What happens if son on disability inherits family home?

Q&A: Dominic Coyle

If your son can avail of the dwelling home exemption, no inheritance tax applies as the property is not even considered against his tax-free limit. Photograph: Yui Mok/PA

If your son can avail of the dwelling home exemption, no inheritance tax applies as the property is not even considered against his tax-free limit. Photograph: Yui Mok/PA

 

I have a son in his 30s on invalidity payment as a result of a diagnosed mental illness. Will that payment be affected if he receives an inheritance of the family home valued at €350,000? He will be living alone.

Mr JL, email

There are quite a number of variables at play here and how they affect your son will depend on which ones precisely reflect his circumstances.

The first issue is whether he is on a disability pension – unlikely if he is in his 30 – or on means-tested disability allowance. In the case of the former, there is no means test; for the latter there is.

It further depends on where he lives and what the status of that property is.

If he is living at home, then there should be no problem. He is entitled to avail of the dwelling home exemption. This presumes he has been living there for the past three years, will continue to do so, and owns no other property – or a share in any other property.

The exemption means that, presuming he is named in the will as the successor, the property does not form part of the estate and transfers automatically to him.

Assessment of means

Importantly, it is his personal home and therefore, as I understand it, is not included in any assessment of means for the purposes of calculating his disability allowance payment.

If he is not living in the family home, is he living in a home that he owns or was acquired for him, or does he rent, privately or from a local authority or other agency?

If he currently owns his own property, things get more complicated because one or other becomes an investment property and will certainly be considered as means for the purposes of the means test. As a property owner, he would not meet the requirements for the dwelling home exemption.

Similarly, if he lives in rented or supported accommodation, issues could arise. He would not face a problem with a means test if he moves into the home as it will become his personally occupied property and fall outside the means test in my understanding.

Dwelling home exemption

He could, however, have to consider the issue of capital acquisitions tax or inheritance tax if he does not qualify for the dwelling home exemption – largely by not living there for the requisite time before his parents die.

As a son inheriting from a parent, he would have a €335,000 limit on what he can receive tax-free with tax due at 33 per cent on the balance.

If he can avail of the dwelling home exemption, no inheritance tax applies as the property is not even considered against his tax-free limit.

It would seem that, if he is not already living in this property, it would be worthwhile considering how practical that is, especially as he needs to be there for at least three years before you, as his parents, die to meet the eligibility criteria for the dwelling home exemption.

In terms of his living alone, that is not necessarily essential, but it would be important that he is the owner of the property, and that he was not renting any of it out to other people. Any rental income would certainly be measured as means.

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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