Q. I own an apartment in which my son has lived in for many years and I now want to leave it to him in my will. Will he have a tax liability of any sort ? Peter – Sandymount Dublin 4
A. Until 2016 Peter, under a provision of inheritance tax rules, it was possible for a parent to pass on houses or apartments to their children free of tax under what is known as the Dwelling House Exemption. This exemption was originally intended as protection for a child living with and caring for a parent and who may have passed up on the chance to purchase their own home. The nature of the exemption however was so open that the property did not even have to be a family home. It could be a second property or even a holiday home. All that was necessary was that the son or daughter inheriting the property owned by the parent had lived in it for at least three years, owned no other property at the time and continued to live there for six years after inheriting. In such a case there was no inheritance tax liability and the beneficiaries were still able to avail of other tax-free thresholds. It has long been felt that this looseness in the legislation allowed wealthy individuals to pass on this wealth in a tax free manner that was outside the spirit of the exemption. In the 2016 Finance Bill the Minister amended the rules so that the exemption now applies only to those inheriting the home where they are living with an aged parent to care for them or to young children whose parents have died. So if the apartment your son is inheriting exceeds a value of € 400,000 the current parent to child inheritance threshold, there will be a 33% Capital Acquisition Tax payable on the surplus.