My mother died in 2017 and, in her will, left everything to be divided equally between her four children. Her estate consisted of the family house, valued at €170,000 at the time of her death and a small amount of cash which covered her 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 pay each of them their share after expenses (around €25,000).
For various reasons, and mainly due to Covid, we never applied for probate or followed through with the transfer. In the meantime, the value of the house has risen to an estimated €210,000.
I would now like to complete the transfer and I would like some advice on the Inheritance Tax, CGT and Gift Tax implications.
The issue is that we would like to use the original value of the house rather than the latest one. We were thinking that the easiest way to do this would be for my siblings to revoke their right to their inheritance in exchange for a sum of €25,000. I would then inherit the house outright and as the value is still under the threshold, I would not have to pay inheritance tax.
My questions are, will Revenue accept the original valuation for the transfer, even though it is now nearly five years old, given that probate has not yet been granted. Or will they insist on using the current valuation for the transfer and so raise implications around capital gains or gift tax.
Second, does the fact that the monies 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 around Ireland like yours, where there is a modest estate — essentially the family home — and it is being divided equally between the children. With a peculiarly practical bent, the family decides among themselves who actually wants the house, if anyone, an informal purchase arrangement is agreed as happened here.
It seems easy, nice and clean … but the devil is always in the detail and you could find yourself in a fix if and when you tried to sell on the property and it would still be formally registered in your mother’s name — or, quite possibly, your father’s.
Probate is a legal structure and much and all as we all try to avoid dealing with such things unless we have to, in this case you will really have to. The only estates where probate is not required are ones when the assets involved — other than assets in joint names — amount to less than €25,000. That is generally only between spouses or civil partners. In any case, it is not the case here.
Having said that, it is important not to confuse the legal process of probate with the issue of inheritance tax which is a separate, if related, issue.
Given you are raising the issue, I assume you are the executor of your mother’s estate. If not, you will need to get the executor to complete the process or formally renounce their role, at which point you can apply to be named administrator of the estate.
Probate is not onerous in straightforward estates like this, although it can still be advisable to engage a solicitor if only because they are more familiar with the legal mumbo jumbo that is inevitably part of what is a technical and precise process. However, if you choose, it is possible to manage the process, fill the requisite forms and apply for probate yourself.
Probate, or a grant of administration, allows you to satisfy the court legally that all assets and debts have been identified, the debts paid. It then “proves” the will and allows you to allocate the inheritance in line with the terms of the will.
Now, in this case you have all jumped the gun. Assuming that the inheritance was allocated correctly — ie that the €25,000 you gave to each of your three siblings was a fair allocation, given the net assets of the estate — that won’t prove an issue in probate terms.
It could potentially have tax implications for them, however.
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 this was €170,000 before debts. It would be good to have a formal valuation of that figure from an estate agent at the time. If you don’t have it, it leaves you open to a Revenue challenge.
The fact that you are filing for probate five years on does not change this valuation.
The next issue is when you “bought” it. If it was at around the same time, Revenue might accept that valuation for the property. But given the somewhat informal nature of your arrangement, the agreement for you to buy it might have come a couple of years later in which case it is likely the value of the home will have risen, triggering a capital gains tax liability. If it was “bought” by you on the basis of the original valuation, it will be you who is liable for the capital gain.
In relation to your siblings, the issue is whether the €25,000 they received was an inheritance or a gift from you. As you have bought them out, post-mortem but before the will was put through probate, the payments might well be seen as a gift from you to them.
I doubt Revenue would pursue that line. Your siblings were entitled to a quarter of the net estate. Given the outstanding mortgage, it was always likely the property would have to be sold ahead of any distribution under the will. And they each received a quarter of the net value of the estate following your acquisition of the property.
It is possible that your siblings could simply “disclaim” their rights under a will for payment of this money. That would still leave them open to inheritance tax but that is academic here, and you would receive the property. Whether the probate court would be happy with disclaiming five years after the event is a point you would have to raise with a solicitor. I suspect not, technically, but in this case it might be a moot point.
The figures involved for all of you are well below the €310,000 limit that existed at that time for the children inheriting from parents. So, unless you all inherited substantial sums previously on the death of your father or from your parents during their lifetime, I don’t think any inheritance tax will be 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, under the circumstances, the will would have necessitated a property sale before distribution of net assets, I don’t think tax will arise here.
The only threat, as I say, is if the Revenue classes the payments from you as gifts to your siblings and not a distribution of assets. Even then, the threshold on gifts or inheritances between siblings and other “linear relations” is €32,500. That was also the relevant figure back in 2017. Ignoring any gifts under the value of €3,000 in a given year, you could still have received up to €7,500 from grandparents, uncles or aunts without becoming liable to Cat [capital acquisations tax].
I don’t think Revenue will do so anyway but it does show how informal family arrangements and working “around the rules” can land you in financial hot water if you’re not careful, or lucky.
- Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice
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