In this article, David Ryan, partner at Comyn Kelleher Tobin, looks at the different considerations to take into account before transferring a site to a child.
Where a parent or parents own land, it is quite common, particularly in rural areas, to consider the transfer of a site to a child for the purposes of that child building a house for his or her principal residence.
It is important to note that there are favourable tax reliefs available for this, provided you comply with certain conditions set down in the relevant legislation.
When transferring a site by gift, the relevant taxes to consider are; –
Capital Gains Tax (CGT)
This potential tax liability is for the parent making the transfer of the site.
The parent will not have any CGT liability when transferring a site to a child (a child includes a son or daughter, a stepchild, an adopted child, a child of a deceased child, a child of a civil partner of the parent, and a child who the parent fostered for at least five years before that child reached the age of eighteen).
To qualify for the CGT relief, the size of the site cannot exceed one acre in addition to the area occupied by the dwelling house itself.
The value of the land being transferred cannot exceed €500,000, and the child must build a house on the land, which is their only or principal place of residence.
Site value exceeds €500,000
It is important to note that if the size of the site is more than the area allowed, or the value of the site exceeds €500,000, the CGT tax relief is lost entirely. It is not simply a matter of paying CGT on the excess amount. Each requirement must be met to avail of the relief.
Furthermore, there will be clawback of the tax relief if the child disposes of the land without having built a house on the land, or if they did build a house but did not reside in the house as their only or main residence for at least three years.
In that event, the child would become liable to pay the CGT on the disposal of the land from the parent to the child. The clawback of the relief will not occur where the child disposes of the land to their spouse or civil partner.
The relief can only be availed of by each child in respect of one site.
The current rate of capital gains tax is 33%.
Capital Acquisitions Tax (CAT/Gift Tax)
This potential tax liability is for the child receiving the site.
Whether CAT will be payable will depend on the value of the site at the date of the transfer. From a CAT perspective, the current allowable value of gifts and/or inheritances a child can receive from parents in their lifetime without a liability to CAT is €335,000.
Accordingly, if the value of the site transferred is above €335,000, the child will be liable to pay CAT at a current rate of 33% on the excess.
It is important to note, however, that all gifts and inheritances are aggregated from 5th December 1991 for tax purposes.
For example, if a child had received a gift of €20,000 from a parent five years previously, the child would have a remaining available threshold for the value of the site of €315,000 before entering the tax net.
From a practical perspective, transferring a site with a high value will limit the child’s ability to receive future gifts or inheritances on a tax-free basis.
Stamp duty is payable by the child on the value of the site transferred.
A site is deemed to be non-residential property and the current rate of stamp duty on non-residential property is 7.5%.
However, a child can claim a refund of two-thirds of the stamp duty paid in respect of land that is subsequently developed for residential purposes, subject to certain conditions (e.g. construction must commence on the land within a specified period).
The tax implications of a site transfer must be considered. Both the parents and the child should obtain independent legal and tax advice relevant to their own circumstances.
Furthermore, separate tax returns will need to be made for Stamp Duty, Capital Gains Tax and Capital Acquisitions Tax.
If you would like to discuss the specifics of your situation, please call: 021 4626900.
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Disclaimer: The information provided in this article on transferring a site to a child is as a general guide only. You should contact a solicitor for legal advice specific to your situation.
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