I was left a house by my godmother who died last Christmas. She was my mother’s best friend, but we weren’t related by blood. My mother was very ill during my childhood and she took me in for a few years. She never married or had children herself and, in turn, I cared for her in her final years. I didn’t ask for the house, or put her under any duress for it. I say this only to stress the close relationship we had. I now discover to my horror that I am expected to pay an enormous tax bill on the house, far more than if I was her daughter or niece. Can this be fair?
Fair or not, you are caught by the rules surrounding inheritance taxes which place a far higher monetary value on blood relationships than friendships.
The maximum tax free amount that you can generally receive from a disponer (the person who died) who is not a linear relative is €16,250, under Group C thresholds relating to Capital Acquisitions Tax (CAT), with the remainder taxed at 33pc. This includes any other gifts received during their lifetime.
It’s a common issue, but not to be glib about it, you have a wonderful bequest left to you which I’m sure is welcome.
You don’t say how much the property is worth, but you will be required to have it valued at market rates and calculate the tax accordingly.
This may unfortunately involve selling it in order to meet the bill, although it may well be possible to get a mortgage on it, which would be less than you would have to borrow to buy it outright. I don’t know your age or circumstances, but a bank would certainly be open to that sort of arrangement.
I don’t know about your current living arrangements, but this bill may have a possible mitigation.
You say you were your godmother’s carer. If you lived with her as such, you may be able to claim Dwelling House Relief against the tax due. The conditions are strict, however, so I don’t want to get your hopes up:
The house must have been your only or main home for the three years before the date of the inheritance, and you must not own or have an interest in any other house.
The exemption will be withdrawn, even at a later date, if you sell the house and don’t replace it with another principal dwelling, or cease to occupy it, within six years.
If you believe you could be exempt from it would be worth getting in touch with a solicitor or tax advisor to make sure the requirements are all met and they can go about settling the paperwork involved.
Q I am married and my spouse and I are both healthcare workers, with three children aged 16, 13 and 10. My husband is 64, I’m 44.
We’ve been to few banks and inquired about applying for mortgage, but were only offered a very small amount and for a short term due to my husband’s age. We’ve been renting and paying nearly €2,000 a month for a three-bedroom house excluding bills. We are getting worried that the rent may increase again.
Do you know if there’s any other option for us or any recommendations that you can share?
Banks generally don’t like borrowers who are nearing retirement age and tend only to permit mortgages (or indeed loans of any kind) to 65, or 70 at a push with Bank of Ireland. The credit union may well offer you a loan and be a little more flexible. It’s certainly worth a meeting; many of the larger ones are now offering mortgages, but honestly, I think it’s probably a long shot.
I asked Joey Sheahan, Head of Credit at MyMortgages.ie and author of The Mortgage Coach to look at your query and she said: “Some banks will allow a married person to apply on their own despite being married. The benefit of this is that you can avail of the longer term mortgage, to the age of 70.
“So, in your case, this would be a 26-year term mortgage. The downside is that you can only use your own salary and borrow 3.5 times that amount. If you are a civil servant, then you potentially can move two points up on the pay scale and borrow 3.5 the increased salary amount.
“Sole applicants can also benefit where a spouse has an adverse credit rating or is not a first time buyer”.
The best of luck with mortgage hunting. A call to a mortgage broker may help ease your path.