My sister and I have inherited a small property (family home) from our late father. Dad passed in 2017 and the property has been more or less vacant since then.<\/b><\/p>\n
I was sole executor for Dad\u2019s estate and concluded probate in 2018.<\/b><\/p>\n
The property was valued for probate at \u20ac90K in 2018, which is a low valuation compared to today\u2019s property prices. Value now would be significantly more \u2013 maybe \u20ac200K<\/b><\/p>\n
My sister now wants to buy my share of the property (50 per cent) and I have no issue with this. This would entitle me to a gross \u20ac100K gain.<\/b><\/p>\n
Do I assume on the face of it, I would face a bill for CAT on the difference (100,000 minus 45,000)- 33% of the \u20ac55,000 gain?<\/b><\/p>\n
Can I avail of the Group B threshold allowance of \u20ac40,000 in order to lower the CAT burden? I have not received any gift(s) from any of my siblings in my lifetime.<\/b><\/p>\n
Mr J.H.<\/b><\/p>\n
Tax can be confusing. This is especially the case for people in the PAYE system whose employers handle the day to day matter of calculating and paying over income tax, PRSI and universal social charge (USC).<\/p>\n
Of course, all too often that sees them fail to claim back refunds on tax that they might be due for things like health expenses, rent, mortgage interest, college fees etc. But that\u2019s an issue for another day.<\/p>\n
In this case, you are mixing up two different capital taxes. Let\u2019s work through it.<\/p>\n
You father died back in 2017 and you organised probate on his estate more or less within a year, which is efficient. I am assuming it was a fairly straightforward estate, especially as you chose not to sell your father\u2019s family home but, still, these things can take an awful lot longer than people assume.<\/p>\n
In terms of your own inheritance, you received a one-half share in this property which, at the time was valued at \u20ac90,000. That meant the value of your inheritance was \u20ac45,000, well within the tax free threshold under category A, which covers inheritances passing for parent to child.<\/p>\n
Back when your father died, would have been set at \u20ac310,000. It has since risen to \u20ac400,000 but that is irrelevant to you.<\/p>\n
As far as capital acquisitions tax (CAT), better known as inheritance or gift tax, that is the end of it. It is done and dusted \u2013 at least in relation to your father\u2019s estate. If your mother is still alive it might become relevant at some future point, but not in relation to this property your father left you and your sister.<\/p>\n
We move on seven years and now your sister is looking to buy you out. There is no contentious issue here. You are happy to sell to her and you both seem to agree on the market value of the property.<\/p>\n
I would advise getting a formal valuation on the property before either of you proceeds, if only to forestall any chance of a dispute with Revenue down the line.<\/p>\n
But, for now, let\u2019s assume that \u20ac200,000 is accurate. I am also assuming that this is not your personal family home \u2013 i.e. you live elsewhere. In that case, Revenue sees this as an investment property, which is regarded as an asset.<\/p>\n
Tax on an asset comes under the category of capital gains, not capital acquisitions. It can be confusing, not least as both taxes are currently levied at the same rate \u2013 33 per cent \u2013 but there are important differences.<\/p>\n
Most important in the context of the way you phrase your question is that there is no recourse to any category B tax free exemption just because the buyer is your sister. <\/p>\n
Capital gains is levied on the difference in the value of an asset between the time you acquire it and the time you sell it on. In this case, you acquired your interest in the property at a when it was worth \u20ac90,000 and are selling now when the property is valued at \u20ac200,000.<\/p>\n
That puts the acquisition value of your share at \u20ac45,000 and the sale value at \u20ac100,000 \u2013 a gain, as you say, of \u20ac55,000. The only things that would reduce that figure are expenses directly related to its inheritance and sale, and any investment in the house in a way that fundamentally increased its value \u2013 over and above basic maintenance and upkeep. <\/p>\n
That might include new windows or a significant energy retrofit, the addition of solar panels, etc. In that case, the cost of such an upgrade would be deducted from the capital gain before assessing tax.<\/p>\n
You are entitled to a tax free exemption every year in respect of capital gains but it amounts to just \u20ac1,270, an odd number which only serves to highlight that the relief has never been updated since pre-euro days when it stood at \u00a31,000 punts.<\/p>\n
In the absence of any expenses, and assuming your \u20ac200,000 property valuation is correct, you will have a tax liability of \u20ac17,731 (\u20ac55,000 – \u20ac1,270) x 33\/100.<\/p>\n
The only way that CAT\/gift tax becomes relevant to you in this transaction is if your sister pays you more than the actual value of your share, or you agree to sell for less than market value \u2013 i.e. less than the \u20ac100,000 in this case. <\/p>\n
If either of those were to happen, the difference between the actual price and the valuation would be seen as a gift and, once the first \u20ac3,000 was discounted under the small gift exemption, would be set against the category B lifetime limit of \u20ac40,000 on all gifts and inheritances between siblings and other close linear blood relations like grandparents, aunts and uncles.<\/p>\n
You say you\u2019ve had no gifts or inheritances from siblings, but you will need to consider the others in this category too.<\/p>\n
Getting back to the good sense in having a formal valuation done before any sale, while capital gains is self-assessed and reported, it ensures that there is no Revenue comeback down the line, unlikely as that might be. <\/p>\n
For the relatively small cost involved, it is worth the money especially as it can be deducted from the capital gain as a necessary cost in the sale.<\/p>\n