting your main residence between your mother’s house and somewhere else, Revenue might be wary. However, as you say, you own no other property, you should be fine.

That being the case, the home can pass to you directly and will not be considered for the purposes of how much you or your siblings can receive without paying inheritance tax.

The house aside, then, each of you is entitled to receive up to €310,000 in assets if your mother was to pass away now. That figure could rise (or, less likely, fall) depending on the view of the Minister for Finance in the annual budget.

Of course, that €310,000 threshold is an aggregate sum from both your parents. If you received an inheritance when your father died, that must be subtracted from the €310,000 to determine how much you can receive from your mother before facing capital acquisitions tax at 33 per cent.

Certainly, if your parents had spent all their wealth, there would be nothing to tax now but then they would have been paying VAT etc on the items they bought. In any case, it is a generally accepted principle of fair taxation worldwide that wealth should be taxed on passing between generations, given the expectation that at the point of inheritance, most beneficiaries will already be independent adults. 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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