I am a 50 year old female with two children with special needs. I am self employed part time and also receive care allowance. After the relationship with the father of my children broke down, I ended up living in his house for several years and then renting property from him.
My mother, who is a widow, sold the family home in 2020 and wanted to help me get a home of my own, so she decided she would give me my inheritance early, in the form of a house. She had enough from selling the house to buy a property for herself, plus do it for me.
In July 2021, my mother bought a property for me for cash. She bought it in her own name, thinking she could easily pass it on at another stage in the near future. Previous owners rented the property from her because their new home wasn’t ready for five months, so you’re supposed to declare that income by October?
In March of this year, I moved home. The cost of the house is 365,000 euros plus all expenses associated with its purchase. The sum my mother would like to give me is 300,000 euros, and I will pay her the rest of it. I gave her a lump sum of €47,000 and I will return the remaining amount to her over the next few years.
We probably should have gotten advice before all of the above, but now the question, I realize there may be tax implications for me living rent-free. Also when my mother puts the property in my name, home price inflation will be a problem. Finally, when paying the remainder of the house price to my mother, are there tax implications for her?
This is a challenging and intimate story. Your situation is clearly difficult – two children with special needs trying to get by match part-time work and welfare support with a caregiver’s allowance. Your mother’s decision to sell her family’s home is an act of selflessness and shows how often the family will go to try and help each other.
The fact that the sale of the family home left her enough to provide her with a new, smaller home as well as buy you one, this decision is sure to make this decision a little easier, but no less credible.
It highlights what I have consistently recommended. Your need is greater now. You have more than enough pressure without having to worry about the fluctuations of an overheated rental market and/or the goodwill of your ex-partner who, given the constant pressures in the market, could decide at any time that he wants to sell. . So it makes perfect sense for your mother to offer to give you your inheritance up front by buying this house for you.
Its details explain why it is important to consult professionals – in this case lawyers or tax advisors – before making such a decision.
There are many factors influencing here, all of which are related to its delay in transferring title to your name.
First, this is not her main home but rather a second property in the eyes of revenue. This means that it is not exempt from capital gains tax.
As you suspect, there will be a capital gains liability on any increase in value between the time your mother buys the home and the time you transfer it to your name. But this responsibility will rest with your mother.
Assuming she is still certain that this is what she wants to do, it will be important to implement a voluntary deed of transfer, and put the property in your name as soon as possible. The longer she waits, the higher the value of the property and the higher the value of any tax bill for her.
Both of you will need your independent legal advice in carrying out this act. This is to ensure clarity that your mother is aware of what she is doing, and is doing so of her own free will and not under undue pressure or pressure to hand the property over to you. The cost shouldn’t be much under the circumstances here.
You will need to file a tax return this year regarding the issue of capital gains tax. The first €1,270 of capital gains are tax-free, but given the real estate markets over the past year or so, that is unlikely to cover their entire liability.
She would also have to, she noted, have to file a return in any case because she was renting the property back to her previous owners for those five months while they waited to get to their new home.
Will revenue come after them if you don’t? Impossible to say. I can’t imagine short tenancy being a problem – especially if you don’t register with the Residential Tenancy Board as they were also obligated – but there will be revenue papers when you change ownership, first to her and then to you after a year or so, they may inquire about it.
I understand that there is a legal obligation for your mother to file a return request when you transfer property, and telling your mother to return is never a good idea.
This brings us to you. You have concerns about two issues here: the rent-free period and the payment of this money to your mother.
Let’s take them in reverse order.
The rules for family loans, versus gifts, state that the person making the loan – in this case your mother – must charge interest equal to what he or she can secure on a demand deposit account at a bank. Since banks currently pay no interest on bank demand deposits, no interest is applied, so it does not mean that they “waive” the interest accrued which would be an issue of inheritance/gift taxes – or capital acquisition tax to give it its official name . There is no responsibility.
Pascal Donneau was looking last year at tying the interest on these loans to current bank lending rates, which is quite different, but he backed off under pressure with a commitment to study the problem further. It could of course appear again in next week’s budget. But, for now, you don’t have to worry about this outcome.
In the rent-free period, you are right that this can lead to tax problems. Current rules prohibit tax-free parental financial support for adult children except in very limited circumstances that do not apply here.
Living rent-free, as it has been since March, is actually a financial gift from her and the extent of that gift is market rent for the property. However, do not be afraid. First, it is entitled to give you up to €3,000 tax-free in any year under the small gift exemption. The rest can be set against a lifetime gift/inheritance tax limit.
Your mother already gives you a house worth €300,000 – although the value of this gift may be higher depending on the market value of the property when you actually complete the voluntary transfer contract. Hopefully, this will leave room for a wiggle room to cover the rental period as the tax-exempt gift tax limit for your parents is €335,000.
Of course, if you’ve already received some inheritance (or a gift of over €3,000 in one year) from your father, that elusive room may already be gone. And if the €300,000 home brings you over the cap due to a previous gift or inheritance, you’ll have to pay CAT on the 33 percent increase.
Finally, just to realize that as a recipient of the property, you will be responsible for a 1 percent stamp duty on the market value and will have to complete a stamp duty return when the property is placed in your name. This will cost you €3,000 north, depending on when the voluntary transfer deed takes place.
I collect that you have 44 days to do so after the date of the act; After that you can face interest charges.
As you can see, the sooner the voluntary transfer contract is completed, the faster it will be possible to arrange all tax losses, so your mother is advised to proceed with this as soon as possible.
Please send your inquiries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to email@example.com. This column is a service to the reader and is not intended to replace professional advice