My mother passed away in 2017 and in her will bequeathed everything equally between her four children. His estate consisted of the family home, valued at €170,000 at the time of his death, and a small sum of money which covered his funeral expenses. There was also an outstanding mortgage of €50,000 on the house.
At the time, it was agreed with my siblings that I buy the house and each pay their share after expenses (around €25,000).
For various reasons, and mainly due to Covid, we never applied for probate or tracked the transfer. In the meantime, the value of the house has risen to around €210,000.
I would now like to finalize the transfer and would like advice on the inheritance tax, CGT and gift tax implications.
The problem is that we would like to use the original value of the house rather than the most recent. We thought the easiest way would be for my brothers and sisters to revoke their right to their estate in exchange for the sum of €25,000. I would then inherit the house purely and simply and since the value is still below the threshold, I would not have to pay inheritance tax.
My questions are: Will Revenue accept the initial transfer valuation, even though it is now almost five years old, as probate has not yet been granted. Or will they insist on using the current valuation for the transfer and thus increase the capital gains or gift tax implications.
Second, does the fact that the amounts paid to my siblings come from me and not directly from the estate make it a gift from me to them?
I suspect there are so many families in Ireland like yours, where there is a modest estate – essentially the family home – and it is divided equally between the children. With a particularly practical bent, the family decides among themselves who actually wants the house, if so an informal purchase agreement is agreed upon as happened here.
Sounds easy, nice and clean… but the devil is always in the details and you could find yourself in a tight spot if and when you try to sell the property and it is still officially registered in your mother’s name – or, most likely, your father’s.
Probate is a legal structure and much and much like we all try to avoid dealing with such things unless we have to, in which case you really will have to. The only successions where probate is not required are those whose assets concerned – other than assets in common name – amount to less than €25,000. It is usually only between spouses or civil partners. In any case, this is not the case here.
That said, it is important not to confuse the legal process of probate with the issue of inheritance tax which is a separate, albeit related, issue.
Since you raise the issue, I assume you are your mother’s executor. Otherwise, you will need to ask the executor to complete the process or formally relinquish their role, in which case you can apply to be appointed as administrator of the estate.
Probate is not onerous in simple estates such as this, although it may always be advisable to engage a solicitor, if only because they are more familiar with the legal gibberish that inevitably makes part of a technical and precise process. However, if you wish, it is possible to manage the process, complete the required forms and apply for probate yourself.
Probate, or an administration grant, allows you to legally convince the court that all assets and debts have been identified, debts paid. It then “proves” the will and allows you to distribute the inheritance according to the terms of the will.
Now, in that case, you’ve all taken the leap. Assuming the inheritance was properly distributed – i.e. the €25,000 you gave to each of your three siblings was a fair distribution, given the net assets of the estate – this will not pose a problem in terms of homologation.
However, this could have tax implications for them.
And this is where we come to the other side of the coin – tax and inheritance. The first thing to say is that, regardless of when you file for probate, the correct valuation of the property is its value on the day your mother died. You say it was €170,000 before the debts. It would be good to have a formal appraisal of this figure by a real estate agent at the time. If you don’t, that leaves you open to an income challenge.
The fact that you apply for registration five years later does not change this assessment.
The next problem is when you “bought” it. If it was around the same time, Revenue could accept that assessment for the property. But given the somewhat informal nature of your arrangement, the deal for you to buy it could have been struck a few years later, in which case it’s likely the home’s value will have increased, triggering a tax on the gains. in capital. If it was “purchased” by you on the basis of the initial valuation, you will be liable for the capital gain.
As for your siblings, the question is whether the €25,000 they received was an inheritance or a gift from you. As you redeemed them, post-mortem but before the will was submitted for probate, the payments may well be considered a gift from you.
I doubt Revenue will follow that line. Your siblings were entitled to a quarter of the net estate. Given the outstanding amount of the mortgage, it was still likely that the property would have to be sold before any distribution under the will. And they each received a quarter of the net value of the estate following your acquisition of the property.
Your siblings may simply be able to “give up” their rights under a will for payment of this money. That would still leave them open to inheritance tax, but that’s academic here, and you would receive the property. Whether the probate court would be happy to waive five years after the event is something you will need to raise with a lawyer. I suspect not, technically, but in this case, that might be a moot point.
The numbers at stake for all of you are well below the €310,000 cap that existed at the time for children inheriting from parents. So unless you all inherited large sums when your father died or your parents died while they were alive, I don’t think any inheritance tax is due.
So to answer your question, the valuation for probate is the valuation at your mother’s death. As no one would have paid inheritance tax under the will, and in the circumstances the will would have necessitated a sale of property before the distribution of net assets, I don’t think the tax will arise here.
The only threat, as I said, is that the taxman sees your payments as gifts to your siblings and not as a distribution of assets. Even then, the threshold for gifts or inheritances between siblings and other “lineal relatives” is €32,500. This was also the relevant figure in 2017. Ignoring any gifts worth less than €3,000 in any given year, you could have received up to €7,500 from grandparents, uncles or aunts without become indebted to Cat [capital acquisations tax].
I don’t think Revenue will anyway, but it shows how informal family arrangements and working “by the rules” can get you in financial hot water if you’re not careful or have luck.
- Please send queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or email [email protected]. This column is a reading service and is not intended to replace professional advice