Will move into second home leave a tax bill behind us?

Q&A: Will our kids have to pay CGT if they sell it after we die?

One key element of the capital gains tax code is that any CGT dies with the owner. Photograph: Yui Mok/PA

One key element of the capital gains tax code is that any CGT dies with the owner. Photograph: Yui Mok/PA

 

We have a large family. We are retired and are in our 70s.We own two houses, one of which is rented out, the other is the family home. We want to sell the family home which is the bigger of the two and distribute the proceeds among our children.

We then want to move into the formerly rented house which would become the family home. I presume that no capital gains tax (CGT) would accrue to the sale of the first house.

Would we be subject to CGT on house number two if the second house was sold subsequently after we pop our clogs? We own house number two for the past 20 years.

Mr EC, email

There’s a fair amount happening here but you appear to have thought things through fairly well.

There is, as you suspect, no tax due on the sale of the current family home – assuming it has always been the family home since you acquired it. It benefits from the capital gains tax exemption on what the Revenue Commissioners call the principal private residence.

And as the larger of the two properties, it certainly makes sense for you to consider selling it as, having previously housed a large family, it is almost certainly bigger than the two of you need, or care to manage and clean these days.

Your decision to distribute the proceeds from this sale to your family also raises no tax issues as long as the amounts each receives is below the lifetime tax-free limit on gifts and inheritances from parents to a child, which is currently €335,000. As you say you have a large family, it is unlikely this limit will be breached.

However, the other thing you and your wife need to be certain of is that handing over the proceeds of the home will not place you as a couple in financial difficulties. Helping one’s children out earlier in their adult lives when mortgage and childcare bills tend to be higher is commendable when you have the financial wherewithal to do so but, as you are in your 70s, you need to remember that your earning potential is much diminished.

The other thing that you and they should bear in mind is that should either of you need to enter a nursing home within five years of the distribution, the full value of the house sale would be take into account in assessing your financial means under Fair Deal. That could present its own problems.

Rental property

So what about your other property? You say this has been rented out for the past 20 years. That means, of course, that in normal circumstances any sale of the property would trigger a fairly substantial capital gains tax bill.

However, one key element of the capital gains tax code is that any CGT dies with the owner. So, in this case, as long as you retain this second home as your new principal private residence – your owner-occupied main family home – until both of you die, you should not have any tax bill to worry about and nor will it be a concern for your family thereafter.

I am assuming that all taxes etc due on the property have been sorted during this time, as any liabilities in that area would not expire with your death but would be a charge on your estate.

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. No personal correspondence will be entered into

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