give my second home to my daughter
I am 71 years old and I want to put my things in order. I bought a second house in 1990 for £ 70,000. It is now valued at € 350,000. The house has been rented to various people over the years and my daughter has been renting it for five years. All rents have been declared to the tax authorities and taxes paid.
I would now like to give this house to my daughter as part of her inheritance. She did not receive any other gifts.
I was wondering what are the tax implications? Will I have to pay capital gains taxes and will my daughter have to pay inheritance tax?
Keeping your own house in order is always a good idea, although at your age you can hopefully expect many years of good health.
This second home was clearly a wise investment and certainly paid off your expenses over the intervening years. And, after keeping things properly recorded, categorized, and paid for over the years you’ve rented them, you now have a clean canvas to work with to assess your options.
As you would expect, while nothing is stopping you from giving this property to your daughter, it could have tax implications for both of you. The good news is, in your case anyway, it can be fixed with timing.
You mention that you want to give the property to your daughter “as part of her inheritance”. As she has not received any gift from you with a value greater than € 3,000 during a year, she benefits from total exemption from acquisition tax. It also assumes that she hasn’t inherited anything from her mother before.
As you probably know, the scale of the exemption varies depending on the relationship between the donor and the recipient. In this case, as your daughter, she can receive up to € 335,000 without having to face any tax.
With the property worth € 350,000, she would have a tax bill to pay on the excess. At the rate of 33% of the inheritance tax in force, the invoice for the deductible of € 15,000 would be € 5,000.
Will timing be helpful here? It’s impossible to say. The tax exemption cap for category A – the one covering parents to the child – has increased in recent years, although this was not the case in this year’s budget.
The exemption ceiling reached € 542,544 briefly in 2009 before being sharply reduced in the face of the financial crash. It was as low as € 225,000 in 2015.
The last government expressed its intention to increase it to € 500,000. It can happen over time – in which case your daughter could receive this property tax tax-free and still have the ability to receive another inheritance from you tax-free – but there is no guarantee. There is certainly no way to time it specifically.
What we do know is that recent increases have been relatively modest – raising the threshold by € 10,000 or € 15,000 at a time.
I guess the bottom line is that you are better off making the decision that works for both of you rather than trying to time future increases, if any, in the threshold.
As an aside, since this is not your home, your daughter cannot benefit from the residential home exemption, which would allow her to inherit the property without cutting into her inheritance tax exemption. .
This is available for people who live on a property with someone who later dies and leaves it to them. They have to live there for a certain period of time – a condition your daughter would meet – and not own any other property, but it also has to be your primary or sole residence and clearly it is not.
As for you, there will certainly be a Capital Gains Tax (CGT) bill if you now transfer ownership to your daughter. It is not your home but an investment property that has been leased for the past 30+ years. There will be no exemption.
I have already explained how the CGT is assessed for a property like yours. Taking inflation into account (until 2002) and converting the punts into euros, the base “purchase price” of your property for tax purposes is approximately € 130,000. This leaves you with a gain before eligible charges of € 220,000 and a tax account of around € 73,000.
Now, in your case, the timing certainly makes a difference. As long as you transfer ownership during your lifetime, you will be faced with an invoice in the order above. However, if you leave the property to your daughter in your will, there is no difference in her tax position, but capital gains are no longer an issue. Your estate is not unloaded with the invoice of more than 70,000 €.
So it really comes down to how important it is to you and your daughter whether the property is transferred now – resulting in a large tax bill – or upon your death, when there is no CGT invoice and the limit of exemption from inheritance tax may (or may not) be higher.
Please send questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email [email protected]. This column is a reading service and is not intended to replace professional advice. No personal correspondence will be exchanged.