I am a 50-year-old woman with two children with special needs. I work self-employed part-time and am also in receipt of the carer’s allowance. After the breakdown of the relationship with my children’s father, I ended up living in his house for several years and then renting a property from him.
My mother, who is a widow, sold the family home in 2020 and wanted to help me have 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 the sale of the house to buy herself a property, plus do this for me.
In July 2021 my mother bought a property for me in cash. She bought it in her own name, thinking she could transfer it easily at another stage in the near future. The previous owners rented the property back from her as their new house wasn’t ready for five months, so presumably she should declare this income by this October?
In March of this year, I moved into the house. The house cost €365,000 plus all the expenses associated with buying it. The sum that my mother wishes to gift me is €300,000 and I am to pay her the rest of this sum. I have given her a lump sum of €47,000 and will pay her back the rest over the next few years.
We probably should have got advice before all of the above, but the question now, I realise that there might be tax implications for me in living rent-free. Also when my mother puts the property into my name, will inflation in the house price be an issue. Lastly, in paying my mum for the balance of the house price, are there tax implications for her?
Ms R.S.
This is a story that is both challenging and heartwarming. Your position is clearly difficult — two children with special needs and trying to make ends meet with part-time work and welfare support with the carer’s allowance. Your mother’s decision to sell her family home is a selfless act and shows how far family will often go to try to help one another.
The fact that selling the family home left her with enough to provide her with a new, smaller home and also purchase one for you would certainly make that decision a little easier, but no less creditable.
It highlights what I have been advising consistently. Your need is greatest right now. You’ve more than enough stress without having to worry about the vagaries of a very overheated rental market and/or the goodwill of your former partner who, given the ongoing pressures in the market, could decide at any time that they want to sell up. So it makes perfect sense for your mother to offer to give you your inheritance upfront by purchasing this home for you.
The detail of it does show why it is important to consult professionals — in this case solicitors or tax advisers — before acting on such a decision.
There are several factors at play here, all related to her delay in transferring the property into your name.
First, this is not her main home but a second property in the eyes of the Revenue. That means that it is not exempt from capital gains tax.
As you suspect, there will be a liability to capital gains on any increase in value between when your mum bought the house and when she transfers it into your name. But this liability will be your mother’s.
Assuming she remains certain that this is what she wants to do, it would be important to execute a voluntary deed of transfer, putting the property in your name as soon as possible. The longer she waits the more the property might rise in value and the higher any tax bill will be for her.
You will both need your own independent legal advice in the execution of that deed. This is to ensure clarity that your mother is aware of what she is doing, and is doing so under her own free will and not under duress or undue pressure to hand the property over to you. The cost should not be significant in the circumstances here.
She will need to file a tax return this year in relation to the capital gains tax issue. The first €1,270 of capital gain is tax-free but, given property markets over the past year or so, that is most unlikely to cover her full liability.
She will also, as you note, have to file a return in any case as she was renting the property back to its previous owners for those five months while they waited to get into their new home.
Will Revenue come after her if she doesn’t? It’s impossible to say. I can’t imagine the short rental being an issue — especially if she did not register with the Residential Tenancies Board as she was also obliged to do — but there will be Revenue paperwork on the change of ownership, first to her and then to you a year or so later, so they might well query that.
I understand there is a legal obligation on your mother to file a return when she transfers a property, and telling fibs on a return is never a good idea.
That brings us to you. You have concerns about two issues here: the rent-free period and the repayment of this money to your mother.
Let’s take them in reverse order.
The rules on family loans, as against gifts, state that the person making the loan — in this case your mother — must charge interest equal to what she can secure on a demand deposit account in a bank. As banks are currently paying zero interest on bank demand deposits, no interest applies and therefore it is not like she is “forgiving” interest due which would be an inheritance/gift tax issue — or capital acquisitions tax to give it its formal name. There is no liability.
Paschal Donohoe was looking last year at linking interest on these loans to current bank lending rates, which would be a whole different thing, but he backtracked under pressure with a commitment to study the issue further. It could, of course, arise again in next week’s budget. But, for now, you have nothing to worry about on this score.
On the rent-free period, you are correct that this can throw up tax issues. 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 you are since March, is effectively a financial gift from her and the extent of this gift is the market rent of the property. However, fear not. First up, she is entitled to give you up to €3,000 tax-free any year under the small gift exemption. The rest can be set against your lifetime gift/inheritance tax limit.
Your mother is already gifting you the €300,000 house — though the value of that gift might be higher depending on the market value of the property when she actually completes the voluntary deed of transfer. That should hopefully leave some wriggle room to cover the rent-free period as your lifetime tax-free gift tax limit from your parents is €335,000.
Of course, if you already received some inheritance (or gift of more than €3,000 in a single year) from your father, that wriggle room may already have disappeared. And if the €300,000 home brings you above the limit because of a previous gift or inheritance, you will have CAT to pay on the excess at 33 per cent.
Finally, just to be aware that as the recipient of the property, you will be liable to a 1 per cent stamp duty charge on the market value and will have to complete a stamp duty return when the property is put in your name. That will cost you north of €3,000, depending on when the voluntary deed of transfer is executed.
I gather you have 44 days to do this after the date of the deed; thereafter you can face interest charges.
As you can see, the sooner that voluntary deed of transfer is completed, the sooner all the tax loose ends can be tidied up, so your mother would be advised to move on this as soon as possible.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
