I am a single woman with no dependants or children. I have a second house, which my niece and her children have been renting for the past 15 years, approximately.
The current value of this house is €350,000 approximately. I would like to leave this house to my niece but, from what I know, she would have to sell the house to pay the inheritance tax.
Due to the fact that she has lived in the house for so long and will continue to do so, is there any space in the inheritance legislation to cover this scenario? My home and any other assets will probably be divided between my other nieces and nephews.
PM
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Inheritance is taxed in different ways in different countries. In some, like the UK, it is the dead person’s estate that is taxed if it exceeds a certain threshold but in most, like in Ireland, it is the beneficiaries.
Again in those systems, there is a tax free threshold above which inheritance, or gifts, are taxed, which varies from country to country. However, in Europe, most allow preferential treatment for very close family – generally a spouse and/or children.
In some, like in Ireland, some recognition is made in terms of a tax-free threshold that is higher than for other beneficiaries but lower than that for close family. Generally, as in Ireland, there is a substantial difference between the benefit for close family and that for wider family.
Other countries have stepped tax rates, depending on the family relationship.
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Your issue here is that your niece is entitled to receive no more than €40,000 free of tax from anyone other than her parents. This is a cumulative figure so it is not just what she might inherit from you that counts, but any inheritances or large gifts she has previously received from any brother, sister, aunt, uncle or grandparent.
There is, separately, provision in Irish inheritance tax law for additional relief for certain people inheriting a property. However, this will not apply to your niece.
It applies only to someone living in the main family home of the donor – you in this case – not to a second home. Your niece would need to have lived with you for at least three years before your death to benefit from their dwelling house relief. She must also have no financial interest in any other property.
The fact that she has lived in the house for 15 years – and would continue to do so – unfortunately has no bearing on the inheritance tax issue.
Having said that, looking at its current value – around €350,000 – and her tax-free threshold, she would face a tax bill of around €102,000 if this was left to her. At worst, yes, that means she will likely have to sell the property but she will have close to €250,000 to set against another property which might well make any mortgage she had to take on far more manageable.
So, it is not as though there is no benefit to her in your planned generosity.
The median, or middle, price for an Irish home sold in the first quarter of 2026 reached €385,000, according to a survey published last week by Geowox. The figure in Dublin is €500,000, but it is €341,000 for the rest of the State on average, though the commuter counties of Wicklow, Meath and Kildare are higher.
If you wish to try to further soften the blow of any inheritance tax bill, you could while alive, gift her up to €3,000 a year under the tax-free small gift exemption which might go some way to either defray the inevitable tax bill or boost the funds available to her to use the net proceeds of her inheritance to buy another home.
Campaign
There is a vocal campaign ongoing in Ireland to change the rules around inheritance. Run by people who, like you, do not have children of their own, it proposes a tax-free entitlement to assets or cash up to a certain lifetime limit for all people, regardless of who they receive large gifts (more than €3,000 a year) or inheritances from.
As of now, I think their proposed threshold is €460,000 – conveniently the sum a person is currently entitled to from parents (€400,000), other close blood relatives (€40,000) and anyone else, such as cousins, in-laws, friends, neighbours, etc (€20,000) cumulatively under the three separate tax-free thresholds that are in place right now.
There has been an increase in the absolute number of family units without children in recent years. The figure rose by nearly 40,000, or 10.8 per cent, between the 2016 and the 2022 censuses. However, as a percentage of all family units, the figure is rising much more modestly – 29.2 per cent in 2016 and 30.8 per cent in 2022, the most recent available.
The catalyst for all this is a desire by people who do not have children to be able to pass on their assets free of tax to whomever they choose – a favoured niece, a family friend, whomever.
Those campaigning for change claim that the thresholds as they stand constitute discrimination of childless adults which must be removed as all citizens must be treated equally before the law.
That seems to me to be based on a basic misunderstanding of the law as it currently stands. The benefit (and taxation regime) under Irish inheritance law apply to the beneficiary – whoever they may be – not the person who has died, whether they are childless or not. So I fail to see how the donors can be discriminated against here.
As of now, in Ireland, the threshold on what a child can receive free of tax from parents (€400,000) is a significant multiple of what anyone can receive from more distant relatives (€40,000 at best).
A key driver of this wide gap has been a strong aversion across most political parties to the notion that a child should be forced to sell their family home – their parents’ home – simply to meet the tax bill due on its inheritance.
For similar reasons, business relief, agricultural relief and favoured niece/nephew relief make it easier for businesses and farms to be passed to a new generation without being broken up simply to pay inheritance tax bills.
There is currently no such political sensibility about more distant relations inheriting a property owned by an aunt, uncle, cousin or whatever.
Inheritance tax, or capital acquisitions tax (CAT) as it is more formally known, is an wealth tax of sorts – the only wealth tax that exists in this State, modest though the amount may be. Even then, it accounts for a fraction over 1 per cent of all tax raised in the State.
This is because, according to CSO figures, the median (or midpoint value) of total inheritances received by households in Ireland is closer to €80,000. Granted, these figures go back to 2020 but they are the most recent available from official statistics.
Breaking that down, the median from parents is €100,600 – far below the current threshold. Inheritances from grandparents (€35,500) or from other relatives (€40,100) are very close to the current threshold.
Figures on the breakdown of the tax take from inheritance and gift tax was given the government’s Tax Strategy Group papers – which assess budget options – in 2024.
Those figures, which obviously date from 2023, show that just over half of those people who paid capital acquisitions tax that year were in Category B – ie they were a niece, nephew, sibling, grandchild or great-grandchild of the person who died. And the €291 million they paid the State in tax amounted to just under 46 per cent of all capital acquisitions tax that year.
Children taxed on what they got from their parents accounted for around 30 per cent of cases, well below Category B, but 42 per cent of tax which is not far short of the Category B CAT tax take.
Ironically, if one was to look at things from the perspective of those seeking a change in the law – who claim it is the dead childless adult that is discriminated against – the biggest beneficiaries of such a change would actually be the wealthiest families in the State as they would be able to spread their family wealth far more efficiently among a wider group of people.
As of now, Revenue and the Department of Finance very much assess the financial advantage of inheritances as falling on the beneficiary, not the deceased, arguing in the Tax Strategy Group paper mentioned above: “Wealth received through transfers from gifts or inheritances is notably different from income, as it is not earned or accumulated by the individual, but is received as a result of personal circumstances.”
If the Government were to change tack – going very much against the trend across the OECD – and accept that no special provision be made for children inheriting from their parents, putting in place a flat tax-free threshold across all recipients, it is likely that thresholds generally will come down close to the €40,000 that applies in relation to more distant relatives.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email todominic.coyle@irishtimes.comwith a contact phone number. This column is a reader service and is not intended to replace professional advice
