What are the tax implications of Mum gifting us the family home?

Q&A: Dominic Coyle answers your personal finance questions

If my mother gives us the family home as a gift, are we liable to pay any type of tax? Photograph: iStock

If my mother gives us the family home as a gift, are we liable to pay any type of tax? Photograph: iStock

 

My mother is a widow. She has offered us the family home to renovate. I have a young family and would love to move out of the city.

My husband and I have a mortgage on our current house. We would like to hold onto this house as an investment property as neither of us have pensions. If my mother gives us the family home as a gift, are we liable to pay any type of tax?

Ms G.S., email

You may well be. There was a time when the rules about what parents could gift to adult children were fairly loose and all sort of financial support was permissible. Eventually, unsurprisingly, Revenue came to the conclusion that the rules were being abused for tax-planning purposes and so they were tightened up by the Minister for Finance.

These days, unless you are incapable of looking after yourself, you are unlikely to be able to secure tax-free access to any asset passed on by a parent.

And you don’t qualify for the dwelling house exemption either. In your circumstances, that could only be through inheritance, not a gift and would require you to live in the property with your mother for at least three years before her death, which given her age is likely some time of yet. Anyway, you’d be ineligible by virtue of owning this other property.

However, that does not mean that you will face a tax bill automatically.

Gifts, like inheritances, come under the provisions of the capital acquisitions tax regime. Under this, everyone is entitled to receive a certain amount in cash or assets before actually paying tax. And the exemption threshold is highest for gifts and inheritances from a parent to a child.

Family valuation

At present the limit is €335,000. So if this property that your mother wants to gift you is worth less than that, you will not have a problem. If it is over that amount, you face a tax bill of 33 per cent on the excess.

You don’t mention the market value of your mother’s home but assuming it is around the average, that should still allow you to retain your current family home as an investment. It is the market value that counts, not some discounted family valuation.

You need to be careful how the gifting is done. You say your mother has offered you and your husband the family home. However, the amount your husband can receive by way of tax-free gifts from his mother in law is a fraction of your entitlement – just €16,250.

If he is effectively gifted half the house, he will face a very significant tax bill – one that will almost certainly mean you having to sell your current home.

I should mention that these thresholds are lifetime limits, so any significant gift – anything over €3,000 – that you received from either parent or an inheritance that you might have got from your father will also be counted against that €335,000 limit.

Equally, anything your husband may have received from your family also counts against his lower threshold.

And if either of you gets to within 80 per cent of the relevant threshold you will need to let Revenue know even though you have no tax liability.

Assuming you can keep hold of your current home, you will have separate tax issues – income tax and, eventually, probably capital gains tax – to consider. You will also need to register it with the Residential Tenancies Board. And you will also need to make sure that the mortgage holder and any related insurance cover allows you to rent out the property.

One last thing: get a pension. The tax relief alone makes it worthwhile and it also means you are diversifying the exposure of your retirement income. You don’t want to have all your eggs in the property basket only to find yourself in a slump just as you need to access funds form the asset.

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.

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