Both my husband and I are in our 70s and in ill health – necessitating visits and inpatient treatment at three Dublin hospitals. Our son has an investment property in Dublin and since the last tenant moved out, he has made it available for our use without payment. In the short term, our intention is to use the property for hospital visits and to spend more time close to family. In the long term, we plan to move there permanently. We have our own home which we do not want to sell at the moment. Are there any tax implications for either our son or ourselves with this arrangement? Mary, Co Wexford
Receiving free accommodation from your son will have tax implications. The Revenue Commissioners will take the view that you are receiving a gift from your son.
This gift will be deemed to be the market value of the annual rent that your son would otherwise receive from a third-party tenant. This gift is split between you and your husband – as you are receiving it jointly.
You and your son should now make an estimate of what the market-value rent of the property would be – based on the rents that are being obtained from other landlords in comparable-size properties in the location of your son’s property.
Be aware that you and your husband are entitled to the annual small gift exemption of €3,000 each – which comes to ‚Ç¨6,000 between you.
This means that the first €6,000 of rent a year can be considered a tax-free gift from your son. So you do not have to pay any capital acquisitions tax (CAT) on this €6,000 of rent.
However, once your gift exceeds this, you may be liable for CAT, depending on the total value of gifts received by you from your son over your lifetime.
Under CAT rules, a parent can get gifts worth up to €32,500 from a child over their lifetime, while their child is still alive – with the balance then liable for tax at 33pc.
Any gifts that you may have received from your own parents would not be included in this €32,500 threshold.
The longer you stay in the property, the more likely it is that a tax bill will arise – once you have passed over the current threshold of €32,500.
There are two final points to bear in mind. First, if your son owns this property with another person (such as a wife or partner), you and your husband can each double the size of the €3,000 small gift exemption which you are each entitled to.
This is because this exemption allows you to get a tax-free gift of up to €3,000 a year from any individual – such as your son’s wife or partner.
This would be very beneficial if your stay is to be a medium-term one, as you’ve outlined in your letter.
Secondly, both the threshold of €32,500 and the CAT rate of 33pc are subject to change, so keep an eye on the Budget each year for any amendments to these rates.
No survivors for legacy
I have accumulated a lot of wealth over the years and am now in my early 80s. My wife passed away a few years ago and we never had children. We both came from very small families and these relatives have also all passed away in recent years. So, in short, I have no one that I can pass on my wealth to when I die. If I do go to the trouble of making a will, do you have any suggestions who I could leave my estate to? If I don’t leave my estate to anyone, what happens to it? John, Co Waterford
Firstly, I would always advise that you make a will. A person who dies having made a valid will is said to have died ‘testate’. If you die testate, then all your possessions will be distributed in the way you set out in your will.
A person who dies without a will is said to have died ‘intestate’. If you die intestate, this means your estate, or everything that you own, is distributed in accordance with the law by an administrator.
You have referenced having no relatives to leave your estate to. In this event and as things stand with no will made, your whole estate would be left to the State. If you are content with that, that is fine.
It is more common for someone in your situation, though, to leave differing amounts to charities which you may feel are worthy of your generosity – or to interests that you may have had through your life, such as the arts or a sporting organisation.
Investing child benefit
I am married with three kids (aged five and under) and we’re in a fortunate position at the moment in that we save the monthly child benefit (‚Ç¨420 per month). This is being saved into a Childcare Plus account with An Post and is earning very little interest.
Would the money be better invested? While we can put this money away at the moment, that might not always be the case – so ideally we’d like an investment option which would allow for a change in our monthly contribution where necessary. Lorraine, Co Kildare
The current investment vehicle that you are saving your money into is secure with steady returns – with inflation being the main risk attached.
As you mention, as the returns are typically less than 1pc a year, returns are low – but the growth is tax-free.
Before moving to another type of investment, you must first clarify the purpose of your savings.
As a general rule, if you are saving for something which is less than five years away, the account you are in – or something similar – is the correct approach to take.
If you are saving for something which is longer than five years away, I would suggest that you look at options which will give you greater returns than a deposit account.
Where you invest depends on the level of volatility that you are comfortable with.
Should you wish to achieve long-term investment gains, volatility is necessary.
Historically, with any investment approaching 10 years or longer, having the bulk of your investment in a basket of well-diversified global equities has been the best approach.
All the life assurance companies offer good regular savings options in this space – with wide choices of funds, each of which has a different level of risk attached.
My advice would be to hire an independent financial planner who charges you a fee to research and recommend the most suitable product for you. There will be ongoing fund charges and adviser fees for the management of the plan – your financial planner will explain all of these to you. You will always have the option to stop and restart the plan while keeping existing funds invested.