MG writes from Dublin: I married in 1971 and my wife and I bought a house in Dublin. In 1987, we were legally separated and part of our separation agreement was that I would sign ownership of the house over to her. She continued to pay the mortgage, which was cleared in 2001.
I have my own home, an apartment, the mortgage of which I am in the process of clearing. My ex-wife and I get along well and we are now in the process of writing our wills. We have agreed that we would each like the other to be the beneficiaries of our main residences. There are no children involved. When either of us dies, will the other have to pay tax on their inheritance? How do we ensure a tax-efficient outcome?
How refreshing to learn that there are separated couples who, while perhaps not wishing to live with each other anymore, are still good enough friends that they want to leave their respective homes to each other in their wills.
First, a voluntary legal separation or deed of separation does not change the legal status of your marriage, or a loss of entitlements under the Succession Act, although your respective entitlements under this act may be voluntarily renounced as part of your deed of separation. You don’t say whether you did this in 1987, but under such a deed, any specific bequest to your estranged spouse will stand until you make a new will or change your will. Because you are still legally married to each other, as far as inheritance law is concerned you are exempt from inheritance tax.
If either of you should die and you have written wills specifically leaving your property to each other, there will be no inheritance tax to pay.
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My understanding is, however, that under a deed of separation, the spouses are normally treated as two unconnected persons for capital gains tax (CGT) purposes. If for some reason one of you wanted to transfer your property to the other during your lifetime, you would no longer be exempt from CGT.
The exemption from CGT only applies when it is tied to the actual deed of separation, for example, where the family home has been transferred to one spouse, as part of the separation agreement.
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Emigrants can take it with them
CC writes from Dublin: For the past few years my husband and I have been saving to emigrate to Australia. We will have about €30,000 to take with us — all of which will be used to buy a house there. What avenues can we take to transfer the money to Australia so we won’t be taxed to the limit?
If you are emigrating, then transferring your accumulated savings and other assets to Australia should not make you liable to any additional taxation, so long as your taxes are otherwise in order.
Your savings, if they are in a bank, are already liable to Dirt tax of 20%. If any of the €30,000 you have accumulated represents the proceeds of the sale of shares or property or some other asset, then you may have to pay CGT on any profit before you transfer the money to Australia.
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Because your residency for tax purposes remains Irish for three years after your departure date, I suggest that you speak to a good tax adviser before you leave, to ensure not only that your current tax position is in order, but that you do not end up paying double tax on any income or assets.
Also, depending on the time of year that you emigrate, you may even be entitled to an Irish income tax refund.
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When stamp duty doesn’t apply
FO’S writes from Dublin: My son and daughter are purchasing a terraced house in Waterford for €220,000 as they cannot afford Dublin prices. They will, however, continue to work in the capital and their intention is to stay in Waterford at weekends and return to Dublin on Monday morning. Hopefully, sometime in the future, they will transfer to Waterford if their jobs allow. It is not their intention to rent out their house. The big question for both of them is: will they have to pay stamp duty on the purchase?
If your children are first-time buyers, then because their house is worth less than €317,500 they will not be liable for stamp duty.
The fact that they are travelling back and forth to Dublin will have no impact on their tax position — but it will certainly leave a dent in their budget.
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If they rent their house, rather than live in it, they would not be entitled to the stamp duty exemption, but they shouldn’t dismiss the idea of tenants altogether.
Since the house is going to be empty from Monday to Friday anyway, they should consider registering with the Rent-a-Room scheme and potentially earn up to €7,620 a year, tax-free by renting a room or two in their new house. This will certainly help offset their costs.
Jill Kerby is co-author of the new TAB Guide to Money, Pensions & Tax 2006. E-mail her at money.ireland@sunday-times.ie or write c/o Money Matters, The Sunday Times, Fourth Floor, Bishop’s Square, Redmond’s Hill, Dublin 2, giving a daytime telephone number. We cannot send personal replies or deal with every letter. Please do not send original documents or SAEs. Information and advice is offered without legal responsibility.