I am informed by Revenue that the inheritance tax treatment in the case of a right of residence depends on whether or not that right of residence is an exclusive one, i.e. where the beneficiary has the right to exclude other people if he or she so chooses.
An exclusive right to live in a property is generally given as a life interest which means that the sibling in residence in effect owns the property for his or her lifetime, as do the other two siblings who will inherit the property at a later date when the first sibling dies. It is only at this stage that an inheritance tax liability will arise for the other two siblings.
If the right of residence is not exclusive, then the siblings will have an inheritance tax liability at the date of the original inheritance. As the inheritance does not allow a full enjoyment of the property, the benefit received can be adjusted to allow for a deduction in respect of the right of residence. Revenue allows a deduction of 10% of the market value of the benefit in respect of each person who has a right of residence. The reduced market value is then compared to the relevant group threshold and the tax rate applied on any excess of the market value over the threshold. In the case of siblings the group threshold is currently €32,500.
In my view the provisions relating to right of residence are fair and equitable and I have no plans to change these provisions at this time.
In relation to an inability to pay any inheritance tax that may be due, I have been advised by Revenue that a beneficiary of ‘real’ property, such as land or buildings, is entitled to pay any tax due by instalments over a period of up to five years, subject to interest. Revenue also has the discretion to allow payment over a longer period of time where the tax cannot be paid without excessive hardship. In cases of hardship, Revenue also has the discretion to allow payment to be postponed for such period and on such terms (including the waiver of interest) as it thinks fit.
