Inheriting a house can be a significant financial event. It carries its own set of implications and considerations.  From taxes to inheritance thresholds, the financial aspects of inherited property can are worth considering if it is on your horizon, or that of your beneficiaries!

Here I will explore:

• The intricacies of inheriting a house in Ireland
• The implications of taxes and how they affect inheritance tax thresholds
• Why many people choose to sell an inherited home
• The benefits and drawbacks of such a decision

Tax Implications and Inheritance Tax Thresholds

Some basics first.

In Ireland, when you inherit a house, it is important to understand the tax implications associated with the transfer of property ownership. One of the key taxes to consider is the inheritance tax, also known as Capital Acquisitions Tax (CAT).

The CAT is imposed on the beneficiary of an inheritance and applies to the value of the property transferred. While we’re at it, check out Blog 111, on reducing inheritance tax where I assess different ways of reducing the amount of CAT that your beneficiaries will pay.

The current tax rate in Ireland is 33% for gifts and inheritances received from non-exempt beneficiaries, such as siblings, nieces, nephews, and unrelated individuals. 

However, for transfers between parents and their children, there is a tax-free threshold known as the Group A threshold. The Group A threshold, is currently €335,000. Meaning, a child can inherit €335k of assets/investments/cash/property/other from a parent during their lifetime, and are only liable to CAT on anything above that amount.

It’s worth noting that the inheritance tax threshold applies to the cumulative value of all gifts and inheritances received from a parent!

What is very concerning from a knowledge perspective is a survey referenced in the Irish Times which found 50% of adults think the family home is not subject to inheritance tax. This key nugget of missing info will leave many beneficiaries with an unpleasant surprise!

Selling an Inherited Home – Reasons and Considerations

While inheriting a house can be a sentimental and emotional experience, many individuals find themselves contemplating whether to sell the property. It is not the only option of course, but there are several reasons why people choose to sell their inherited homes in Ireland.

1. Financial Considerations

One primary motivation for selling an inherited property is the need for immediate funds. Selling the house can provide a lump sum of money that can be utilized for various purposes, such as paying off debts, investing, or purchasing a preferred property or location.

2. Maintenance Costs and Property Management

Owning a property comes with ongoing expenses, including maintenance costs, property taxes, and insurance premiums. For some individuals, these costs can be burdensome or simply not align with their lifestyle or long-term plans. This is particularly the case with older houses (which people naturally inherit), where the energy ratings etc may be poor, and retrofit costs may be prohibitive for some.

3. Geographical Constraints

Inherited properties may not always be in a convenient location for the beneficiary, and a house is not something that you can pick up and move! It could be challenging to manage a property situated far away, especially if the individual has established their life, family and career elsewhere.

4. Unable To Buy-Out Siblings

If the home was left to several children, for them to each own a share in. This can be a blessing or a curse, depending on the individuals, and their relationships and preferences! There may be some parties that want to sell it, some that want to rent it for income, and others that want to buy it for themselves!

If no consensus can be reached, the decision to sell can sometimes be the best solution. Likewise, one party may really love to buy the others’ share of the property and to own the house outright themselves. If they can afford to do so, and others agree, great. If not, where then!?

5. Inheritance Tax Threshold

A child inheriting a house might push them over the inheritance tax threshold. This can put people in a position of having a tax bill to pay. Often the home is sold to pay for this tax. Imagine you have 2 kids, and you die with a house worth €1m and cash/investments of €300k.

Total estate is €1.3m. Assuming each child will receive an equal share, €650k each. They will be liable to CAT on the amount above €335k each, which is €315k. 33% tax on that is €104k each. In this scenario, they could use the cash/investments of €300k to cover the CAT bill.

However, if you only had 1 child in that scenario, or the value of the estate was larger, the cash that they inherit may not be enough to cover the CAT bill, resulting in them having to sell the house in order to pay the CAT bill. This is not the end of the world of course, but not a great outcome if they really did want to retain the property.

Benefits and Drawbacks of Selling an Inherited Home

Selling an inherited home in Ireland can have both advantages and disadvantages, and individuals should carefully weigh their options before making a decision.

Benefits of Selling

1. Financial Flexibility

Selling the inherited property can provide a substantial financial windfall, enabling the beneficiaries to meet immediate financial goals or invest the proceeds in a way that aligns with their long-term plans and current priorities.

This could include putting it in a retirement fund, funding home renovations, or education for themselves or their kids. It also can help avoid the potential scenario where the beneficiary has to use any liquid cash that they inherited for the sole purpose of paying the CAT bill!

2. Avoiding Ongoing Costs

By selling the property, individuals can avoid the ongoing expenses associated with homeownership, such as maintenance, property taxes, and insurance. And not to mention that if you do retain it for renting, being a landlord is not something that everyone wants to do. It is not always an arm-chair ride!

3. Avoid Family Disputes

It isn’t uncommon for one child to inherit the family home while the other receives another form of inheritance, or nothing from the parents. This can cause family strife.

Many may choose to sell to avoid this and keep everyone happy by splitting the proceeds evenly. We probably all know someone who was involved with a family dispute over land or inheritance, and it’s something we’d probably all love to avoid for our own family.

Drawbacks of Selling

1. Emotional Attachment

Inherited properties often carry sentimental value, and selling them may mean parting with a place that holds cherished memories. This emotional attachment can make the decision to sell more challenging for some.

2. Potential Appreciation

Property values can and do appreciate over time! If the inherited property is located in a desirable area and has the potential for future value growth, selling it may mean missing out on potential gains.

3. Future Income

I’m all for diversification of income. Depending on one’s future sources of income and their cashflows, retaining the property, to generate future income stream, could be advantageous.

It is worth analysing the potential outcome of retaining and renting the property versus selling it, and investing the proceeds for future income or lump sums. It’s not always clear-cut.

The Importance of the Financial Event

Inheriting a house in Ireland is not merely a matter of sentimentality; it is a significant financial event. The tax implications, inheritance thresholds, and potential financial benefits or drawbacks of selling must all be considered to make an informed choice. 

Seeking the guidance of a financial advisor or tax professional is highly recommended, as they should be able to provide personalized advice, to help. Provided you have a choice!

Final Thoughts

Inheriting a house in Ireland presents individuals with complex financial, logistical and emotional considerations. 

If it is on the radar or horizon for you or your beneficiaries, it is a very prudent thing to discuss it, and plan for it. Perhaps you do retain the property (particularly if they are investment properties) until the end of your days, or perhaps you strategically sell them between now and then. Ultimately, I believe it important to have some form of plan, and ensure there are no surprises for anyone when the time comes.

I hope this helps.

Paddy Delaney QFA RPA APA