My sister passed away when her son was seven. My mum raised my sister’s son, her grandson. He is now in his 30s. I also have two other siblings. In my mum’s will, she will leave two properties (valued about €900,000) divided equally between the four of us.
I am aware on the Revenue website that myself and my siblings can inherit €400,000 before paying tax, however the grandson (my nephew) can only inherit €40,000.
My mum told us years ago that she had spoken to a solicitor and that my nephew would be treated as her child for tax purposes, as she had raised him and she had paperwork to prove this.
He lived with her for most of his life until he bought his own place about five years ago.
Mum is now 86 and suffering from dementia. We recently moved her to a nursing home and rented out her house. We went through her paperwork and she has two letters stating she raised her grandson, one from his primary school principal and another from a neighbour. Would this be enough to have her grandson treated as Group A for inheritance tax purposes? I can’t find anything referring to this scenario on the Revenue website.
I wish we had looked at this sooner, but she was a smart lady who invested in a second property when my dad passed away.
My nephew and I had forgotten what she had said about the inheritance tax until we found the paperwork while clearing out her house and remembered she always said it was sorted and that he would be treated the same as her children for tax purposes.
This situation can’t be that unique. Can you offer any insights on how this would work? Is there anything else we should do now?
Ms AD
[ Farmers in North lead tractor protest against inheritance tax changesOpens in new window ]
Your mum is indeed a smart lady, or at least she was before finding herself in the grip of dementia. She had clearly heard of the concept of foster child relief.
The tradition of families taking care of relatives when death or misfortune befalls their parents has always been strong in Ireland, notwithstanding the horror stories of the experience of those unfortunate enough to find themselves outside that protective net and in mother and baby homes until relatively recently.
In most cases, as with your nephew and your mother, these were relatively informal arrangements taken on by deeply pragmatic people.
These days, foster care is provided, or overseen, by the State through Tusla, the child and family agency under provisions of the Child Care Act 1991.
It arranges foster care through a network of general foster carers and relatives or family friends of the fostered child. There are also a number of private agencies organising fostering. Tusla is responsible for regulating these.
All foster carers must be approved by Tusla before any child is placed with them.
[ Father’s U-turn in a will left son who took care of him with a pittanceOpens in new window ]
At the end of 2023, Tusla figures show there were 5,615 children in care, 90 per cent of whom (5,034) were being fostered. Between 800 and 1,000 children go into care each year. Some are placed under agreement with the parents while other are subject to court orders.
The figures sound high, but they equate to around five children being in care per thousand children in the State. Around one in four is placed with a relative or family friend.
There were 3,856 foster carers on Tusla’s approved panel at the end of 2023, the lowest number in almost a decade. Some fostering is fairly short term; in other cases, the children can live with their foster carers for very extended periods.
So things no longer operate as they might have done back when your mum decided to take her grandson in on your sister’s death and raise him as her own.
But with more than 5,000 children living in foster homes, there are, as you suspect, quite clear rules about inheritance.
When your sister died, I understand from your note that you and your mother were named as the boy’s legal guardians, but it was with her that he lived and she raised him to adulthood. So he lived with her from the age of seven until his mid-to-late 20s when he bought his own home. That is kind of important.
An additional condition for children who have been in informal long-term arrangements like the one your nephew found himself in is a requirement to present a minimum of two witnesses
For people placed in foster homes through Tusla through either the Child Care (Placement of Children in Foster Care) Regulations 1995 or the Child Care (Placement of Children with Relatives) Regulations 1995, the higher Group A tax threshold is available for any gifts or inheritance received from the foster carer by the child.
That €400,000 Group A threshold is also available to someone who, when they were younger than the age of 18, lived with the person making the gift or inheritance for at least five years – not necessarily in one stretch – as long as they were also maintained and cared for at the benefactor’s expense.
That is precisely the position your nephew finds himself in.
However, illustrating your mother’s smarts, an additional condition for children who have been in informal long-term arrangements like the one your nephew found himself in is a requirement to present a minimum of two witnesses who will attest in writing to the bona fides of the arrangement, as then minister for finance Michael McGrath put it in an answer to a parliamentary question a couple of years ago.
That was clearly the thinking of your mother when she sought and stored those two letters from her neighbour and your nephew’s school principal all those years ago.
If others find themselves in the same position but without the same foresight as your mum, all is not lost – but we’ll come back to that.
[ Will we have a tax liability if Dad gives us his home while he is alive?Opens in new window ]
When it comes time for your nephew to inherit from your mum alongside you, he will qualify for the Group A tax free allowance – currently €400,000 after being increased in the last budget.
As part of that inheritance, he will need to file an IT38 Capital Acquisitions Tax return to Revenue. This can be done online through his myAccount access or ROS (the Revenue Online Service), depending on his tax status.
Critically, in the drop-down menu that will ask him to declare his relationship to the disponer (your mum), he should declare himself as a grandson but he must also click the box for Foster Child Relief on the separate page covering reliefs and exemptions.
He does not need to send in those letters your mother carefully stored for all those years, but he will need to hold on to them for at least six years after his IT38 filing as Revenue is entitled to come looking for them.
And for those who didn’t get such letters when they were caring for young family members, those fostered children can themselves seek such independent witness statements from teachers, doctors, neighbours or friends of the person who cared for them informally at the time they inherit – assuming the people with the necessary knowledge are still alive.
Foster children can avail of Group A tax relief on inheritances both from foster parents and their biological parents but the €400,000 limit is cumulative
It does not apply in your case, but people living with general foster parents can avail of Group B tax exemption on gifts and inheritance from blood relatives of their foster carers in additional to the Group A relief on gifts and inheritance from the carers themselves – as they would from their own grandparents, siblings, aunts and uncles.
Indeed, that Group B status extends even to other people who were also foster children in the same home as long as both parties meet that five-year threshold.
For those querying what arrangements did not apply in their circumstances, they should be aware that the rules changed on December 18th, 2023.
Up to then, people placed by Tusla under the legislation but who did not spend five years cumulatively with a foster parent before the age of 18 could not qualify for Group A on gifts, although they could do so for inheritance.
Finally, foster children can avail of Group A tax relief on inheritances both from foster parents and their biological parents but the €400,000 limit is cumulative, so anything they get in inheritance from any of the four (or more) parents must be totted up to see how they fare with the exemption.
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 with a contact phone number. This column is a reader service and is not intended to replace professional advice
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