Son still in school faces inheritance tax bill
Q&A: Dominic Coyle
A son under the age of 18 cannot take the inheritance until he reaches that age. Until then, it would have to be held in a bare trust for his benefit.
My uncle died suddenly last year at 70. He was a bachelor and lived in a cottage on an acre. In his will, he left me as the executor and left the house and acre to my son, his grand-nephew, who he was very close to. The rest of his worldly possessions he left to his siblings – my aunts and uncles.
My issue is that my son is in sixth year in school, and obviously not in full-time employment. I have been to my solicitor and he has confirmed the following approx values, due at the end of October as the Grant of Probate is imminent.
- Value of house and acre, confirmed in a valuation: €90,000
- Value of taxable inheritance, less allowance as grand-nephew: €74,925
- Tax, actual amount : €24,583
So basically, my query is, if he hasn’t the €24,500, are his absolute only options to either sell the house (and pay more capital gains tax) or make an agreement with the Revenue and pay hefty annual interest rates to push the payment out by a year or two?
And I guess, is there any point in talking to the Revenue? Will they engage?
Mr BD, Waterford
It’s always worth talking to the Revenue. Contrary to general perception, they are open to a reasonable approach. The bottom line, of course, is that they are ultimately responsible for the proper collection of tax and, in this case, your son has a substantial tax bill owing.
While linear relations do fall into Category B, which has an exemption threshold of €32,500, grand-nephews are unfortunately a little too distant to qualify so he is stuck with Category C status under the capital acquisitions tax/inheritance tax rules. Hence his threshold of €16,250 and a tax bill of more than €24,500.
And if he is under 18, he cannot take the inheritance anyway until he reaches that age. Until then, it would have to be held in a bare trust for his benefit – but the tax would still be due.
The options are, as you say, either sell the property or part of the land to meet the bill, or arrange a payment schedule with Revenue.
A third option, if means allow, would be for the family to gift your son the money so that he could meet his bill and retain the property. While your son can only receive €16,250 from distant family or strangers over his lifetime, he could receive up to €310,000 from his parents.
So if the money was there and you intend at some point to pass on an inheritance to him (and you think this property is worth holding on to), you could gift him the €24,583.
If he does have to sell, you are right that he could face a capital gains tax liability if the property sold for more than €91,270 as it would exceed the annual capital gains tax exemption limit of €1,270. Capital gains is charged at 33 per cent.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice