Inheriting a property with a sibling can be a sensitive and complex matter, particularly when one of you decides to sell your share. If you’ve inherited a family home and are considering selling your half to your brother or sister, you may be wondering about the tax implications. While it is a family transaction, Irish tax law has specific rules that apply.
Navigating these regulations can feel overwhelming, but understanding your obligations from the outset is crucial for a smooth and fair process. This guide will walk you through the key taxes involved—Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT)—and explain how they apply when you sell your share of an inherited property to a sibling.
Understanding Capital Gains Tax (CGT)
When you sell an asset that has increased in value, the profit you make is subject to Capital Gains Tax (CGT). In Ireland, selling your share of an inherited property is considered the disposal of an asset, meaning any gain is liable for CGT at a rate of 33%.
It’s a common misconception that family connections might lead to exemptions. However, for CGT purposes, a sale to a sibling is treated the same as a sale to a stranger on the open market. The tax is calculated on the gain you make from the transaction, not the total sale price.
How to Calculate Your Capital Gains Tax Bill
Calculating your CGT liability involves a few clear steps. You need to determine the value of your share when you acquired it and subtract this from the value when you sell it.
1. Determine the Acquisition Value
Your “acquisition value” is the market value of your share of the property at the time you inherited it. This value is established during the probate process and is often referred to as the “probate valuation.” For example, if the family home was valued at €90,000 at the date of probate and you inherited a 50% share, your acquisition value is €45,000.
2. Determine the Sale Value
The sale value is the amount your sibling pays you for your share. To avoid complications with Revenue, this price should reflect the current market value of the property. It is highly recommended to get a formal, independent valuation before agreeing on a price. If the property is now worth €200,000, your 50% share has a current market value of €100,000.
3. Calculate the Capital Gain
The capital gain is the difference between the sale value and the acquisition value.
- Capital Gain = Sale Value – Acquisition Value
Using the example above: €100,000 (Sale Value) – €45,000 (Acquisition Value) = €55,000 (Capital Gain).
4. Apply the Annual Exemption
Every individual in Ireland has an annual CGT exemption of €1,270. This amount can be deducted from your total capital gains in a tax year.
After applying the exemption, your taxable gain would be:
- €55,000 – €1,270 = €53,730 (Taxable Gain)
Your CGT liability would then be 33% of this amount: €53,730 x 0.33 = €17,730.90.
When Does Capital Acquisitions Tax (CAT) Apply?
Capital Acquisitions Tax (CAT), commonly known as gift or inheritance tax, is generally settled when you first inherit the property. However, it can become relevant again during the sale to your sibling under specific circumstances.
CAT could be triggered if the transaction is not conducted at full market value:
- If you sell for less than market value: The difference between the market value and the price your sibling pays is considered a gift from you to them.
- If your sibling pays more than market value: The amount they pay above the market value is considered a gift from them to you.
In either case, this gift would be set against the relevant lifetime tax-free threshold. For gifts between siblings, the Group B threshold applies, which is currently €40,000. Any gifts or inheritances received from siblings, grandparents, aunts, or uncles count towards this lifetime limit.
To prevent unintended tax consequences, it is vital to transact at a professionally agreed market price.
Allowable Deductions to Reduce Your Gain
You can reduce your taxable capital gain by deducting certain allowable expenses. These are costs directly associated with acquiring or selling the asset. Allowable deductions include:
- Legal fees associated with the sale.
- Estate agent or auctioneer fees.
- The cost of a formal valuation report.
- Capital expenditure that enhanced the property’s value, such as adding an extension or a significant energy retrofit. Regular maintenance and repairs do not qualify.
Keeping detailed records and receipts for these expenses is essential, as they can significantly lower your final tax bill.
Navigate Your Property Sale with Confidence
Dealing with inherited property involves significant financial and emotional considerations. The tax rules are complex, and a misstep can lead to unexpected liabilities for you or your sibling. Seeking professional advice is not just a recommendation; it’s a crucial step to ensure everything is handled correctly and fairly.
A solicitor specialising in property and probate can provide clarity, help you navigate the legal requirements, and ensure your transaction is structured in the most tax-efficient way possible.
If you are considering selling your share of an inherited property, our experienced team at HOMS Assist is here to help. We provide clear, empathetic guidance to protect your interests and make the process as seamless as possible. Contact us today for a consultation.
