How you gonna keep 'em down on the farm after they've seen Paree?
1. Capital Gains Tax (CGT)
Application of CGT, chargeable persons and rates
CGT applies in relation to any life time transfer of property including the transfer of a site
CGT is charged on the person who sells or transfers the property.
A charge is applied even if the person who transfers the property is not receiving any consideration or payment in return for it. In such a case the property is deemed to be disposed of at market value and CGT is charged on that value.
Tax is payable on the difference between the value of the site at the date it was acquired by the transferor and the value it has on the date of the gift to the transferee, at a rate of 33%.
However, in the case of a transfer of a site from a parent to a child, a CGT exemption is available.
CGT exemption on the transfer of a site from parent to a child
If a person transfers land to their child to build a house which is to be the child’s only or main residence, the transferor will not have to pay CGT on the transfer.
In order to qualify for this exemption, the site must be:
In addition, the child is required to build a house on the land and occupy that house as their only or main residence for a period of three years.
Clawback of the relief
The exemption will be clawed back in circumstances where the child does not comply with the requirements.
So, if the child disposes of the site either
This clawback does not apply in a situation where the child disposes of the land to a spouse or civil partner.
CGT applies in relation to any life time transfer of property including the transfer of a site
CGT is charged on the person who sells or transfers the property.
A charge is applied even if the person who transfers the property is not receiving any consideration or payment in return for it. In such a case the property is deemed to be disposed of at market value and CGT is charged on that value.
Tax is payable on the difference between the value of the site at the date it was acquired by the transferor and the value it has on the date of the gift to the transferee, at a rate of 33%.
However, in the case of a transfer of a site from a parent to a child, a CGT exemption is available.
CGT exemption on the transfer of a site from parent to a child
If a person transfers land to their child to build a house which is to be the child’s only or main residence, the transferor will not have to pay CGT on the transfer.
In order to qualify for this exemption, the site must be:
- an area of no more than one acre
- with a value of no more than €500,000
In addition, the child is required to build a house on the land and occupy that house as their only or main residence for a period of three years.
Clawback of the relief
The exemption will be clawed back in circumstances where the child does not comply with the requirements.
So, if the child disposes of the site either
- without having built a house on the site
- having built a house on the land, but without having occupied that house as their only or main residence for the full period of at least three years,
This clawback does not apply in a situation where the child disposes of the land to a spouse or civil partner.
2. Stamp Duty
Currently, the rate of stamp duty applicable to transfers of non-residential property, which includes a building site or land, is 6%.
There are no longer any stamp duty reliefs available on the transfer of a site from a parent to a child, so stamp duty is payable at the full rate of 6%*.
*Government ministers in statements to the Dáil on Budget Day, Tuesday 10 October 2017, made reference to a proposed stamp duty refund scheme for commercial land purchased for housing. The scheme, as envisaged, was to allow a stamp duty refund of two-thirds of the duty paid in accordance with certain criteria (including the commencement of a housing development within a period of 30 months) which were to be published in the Finance Bill. As it turned out, no further details were included in the published Bill. It may be the case that the refund provision, if and when it is enacted, will apply only to the purchase of commercial land for larger scale housing developments, rather than to transfers by way of gift of a site from a parent to a child for a single house. We await further details.
There are no longer any stamp duty reliefs available on the transfer of a site from a parent to a child, so stamp duty is payable at the full rate of 6%*.
*Government ministers in statements to the Dáil on Budget Day, Tuesday 10 October 2017, made reference to a proposed stamp duty refund scheme for commercial land purchased for housing. The scheme, as envisaged, was to allow a stamp duty refund of two-thirds of the duty paid in accordance with certain criteria (including the commencement of a housing development within a period of 30 months) which were to be published in the Finance Bill. As it turned out, no further details were included in the published Bill. It may be the case that the refund provision, if and when it is enacted, will apply only to the purchase of commercial land for larger scale housing developments, rather than to transfers by way of gift of a site from a parent to a child for a single house. We await further details.
3. Capital Acquisitions Tax
Rates, thresholds and dates for payment
Capital Acquisitions tax is charged a rate of 33% on the taxable value of any asset transferred.
Each person can receive a gift of up to €3,000 per year from a single transferor without any liability to CAT.
A transferee is entitled to receive a certain value free from CAT known as the “tax free threshold”.
The threshold is based on the transferee’s relationship to the transferor.
The current thresholds (post 12 October 2016) are as follows.
Capital Acquisitions tax is charged a rate of 33% on the taxable value of any asset transferred.
Each person can receive a gift of up to €3,000 per year from a single transferor without any liability to CAT.
A transferee is entitled to receive a certain value free from CAT known as the “tax free threshold”.
The threshold is based on the transferee’s relationship to the transferor.
The current thresholds (post 12 October 2016) are as follows.
Group |
Relationship |
Threshold Amount |
A |
Son or daughter of transferor |
€310,000 |
B |
Parent, brother, sister, niece, nephew, grandparent, grandchild, lineal ancestor or lineal descendant of transferor |
€32,500 |
C |
People with a relationship not already covered in Groups A or B |
€16,250 |
It should be noted that any benefits received within particular group threshold since 5 December 1991 are aggregated. In other words, thresholds are lifetime thresholds.
Where the valuation date of the benefit falls on or before 31 August in any tax year, the pay and file deadline would be 31 October of that year. Where the valuation date falls after 31 August in any tax year, the pay and file deadline would be 31 October of the following year.
In the case of a gift, the valuation date is generally the same as the date of the gift.
Even if no tax is payable a return must be made to the Revenue Commissioner if the benefit, when aggregated with prior benefits in the same class threshold, exceeds 80% of the class threshold.
Unless the transferee has received a previous substantial gift or inheritance from a parent - or the particular site is extraordinarily valuable - it is unlikely that the Class A threshold would be exceeded by the mere transfer of a site from a parent to a child. Nevertheless, it is important to rule out the charge being applicable, especially if there are prior benefits.
Where the valuation date of the benefit falls on or before 31 August in any tax year, the pay and file deadline would be 31 October of that year. Where the valuation date falls after 31 August in any tax year, the pay and file deadline would be 31 October of the following year.
In the case of a gift, the valuation date is generally the same as the date of the gift.
Even if no tax is payable a return must be made to the Revenue Commissioner if the benefit, when aggregated with prior benefits in the same class threshold, exceeds 80% of the class threshold.
Unless the transferee has received a previous substantial gift or inheritance from a parent - or the particular site is extraordinarily valuable - it is unlikely that the Class A threshold would be exceeded by the mere transfer of a site from a parent to a child. Nevertheless, it is important to rule out the charge being applicable, especially if there are prior benefits.
4. Mortgages, Charges and Other Burdens
If there is a mortgage or charge registered on the site (or the land of which it forms a part) then the consent of the relevant bank or lending institution will need to be obtained to discharge the site from the security.
A bank will only release the site from its charge if the loan is paid off or if it is satisfied that the land which remains after the site has been transferred provides sufficient security for the loan.
There may be other charges or burdens on the property which will likewise need to be discharged insofar as they affect the site.
A bank will only release the site from its charge if the loan is paid off or if it is satisfied that the land which remains after the site has been transferred provides sufficient security for the loan.
There may be other charges or burdens on the property which will likewise need to be discharged insofar as they affect the site.
5. Planning Permission
It is important for the transferee to be certain that planning permission will be available on the site for the house they intend to build so advice will need to be taken from an appropriately qualified surveyor, engineer or architect. It should be noted that if planning permission is granted before the transfer takes place then this will have an impact on the valuation of the site. Any increase in the value of the site will lead to a proportional increase in the amount of tax payable.
6. Title and Mapping
If the site is to be carved out of another folio, a surveyor, engineer or architect will need to prepare a map in accordance with Land Registry requirements.
If the site stands on a folio on its own and the entire of that folio is to be transferred then a new map might not be necessary, unless there are any rights of way or boundary issues.
If rights of way or wayleaves are required (for access from the public road or for connection to a well or septic tank, for example) then the surveyor will need to take account of them and mark them on the map.
On completion of the registration the site will be given its own folio number.
If the site is not registered in the Land Registry matters can be more complicated and somewhat different provisions will apply.
If the site stands on a folio on its own and the entire of that folio is to be transferred then a new map might not be necessary, unless there are any rights of way or boundary issues.
If rights of way or wayleaves are required (for access from the public road or for connection to a well or septic tank, for example) then the surveyor will need to take account of them and mark them on the map.
On completion of the registration the site will be given its own folio number.
If the site is not registered in the Land Registry matters can be more complicated and somewhat different provisions will apply.
7. The Fair Deal Scheme
The Fair Deal Scheme provides certain state supports in respect of nursing home payments, The value of the supports is based on an assessment of the value of the person’s income and assets.
Any person that needs to go into a nursing home and avail of the Fair Deal Scheme is required to pay 80% of their income and 7.5% of the value of their assets per year (subject to certain exemptions and a “three-year-cap” in respect of the family home*) up to the amount of the nursing home fees. The payment of 7.5% of the value of assets per year can be deferred until after the person’s death. This deferred payment is repayable following death by the estate of the deceased.
Any person transferring a site needs to be aware that for the purposes of the asset assessment under the Fair Deal Scheme, the value of the site transferred will still be taken into account as an asset owned by the transferor for 5 years following the date of transfer, even though the site will in fact be owned by the transferee.
*The first €36,000 of the assets of a single person, or €72,000 for a married couple are exempt. The three-year-cap provides that a person’s principal residence will only be included in the financial assessment for the first 3 years of their time in care, regardless of how long they remain in care. In other words, the maximum contribution a person will have to pay based on their principal residence is 22.5% (3 x 7.5%) of its value.
Any person that needs to go into a nursing home and avail of the Fair Deal Scheme is required to pay 80% of their income and 7.5% of the value of their assets per year (subject to certain exemptions and a “three-year-cap” in respect of the family home*) up to the amount of the nursing home fees. The payment of 7.5% of the value of assets per year can be deferred until after the person’s death. This deferred payment is repayable following death by the estate of the deceased.
Any person transferring a site needs to be aware that for the purposes of the asset assessment under the Fair Deal Scheme, the value of the site transferred will still be taken into account as an asset owned by the transferor for 5 years following the date of transfer, even though the site will in fact be owned by the transferee.
*The first €36,000 of the assets of a single person, or €72,000 for a married couple are exempt. The three-year-cap provides that a person’s principal residence will only be included in the financial assessment for the first 3 years of their time in care, regardless of how long they remain in care. In other words, the maximum contribution a person will have to pay based on their principal residence is 22.5% (3 x 7.5%) of its value.
8. Provision for the Transferor's Future Needs and the Needs of their Spouse and Children
It is important that the transferor is fully aware that the transaction is a gift and cannot be revoked. Obviously, the giving of the gift of a site will reduce the value of the transferor’s assets together with their potential income opportunities into the future.
It is also important that the transferor be aware of the scale of what they are giving away in the context of their overall assets.
They need to be certain that they have made sufficient provision for their own future needs and the needs of any dependents they might have or any obligations they might have to other relatives.
If a gift of a site is made to one child, there is always the possibility that other children might feel that they have been unfairly treated. It is always preferable that the transfer of a site or the giving of any substantial gift is done as part of a broader succession plan taking account, as far as possible, of everyone’s needs.
It is also important that the transferor be aware of the scale of what they are giving away in the context of their overall assets.
They need to be certain that they have made sufficient provision for their own future needs and the needs of any dependents they might have or any obligations they might have to other relatives.
If a gift of a site is made to one child, there is always the possibility that other children might feel that they have been unfairly treated. It is always preferable that the transfer of a site or the giving of any substantial gift is done as part of a broader succession plan taking account, as far as possible, of everyone’s needs.
9. Separate Legal Representation
In cases where a person is transferring assets without receiving full payment for them, as in the case of the gift of a site, it is necessary for each party to be separately represented in order to rebut a presumption of undue influence. Accordingly, the transferor and the transferee will need to be advised by different firms of solicitors.
