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Parents fear disabled son’s only home will have to be sold to meet inheritance tax bill

Rules on gifting property while alive are very different to the situation when you are dead and the recipient is inheriting

Leaving your home to your son who has a disability will not put him at risk of having the property sold from under him to meet a tax bill. Photograph: iStock
Leaving your home to your son who has a disability will not put him at risk of having the property sold from under him to meet a tax bill. Photograph: iStock
Dominic Coyle's picture
Dominic Coyle
Tue Sept 17 2024 - 05:00

My wife and I are in our late seventies. We live in a large semidetached house valued at around a million euro.

We have a son in his mid-forties, who is single and has lived at home with us all his life.

He has a minor disability and holds down a full time job. His disability in itself would not stop him from pursuing a better paid job but he is happy where he is.

We have willed the house to our son. On inheriting the house, with the plan being for him to continue living in it for the foreseeable future, will he have to pay inheritance tax on the value of the house over and above his inheritance allowance? I have a recollection of reading an article on the matter some time ago, that under new legislation, the only way that inheritance tax can be avoided is if the person inheriting suffers from a serious mental or physical disability.

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Our fear is that the house would have to be sold to pay CAT once it is inherited.

Mr L.H.

Parents of children with disabilities, however minor, understandably spend a lot of time fretting about the future – especially what will happen when they are no longer around. Where most parents feel they can relax as their children grow into adults and find their own way – and work – in the world, that luxury is not available to parents in your position.

So it’s nice to have some good news for you.

You are correct when you say legislation was amended in relation to gifts of property so that only people with a mental or physical disability debilitating enough to stop them providing for themselves would be eligible.

That happened in 2016 as Revenue looked to stem what it considered active tax avoidance by some wealthy families who were using loopholes in the tax code to essentially fully fund their adult children’s lifestyles, including, in this case, gifting them homes.

The Revenue’s tax and duty manual defines a “dependent relative” as a relative who is permanently and totally incapacitated due to mental or physical infirmity from maintaining himself or herself or who is aged 65 years or over at the date of the inheritance.

It adds that “maintain in this context means to support oneself by earning an income from working. Total incapacity therefore means that an individual is not capable of earning a living from any kind of work. Also, the incapacity must be permanent ...”

So, clearly, under this definition, your son would not benefit form the dwelling house exemption if you were to transfer it to his name while you were alive.

However, and critically for you, that “dependent relative” clause does not apply to people availing of the dwelling house exemption by inheritance.

When it comes to inheritance, a dwelling house qualifies for the exemption where:

* it has been occupied as by you or your wife as your only or main family home before you died (or at least before you needed to go into a hospital or nursing home if that eventuality arose);

* your son occupies it as their main residence for at least three years before the last of you or your wife dies and then continues to live there for another six years. If your son was to sell the house in that time, he could still qualify as long as all the money from the sale was used to buy another home for himself. Any amount not used for that purpose would fall liable to assessment for capital acquisitions tax / inheritance tax.

* your son must have no interest in any other property when he inherits this family home. That would include inheriting any other house or apartment of yours.

It seems to me from the plan you lay out that this is pretty much exactly the intention of you and your wife in this case.

Assuming that is so, there is nothing to preclude your son inheriting your home under the dwelling house exemption without any tax liability. So you have no need to fear that the home you leave him to ensure he has somewhere to live will have to be sold from under him to meet any inheritance tax bill.

The fact that the property is worth around €1 million makes no odds. It will be exempt regardless of value as long as it is on a site that is no more than one acre in size.

It also leaves him with a tax-free inheritance threshold of up to €335,000 to cover anything else he might inherit from either of you.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice

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