Inheritance tax on mortgaged property?

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Aladdin

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Was listening to a very interesting radio discussion about this recently in relation to the huge CAT tax bills the next generation will surely be facing due to current housing price inflation, for only children in particular who can only utilise a single allowance against the high value asset as opposed to mulitple sibling allowances.

Maybe I'm missing something, but surely with this in mind it would be advisable to keep the family home part-mortgaged with no mortgage protection policy in place so as to reduce the inheritance value down the line? Since the offspring can then only be taxed on the value of the asset less the liability, as opposed to full market value if the mortgage has been paid off and house owned outright.

Good tax planning, evasion or flawed thinking? With only one child myself (who has additional needs) it's a concern.
 
So you've reduced your child's inheritance by keeping a debt; which still has to be repaid on your death.

Inheritance tax is 33% over the current threshold.

The offspring are still getting a sizeable inheritance.

Whilst inheritance tax annoys me; I'm not sure we have much to be whinging about in the overall scheme of things.
 
Aladdin said:
Since the offspring can then only be taxed on the value of the asset less the liability, as opposed to full market value if the mortgage has been paid off and house owned outright.
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Is that actually true? I thought that the value for CAT Inheritance Tax purposes was the full market value regardless of any mortgage outstanding?
 
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Aladdin said:
Good tax planning, evasion or flawed thinking?
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Completely flawed thinking.

Aladdin said:
Maybe I'm missing something,
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You seem to be missing the simple fact that the mortgage needs to be paid by the estate, it doesn't just disappear and you still get the house

Aladdin said:
the huge CAT tax bills the next generation will surely be facing due to current housing price inflation, for only children in particular who can only utilise a single allowance against the high value asset as opposed to mulitple sibling allowances.
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Anyone facing a huge CAT bill is receiving a huge inheritance. An only child with a €200k CAT bill has just received a €1m inheritance. They will have €800k after paying CAT.

I would be delighted if I ever had a CAT bill like that
 
Aladdin said:
for only children in particular who can only utilise a single allowance against the high value asset as opposed to mulitple sibling allowances.
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I don't understand what point you're trying to make here.
 
Does your child live with you in the family home?
There are a few conditions to full fill but they
may be entitled to “Dwelling house relief”

*They must have lived in home with you 3 years before the inheritance.
*They must continue to live in the home for a further 6 years
*They must not have an interest in any other house

Alternatively look into setting up a Trust and whether one could be set up to look after the needs of the child.
 
DannyBoyD said:
Whilst inheritance tax annoys me; I'm not sure we have much to be whinging about in the overall scheme of things
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In my particular situation, my concern would be my son's ability to pay the tax bill and wondered if it would be more preferable for me to put the mortgage repayments into a fund or something that would allow him to access in the future in order to do so. But of course he'd be taxed on that fund aswell since it'd be part of the estate ...

To be frank, I've no compunction about utilising any legal means I can to help him avoid such financial burdens in the future - he's an Irish citizen that has never received a penny of state assistance towards his needs - we pay for his schooling since mainstream is not an option, plus years of therapies, assessments and medical bills. The state neglects him and thousands like him, while frittering taxpayers money away like confetti.

So forgive me for trying to think outside the box a little.
 
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ClubMan said:
I don't understand what point you're trying to make here
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If there are multiple heirs, they can each utilise their tax allowances, say 300k x 3 against a million pound property, so v little tax payable. As opposed to one allowance, which means the state takes far more.
 
Aladdin said:
In my particular situation, my concern would be my son's ability to pay the tax bill
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If you leave him an asset that takes him over the threshold, he can sell the asset, pay the tax bill and keep the remaining 66%. You can rest comfortably knowing that he now has at least €400K from you. That is sizeable by anyone’s thinking.

Also consider you and your spouse giving him and his spouse €3K each every year as a tax free gift that won’t count as part of the overall inheritance. Say he has two kids, you can gift in total €24K per annum, do that over a decade and you have moved €240K of your wealth to your son and his family.
 
Brendan Burgess said:
So instead of paying the mortgage you will fritter away the money to leave him with less?
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Who said anything about frittering? As I mentioned above, it might be preferable for me to put the repayments to better use instead in order to help him with the tax bill down the line.
 
Millie* said:
Does your child live with you in the family home?
There are a few conditions to full fill but they
may be entitled to “Dwelling house relief”
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Yes, and will likely be a dependent for the remainder of our lives so that's something to consider that I wasn't aware of, thank you.
 
Aladdin said:
If there are multiple heirs, they can each utilise their tax allowances, say 300k x 3 against a million pound property, so v little tax payable. As opposed to one allowance, which means the state takes far more.
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I still don't get it. Every individual has certain lifetime CAT exemption thresholds in the group A/B/C categories. These are not transferrable. Is that what you're referring to? The fact that they're not transferrable? Do you think that these exemptions should be transferrable? If so, why?

CAT group thresholds

This page explains the thresholds, rates and aggregation rules for calculating Capital Acquisitions Tax
www.revenue.ie www.revenue.ie
 
ClubMan said:
I still don't get it. Every individual has certain lifetime CAT exemption thresholds in the group A/B/C categories. These are not transferrable. Is that what you're referring to? The fact that they're not transferrable?
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No, the point being made on the radio slot was that single-child families are penalised taxation-wise for being so. If an estate of say 1m is distributed between 3 children, each can utilise a 400k allowance to reduce the overall tax burden, as opposed to a single child who can only utilise one, so the state takes a much larger share of tax from the estate of these families.
Which is what got me thinking in the first place.
 
Setforlife said:
Otherwise the best thing to do would be to be mortage free but take out section 72 insurance which would pay the tax liability, section 72 is a named after the specific section of the tax code which allows for these policies. Basically it means that the proceeds of the policy are not in themselves liable to inheritance tax. You could use this for example to cover off other potential tax liabilities for your son. Or look into setting up a trust for him. There are specific approaches that can be used.
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Thank you for this, it's very helpful, appreciate it.
 
Aladdin said:
No, the point being made on the radio slot was that single-child families are penalised taxation-wise for being so. If an estate of say 1m is distributed between 3 children, each can utilise a 400k allowance to reduce the overall tax burden, as opposed to a single child who can only utilise one, so the state takes a much larger share of tax from the estate of these families.
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Sounds like a straw man argument to me. Another way of saying the same thing is that the CAT exemption thresholds are egalitarian and not at all discriminatory because every individual gets the same amounts.
 
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