We have a holiday home that our daughter will inherit. The home was purchased 11 years ago.Will our daughter be liable for both inheritance tax on the value of the house plus capital gains tax?KMHoliday homes can be one of life’s great personal luxuries – a bolt-hole in a part of the country, or further afield, that the family especially enjoys and where they can properly relax together. But they do come with some complications, including tax liabilities.People are fairly familiar with the concept that tax may arise on the increase in value of an asset you buy – such as shares in a company or works of art – when you go to sell them on. With property, they can get confused.In large part, this is because there is a specific exemption in Irish law for what Revenue calls your “principal private residence” – family home to you and me. Essentially, regardless of how much more your home is worth when you sell it compared to the price you originally paid, you will not have to worry about capital gains tax. You get a free run on your home – no 33 per cent tax on your “profit”.Yes, there are exceptions if it is sold for its “development value” – ie to be knocked down and replaced with other homes – rather than as a family home for accommodation of another family. In general, though, the valuable exemption applies.However, any other property is treated the same as those shares or works of art. So if you have an investment property, a buy-to-let or whatever you want to call it, capital gains tax will apply. The same is true of holiday homes even if you never let them out to others for commercial rent.This is not something that needs to concern your daughter, at least until she inherits it. Capital gains tax (CGT) is a tax on the selling (or gifting) owner, not on the new owner or the recipient of the gift or inheritance.So, if you were to gift this property to your daughter in your lifetime, you would face a CGT bill on the increase in its value from the time you bought it to the market value at the time you give it to her. She has no liability.The same is true for her if you wait until you die for her to inherit, although in this case, no CGT bill arises for either party as any capital gain is deemed to die with the owner. This means you, yourself, would have no liability and neither would the estate you leave behind you.Now she may have a liability to inheritance tax and she may not. It really depends on the value of everything she would be inheriting from both of you.She is entitled to inherit up to €400,000 from her parents. That figure would cover the value of many holiday homes. However, she might also inherit the family home and other items or assets. Once the value of everything she inherits exceeds €400,000, she pays 33 per cent on anything above that figure.Also, there is something to consider if your daughter is likely to be still living in the family home. In particular, if she was hoping that by claiming dwelling house relief, the property would avoid being included in any assessment of inherited assets. In such circumstances, this exemption would be undermined if she was to inherit the holiday home at the same time (or have it gifted to her earlier).Ultimately, inheritance tax is quite likely to be an issue for her on taking ownership of the property, but capital gains will not. If it arises at all, it arises only for you – and even then, only if you hand over the property while you are still alive.Of course, once she does own the holiday home – and assuming it is not her family home – she will be open to CGT if and when she sells it down the line. In that case, the tax will be assessed on the price she sells for compared to the value at the time she first takes ownership of the property – not what you yourselves paid for it 11 years ago.For now, as we enjoy our summer sun, just enjoy it.Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice