I'm an only child to unmarried parents who have been in a relationship for decades. I'm single. I live in a property owned by my mother in Dublin worth about €800,000. I pay for all the upkeep on this house and it is my home.
I've been advised not to buy any property so I can be exempt from inheritance tax, when the time comes.
My dad owns a house worth about €350,000. This is their home. He also inherited my grandparents' farm and house which I think is worth about €150,000. I have already used up my full allowance of inheritance from grandparents on the other side of my family.
There is also €180,000 between my parents in savings and shares plus private pensions.
My first question is if I start renovating my grandparents' house that my dad owns, will I be increasing its value and hence end up paying inheritance tax on money I invested?
If my parents were to get married, would it be better for whoever passes first to leave their entire estate to the other? Or would it be better for me to inherit the whole estate when both parents have passed?
Is there a loophole at the moment that if I live in one property as my primary residence and I own no property, when I inherit multiple properties at the same time from one parent, I'm exempt from inheritance tax on them all?
I understand I will probably end up with a tax bill but I would like to minimise it. I also want to make sure my parents are protected and know them getting married would make things less complicated. Any advice you can give would be greatly appreciated.
Ms MP, email
Ironically, the inheritance situation for yourself is not that complicated even if it might prove more expensive than you wish.
I am more concerned for your parents. As you understand, if they were to marry, they would be able to inherit without limit from each other when the first of them dies. As it stands, as a cohabiting couple who have not formalised the arrangement through a civil partnership, they will be treated as strangers for inheritance tax purposes.
That means the surviving parent would be able to inherit a maximum of €16,250 from the other and, even then, only if they have inherited nothing previously from anyone other than their own parent or a linear relation – a sibling, grandparent or aunt/uncle.
That means they could be forced to sell the family home. In some cases, a surviving partner can avail of the dwelling home exemption which would get over that but it applies only if you own no other property so, in this case, it would not apply as both of your parents own other properties.
And it could be worse. If there is no will, they could stand to inherit nothing at all – with or without tax. Under marriage or a civil partnership, they would be entitled to a minimum legal right share on the death of the partner or spouse.
It is, of course, entirely their own choice whether to marry or not but I know many couples who have opposed the institution for personal or religious reasons who have opted to go through the formality of a civil partnership if not a religious ceremony to ease the path for inheritance purposes.
So, my advice to you would be to have a proper chat with them about that issue anyway, regardless of your own position.
Turning to that, your position as regards inheritance or inheritance tax is not affected by your parents’ decision to marry or remain single – though obviously there may be less to inherit if a chunk of it has to be sold to pay their own inheritance tax bill on the death of the other.
Inheriting from parents puts you in category A – the most generous. The threshold can and does change from time to time but, as of now, it stands at €335,000.
It was as high as €542,544 back in 2009 and as low as €225,000 in 2015 so a lot depends on what happens between now and the time you inherit. But, either way, given the assets involved, you are going to have a substantial inheritance tax bill.
Can you do anything to reduce that? Very little in your current position.
Firstly, the advice you were given not to buy the home you are living in from your mother because it will cost you an exemption when she dies is incorrect.
The only property exemption on inheritance is dwelling home relief. This provides relief to people living in the home for three years before the death as long as they continue to live there for six years after the inheritance. However, critically, this applies only to inheritance of the home that was the main or only property of the deceased.
In other words, the €800,000 home you live in but which your parents do not live in does not qualify. You would have to live with them in the other property – the €350,000 family home – for the eligibility period in order to qualify, as long as you own no other property.
So you are going to be liable for inheritance tax on the home you live in anyway.
Upgrading
You wonder about investing in upgrading your grandparents’ house, currently owned by your father but likely to come to you in the event of his death. The value for inheritance tax purposes will be the value at the date of his death so if you put money now into a property you do not own, you could well find yourself out of pocket twice over.
One suggestion is that you could buy that property now. At least, it would be taken out of the inheritance equation and you could invest the money in its upgrade. At least that way, the benefit of any upgrade investment would accrue to you, rather than costing you.
You also refer to a loophole that allows you to inherit multiple properties without inheritance tax if you own no property and are living in a parent’s property.
This relates to a contested court case in 2018 in which Leanne Dunne claimed she was not liable to inheritance tax because she inherited a second property as part of the residue of an estate. The court ruled in her favour.
However, the Government subsequently changed the rules to accommodate the judgment which means that such a position could not arise now.
As it stands, you will have to pay inheritance on the full value of the estate over €335,000 without any chance of securing dwelling home relief on the most expensive property where you are living. That is very likely to force you to sell some of the properties or other assets.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into
