I am advised by Revenue that the tax consequences of a transfer of a property, by way of lifetime gift, must be considered from both a Capital Gains Tax (CGT) and a Capital Acquisitions Tax (CAT) perspective.
The transfer of a property by way of gift is considered the disposal of an asset for the purposes of CGT. Any chargeable gain arising on such a disposal may be subject to CGT at a rate of 33%. The first €1,270 of chargeable gains in respect of an individual in a year of assessment is exempt from CGT.
It is the amount of the chargeable gain, if any, arising on the disposal of an asset which is subject to CGT. Transactions between connected persons, such as those between a parent and a child, are deemed by the legislation to occur otherwise than by means of a bargain made at arm’s length. As such, the consideration which is deemed to have been received in respect of such disposals is the market value of the asset on the date of disposal, and the chargeable gain, if any, is calculated as the difference between the market value of the asset on that date and the cost of acquiring the asset, which in these circumstances may include the cost of the site and the construction costs of the property.
In addition, certain costs incurred in acquiring and disposing of the property, e.g. stamp duty, legal fees, auctioneers’ fees, etc may also be allowable as deductions in calculating the chargeable gain arising on the disposal of the property. Any allowable costs of acquisition which were incurred prior to 1 January 2003 may be adjusted for inflation through the application of the relevant multipliers set out in the table available on the Revenue website.
In circumstances where the parents occupied the residential property prior to the transfer to a child, as their principal private residence (PPR), for any period of ownership as their only or main residence, then full or partial PPR relief as provided for by section 604 of the Taxes Consolidation Act 1997 may be available. Information on PPR relief is available on the Revenue website.
The specific facts and circumstances which exist at the time of the disposal of the property will determine the amount, if any, of CGT which may be due.
The Programme for Government commits to maintaining a broad tax base to guard against the need for counter-cyclical fiscal policy in the event of a downturn and to prepare for future budgetary challenges such as population aging. CGT is part of a system to ensure taxation is not focused solely on income tax and that those who benefit from growth in the value of their assets are included within the tax net on an equitable basis.
CAT is a tax that applies to gifts and inheritances. CAT is calculated on the value of the property comprised in the gift or inheritance and is payable by the recipient of that gift or inheritance.
The relationship between the person giving a gift or inheritance (i.e. the disponer) and the person who receives it (i.e. the beneficiary) determines the maximum amount, known as the “Group threshold”, below which a charge to CAT does not arise. Any prior gift or inheritance received by a beneficiary since 5 December 1991 from within the same Group threshold is aggregated for the purposes of determining whether any tax is payable on a benefit. Where a beneficiary receives gifts or inheritances that are in excess of the relevant Group threshold, CAT applies on the excess at a rate of 33%.
There are currently three Group thresholds:
• Group A threshold (currently €400,000) applies, inter alia, where the beneficiary is a child (including an adopted child, stepchild and certain foster children) of the disponer.
• Group B threshold (currently €40,000) applies where the beneficiary is a brother, sister, nephew, niece or lineal ancestor or lineal descendant of the disponer.
• Group C threshold (currently €20,000) applies in all other cases.
In the circumstances outlined, i.e., where parents gift a property to their adult children, the Group A threshold would apply.
Should a charge to CAT arise on the transfer of a property from a parent to a child, any CGT paid by the parents may be credited against the CAT liability arising on their child. The credit will be withdrawn where the property is disposed of within two years. Further guidance on this credit is published on the Revenue website.
As outlined above, the specific facts and circumstances at the time the property is gifted will determine any CGT and CAT due and the availability of the credit.
As with all taxes, CGT and CAT is subject to ongoing review as part of the annual Budget and Finance Bill process.
