How much can I leave to my grandchildren whose father has died? (2024)

My cousin and her husband are in their late sixties and have two grandchildren, both of whom are living with them. On is over the age of 18, the other under. Their father died recently.

The younger grandchild was living with their Dad when he passed away; the older one was already living with the grandparents.

If my cousin wished to leave their home to the grandchildren, what are the CAT implications for them (assuming they are both adults at the time they inherit) – i.e. what would their tax-free threshold be?

Ms E.C.

There is provision in the inheritance tax code for children inheriting from a grandparent when their parent has died – but in tax terms it only changes things if they are a minor.

In general, a grandchild inheriting from a grandparent will sit under category B, where the lifetime tax-free limit is €32,500. This limit will govern anything they may have already received from any of their grandparents even before your cousin and her husband look to take care of them.

It will also cover anything – including and gift with a value in excess of €3,000 in any tax year – that they receive from a sibling or from a sibling of either of their parents.

That can see the tax-free limit is used up pretty easily in the case of some families.

If the one child was still a minor when the two of them inherited, that child would be entitled to a much larger tax-free exemption of €335,000 under category A. It might seem unfair to separate them like that but it is simply a reflection of the fact that a young child would not by that stage have any independent income from work or whatever.

Sticking with your scenario, however, where both will be adults by the time they inherit from the grandparents – very likely as the grandparents are both only in their sixties currently and they would likely only benefit on the death of the second one – they will fall under the lower category B threshold.

However, assuming they are still living with the grandparents at that time and do not have an interest in any other property, they could inherit the grandparents’ home tax free. This is under something called the dwelling home exemption.

The rules around this have changed several times over the years, first to make it more generous and then to limit it more strictly in the face of Revenue concerns that it was being abused for tax planning purposes.

As it now stands, the rules state that the home must be the only or principal home of the people leaving it. That seems to be the case here: this is clearly the grandparents’ family home.

The two grandchildren must have no interest in any other property. Inheriting any other property from the grandparents in any will could complicate this, so if that is likely to be the case, legal advice should be taken by the grandparents.

Then there is a residency requirement. The recipients – the grandchildren – must have been living in the home for three years before they inherit and continue living there for six years subsequently, a condition that can be satisfied if they sell the home as long as all the proceeds are used to buy another home.

This final condition may be the deal-breaker here.

It would be fine as of now, at least for the older grandchild who has been living with the grandparents, but will either of them still be living there when the grandparents die? Both grandparents are in their late sixties as of now. On the law of averages, they could live for another 15 years or so. By then, both of these grandchildren will be well into their 30s and may well have moved out to set up their own families.

If so, they will no longer be able to avail of the dwelling home exemption and will simply have the €32,500 category B tax-free sum to work with. Anything over that would be taxed at a rate that is currently 33 per cent.