When a parent or both parents own land and are considering transferring a site to a child to allow the child to build his or her principal residence it is important to be aware that it may give rise to a number of taxes. However, there are favourable tax consequences when transferring a site to a child.
The relevant taxes are:
1. Capital Gains Tax (CGT) – on the parent making the transfer of the site;
2. Capital Acquisitions Tax (CAT/Gift Tax) – on the child receiving the site; and
3. Stamp Duty – again, on the child receiving the site.
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is a tax charged on the capital gain (a profit) made on the disposal of any asset. It is payable by the person making the disposal not on the person receiving the property, i.e. in this situation the parent transferring the site to the child may be liable for GCT. The gain/profit is the difference between the price paid for the site when it was originally acquired and the price you sold it for. In the context of transferring a site from a parent to a child the gain/profit in this situation will be the difference in the value of the site when it was acquired by the parent and the value of the site on the date that the site is being transferred.
The current rate of Capital Gains Tax (CGT) is 33%.
Disposal to a child:At the moment full relief from CGT is available where a parent transfers a site to a child when certain conditions are complied with so long as:
- the site is used for construction of the child’s principal private residence: and
- the market value of the site does not exceed €500,000.
A parent can only transfer one site to each child to avail of this exemption and the site must be less than one acre.
Please contact our office and we can discuss in further detail the conditions that apply.
The reference to child above includes:
- an adopted child;
- child of a deceased child;
- a nephew or niece of the individual provided certain conditions are complied with;
- a foster child provided certain conditions are complied with.
Capital Acquisitions Tax (CAT/Gift Tax)
Capital Acquisitions Tax (CAT) : the child receiving the site should generally not be liable to pay Capital Acquisition Tax but this will depend on the value of the site at the date of the transfer. Capital Acquisition Tax may arise when a person receives a gift of a site that exceeds a given threshold. A threshold is the amount a child is allowed to receive as a gift from a parent without having to pay tax.
A child’s threshold when receiving a gift from a parent is currently at €335,000. If the value of the site is above €335,000 the child would be liable to pay CAT at a rate of 33%. Previous gifts received would also be taken into account.
Stamp Duty
Stamp Duty:
A site is non-residential property. Stamp Duty is paid on the cost of the site at the rate of 7.5%, but you can claim a refund of two thirds of the Stamp Duty you pay by availing of the Residential Development Stamp Duty Refund Scheme, where certain conditions apply.
For further information or to discuss the tax implications when transferring a site to a child, please Contact Us for a consultation.
