Question about gifting house (for general knowledge only)

Pat Custard

Suppose I had a house and I wanted to gift it to my son / daughter / mother / sister or even a friend.

Now, from what I can gather, if you live in the house for a while, it becomes a primary residence and hence falls free from taxation.

Now, what if I wanted to give the house to my friend immediately. If the house were worth €350,000, I (or he) would have to pay capital gains tax of 30% (or €105,000).

What if I were to sell the house to him for 10c. It is a legitimate sale, and all that should really end up being paid is 3c tax ....am I missing something here??

Just curious.

Geuze

The market value is always used, irrespective of what is actually paid for it.

Geuze

Pat Custard wrote: »

Suppose I had a house and I wanted to gift it to my son / daughter / mother / sister or even a friend.

Now, from what I can gather, if you live in the house for a while, it becomes a primary residence and hence falls free from taxation.

Now, what if I wanted to give the house to my friend immediately. If the house were worth €350,000, I (or he) would have to pay capital gains tax of 30% (or €105,000).

What if I were to sell the house to him for 10c. It is a legitimate sale, and all that should really end up being paid is 3c tax ....am I missing something here??

Just curious.

If you gift your house to somebody, or they get it in your bequest, then they may be liable for CAT.

CAT = Capital Acquisitions Tax, as they have acquired a capital asset.

Pat Custard

Geuze wrote: »

If you gift your house to somebody, or they get it in your bequest, then they may be liable for CAT.

CAT = Capital Acquisitions Tax, as they have acquired a capital asset.

Yes but if they bought it fair and square, then surely the person getting money off it would pay the tax.

barneystinson

For CGT purposes, the Notes for Guidance to Section 547 of the Taxes Consolidation Act state:
"Acquisitions deemed to be made at market value
The cost of acquisition of an asset is deemed to be equal to the market value of the asset (1)
in the following situations —
• where the asset is not acquired by way of a bargain at arm’s length, including in particular a gift;..."

and:
"The consideration for the disposal of an asset is deemed to be equal to the market value of the asset in the following circumstances —
• where the disposal is otherwise than by means of a bargain at arm’s length including in particular a gift, and
• where the consideration cannot be valued."

CIARAN_BOYLE

Pat Custard wrote: »

Yes but if they bought it fair and square, then surely the person getting money off it would pay the tax.

If sold to a connected party (parent child sibling maybe niece nephew and cousin I'm not sure) the sale is deemed to take place at market value for CGT purposes.

Also the recipient is considered to be receiving a gift of the difference between acquisition price and market value.

danger_here

barneystinson wrote: »

For CGT purposes, the Notes for Guidance to Section 547 of the Taxes Consolidation Act state:
"Acquisitions deemed to be made at market value
The cost of acquisition of an asset is deemed to be equal to the market value of the asset (1)
in the following situations —
• where the asset is not acquired by way of a bargain at arm’s length, including in particular a gift;..."

and:
"The consideration for the disposal of an asset is deemed to be equal to the market value of the asset in the following circumstances —
• where the disposal is otherwise than by means of a bargain at arm’s length including in particular a gift, and
• where the consideration cannot be valued."

Since you seem to know what you're talking about here, can I ask on a slightly related note if I have a house (non primary residence) of X market value but I sell it for half of X (to a builder say as a quick sale) the CGT I pay would surely be based on the amount I sold it for and not the original market value?

Bigcheeze

danger_here wrote: »

Since you seem to know what you're talking about here, can I ask on a slightly related note if I have a house (non primary residence) of X market value but I sell it for half of X (to a builder say as a quick sale) the CGT I pay would surely be based on the amount I sold it for and not the original market value?

A quick test is would you be prepared to sell it to me or anyone else for €1 more than the builder ? If yes, then the low price is the new market value. If no, then it's not an arms length transaction.

danger_here

And lets say I say I put the price at half of X (due to condition say) and two people are interested. One is the builder from the first example and he offers the price of half X and the second party offers half of X plus 10 quid extra (for the sake of argument) to secure the sale. But I decide the builder will do a better job with it and sell it to him. Does the market value revert based on who it's sold to or based on the higher offer. I'd certainly offer the price the builder was offered to anyone else. At the same time, looking for a quick sale above profit.

I'll probably be doing something like that in the near future and just don't want to be stung with paying CGT based on a value way over what I consider selling the property for. Thanks for clarifying.

Bigcheeze

danger_here wrote: »

And lets say I say I put the price at half of X (due to condition say) and two people are interested. One is the builder from the first example and he offers the price of half X and the second party offers half of X plus 10 quid extra (for the sake of argument) to secure the sale. But I decide the builder will do a better job with it and sell it to him. Does the market value revert based on who it's sold to or based on the higher offer. I'd certainly offer the price the builder was offered to anyone else. At the same time, looking for a quick sale above profit.

I'll probably be doing something like that in the near future and just don't want to be stung with paying CGT based on a value way over what I consider selling the property for. Thanks for clarifying.

What do you mean the builder will do a better job with it ? What's in it for you?

danger_here

Bigcheeze wrote: »

What do you mean the builder will do a better job with it ? What's in it for you?

Well if I wanted rid of it reasonably fast and the builder or anyone else while offering the lower amount was for a legitimate reason my first choice, would that not be enough to satisfy an an arm's length transaction? I've no issue whatsoever going down the road of wanting more money for an asset but it's not a major factor, and so if a cheaper sale means a faster sale I'd be content.

Mr. Incognito

You seem to be unable to grasp a simple point. Tax is on market value.

What is market value? For property it is based on a professional valuers assessment. Don't have one. Revenue will get one themselves if they think it is suspect.

You can gift it or sell it for 2 cent to anyone you want but tax is payable on the market value.

danger_here

Mr. Incognito wrote: »

You seem to be unable to grasp a simple point. Tax is on market value.

What is market value? For property it is based on a professional valuers assessment. Don't have one. Revenue will get one themselves if they think it is suspect.

You can gift it or sell it for 2 cent to anyone you want but tax is payable on the market value.

Surely the concept of market value in Ireland of all places is fairly wishy washy at the best of times. I know for a fact my own property is not worth anything near the amount it is valued. Should I therefore take part in the charade and flog it at an inflated price just to satisfy "the market" (ie driven everyone else paying over the odds) and CGT liabilities, above a reasonable selling value? Fair enough if the answer is yes I don't care so much either way, just seems a bit bizarre and potentially causing house prices to increase beyond their true value and a few other knock on effects. Thanks anyway for replies and clarification.

Mr. Incognito

danger_here wrote: »

Surely the concept of market value in Ireland of all places is fairly wishy washy at the best of times. I know for a fact my own property is not worth anything near the amount it is valued

Does not compute.

A competent valuer will value it at what it is actually worth.

If it is insured for more an insurance company will tell you tough for the difference on any claim and only reimburse market value.

Market value is taxable value.

What you think it is worth is the subjective nonsense figure. Tax is what it is actually worth, certified.

Marcusm

Mr. Incognito wrote: »

You seem to be unable to grasp a simple point. Tax is on market value.

What is market value? For property it is based on a professional valuers assessment. Don't have one. Revenue will get one themselves if they think it is suspect.

You can gift it or sell it for 2 cent to anyone you want but tax is payable on the market value.

In the absence of special circumstances such as connected parties, non cash consideration or non arms length transaction (which must be interpreted taking account of the immediately succeeding legislative reference to gifts), CGT is calculated on the contractual consideration and there is no basis to substitute "market value". If I wish to sell a property and the agent obtains an offer of 500k from a cash buyer willing to waive a survey and place a non refundable deposit and 9 bids of 550k from other (credible) buyers, there is no legislative basis to substitute anything for the actual consideration in the computation of the chargeable gain provided none of the special circumstances apply.

Accordingly, I disagree with the emboldened statement.

Mr. Incognito

Marcusm wrote: »

In the absence of special circumstances such as connected parties, non cash consideration or non arms length transaction (which must be interpreted taking account of the immediately succeeding legislative reference to gifts), CGT is calculated on the contractual consideration and there is no basis to substitute "market value". If I wish to sell a property and the agent obtains an offer of 500k from a cash buyer willing to waive a survey and place a non refundable deposit and 9 bids of 550k from other (credible) buyers, there is no legislative basis to substitute anything for the actual consideration in the computation of the chargeable gain provided none of the special circumstances apply.

Accordingly, I disagree with the emboldened statement.

Bit theatric no? Anyway. What you are insulating is that an arms length transaction at undervalue won't be caught unless it breaks one of the narrow anti avoidance provisions?

S639 to S647 TCA will disagree with you. Heck S811 could even be invoked if Revenue felt like it.

http://www.irishstatutebook.ie/1997/en/act/pub/0039/sec0639.html

Market value is what a property will fetch on the open market. If you manipulate the price to an absurd level revenue will be asking questions. You will have to make up the difference on a subsequent disposal anyway as your base cost will be artificially low even if they don't catch it

dogsears

Mr. Incognito wrote: »

Bit theatric no? Anyway. What you are insulating is that an arms length transaction at undervalue won't be caught unless it breaks one of the narrow anti avoidance provisions?

Marcusm is right. You can do a bad deal without tax "penalty". I don't think I can see why a person would make a sale below what a market price would get them (unless there is some connection or purpose that would bring into play the anti-avoidance legislation) but if they do and the sale is at arm's length and not to a connected party, then market value is not automatically imputed for CGT.

Mr. Incognito wrote: »

S639 to S647 TCA will disagree with you.

Not relevant to a straight CGT transaction. If there's a reason why the sale might be thought more appropriate to a trading treatment they may be relevant, but not to the simple situation asked about.

Mr. Incognito wrote: »

Heck S811 could even be invoked if Revenue felt like it.

S811 is for avoidance transactions only. What is the reason for treating it as an avoidance transaction?

Mr. Incognito

https://www.google.ie/url?q=http://www.revenue.ie/en/practitioner/law/notes-for-guidance/tca/part19.pdf&sa=U&ei=5D17U-TjH8S47QaO44HgBg&ved=0CCQQFjAB&sig2=CkAQet0V5pOcu7qe3ON32w&usg=AFQjCNE5_pMVer7ymExAmk5pNnsTZStc7Q

Looking at S 547 you ay be right.