Gintax answers Sunday Independent readers’ questions on tax.
Article published on 29 March 2020

WHAT ARE TAX IMPLICATIONS OF LEAVING HOUSE TO GRANDCHILDREN?

Query: I have been taking care of two of my grandchildren for several years now. They are aged six and seven years old. They have lived with me for approximately four years now. I am a widow and have three children of my own. I live on my own with my grandchildren. I would like to leave my house to them in my will as they have no other home. What would be the tax implications if I did this? Is there any way I could leave them my house without incurring capital gains tax (CGT)? And how else could I limit the tax bill I - or they - might face if I left my house to my grandchildren? Geraldine, Co Galway

Answer: CGT should not be a concern as it will not arise on your death. The tax of concern here will be capital acquisitions tax (CAT - the tax on gifts or inheritances). Ordinarily, a grandchild can receive a total value in their lifetime of €32,500 tax-free from a grandparent. Any excess above that amount is taxed at 33pc.

The threshold can increase to €335,000 for each child if in the unfortunate case your child, being your grandchildren's parent, has died and your grandchildren are also under 18 when they inherit from you, or indeed receive a gift from you.

Depending on your personal circumstances, if you did make a gift in this scenario, the increased threshold would significantly reduce or eliminate the CAT. Assuming this was always your principal residence, no CGT should be payable by you, although stamp duty would apply and your grandchildren would be liable for that stamp duty.

There is a CAT exemption potentially available in the case of inheritances of a dwelling house where, as in your case, it was the main residence of the deceased person.

Broadly speaking, your grandchildren must have lived in your house for the three years before the inheritance and continue to own and live in the house for six years afterwards. At the date of inheritance, they cannot have an interest in any other house.

Therefore, assuming you all continue to live together and the children remain the homeowners and are resident there for six years after their inheritance, the transfer should be tax-exempt.

The law provides some limited flexibility to the six-year requirement if they sell and reinvest the proceeds in a new home - or if they have to move away for their employment.

It may also be possible to put a trust structure in place to deal with the varying requirements of the children as they grow up.