Q&A Family values

Your finance questions answered

Q I AM 65, pay tax at the higher rate and am to inherit my late brother's house. I would like to move there as it is in a nice area.

The house has a market value of about €600,000 and I assume I would be liable for capital gains tax (CGT) on the inheritance. My present house has a market value of about €375,000 and I assume I would be liable for CGT on the sale of this. Neither property has outstanding mortgages.

It appears to me that the cash remaining from the sale of my present house after CGT might only just pay the CGT due on inheriting my brother's house, or may not.

Would CGT be levied at the standard or higher rate? Are there any allowances in this situation? Can I offset the capital gain incurred on the sale of the present house against the other or vice versa?

Mr J.C., Dublin

AThe first thing to say is that the outlook is not as serious as you believe. Assuming you own no other residential property (before receiving the inheritance) and that you use your current address as your home - or principal private residence, as the Revenue would say - then you will face no tax bill on its sale. Principal private residences are exempt from capital gains tax (CGT).

Assuming you can find a buyer in the current property market, your only deductions will be estate agency and legal fees.

Turning to the issue of your inheritance, it is true that you are likely to face a tax bill, but this will not be under the CGT regime. It will be under the capital acquisitions tax (CAT, or inheritance tax) code.

While this won't make any difference in the rate of tax you pay, relief is considerably higher under the inheritance tax code.

In 2008, a person in your position inheriting from a brother or sister can receive €52,121 before incurring a liability to tax. In addition, the first €3,000 of any bequest from any person in any given year is exempt from inheritance tax. Over that threshold, you will pay 20 per cent.

If your brother's property is valued at €600,000, you will face a tax charge on €544,879. At the CAT rate of 20 per cent, that means a tax bill of €108,975.80.

Of course, that assumes you have not already received inheritances this year or previously from another brother or sister - or any other linear relation. Such inheritances and gifts are aggregated - added together - and, once the €52,121 threshold is surpassed, CAT is due on any further amount.

While your likely tax bill is not insubstantial, it should still leave you with a decent sum from the sale of your current home.

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Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irish-times.ie

This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering questions. No personal correspondence will be entered into.