CGT on Half-Purchase of House and Half Gift from Parents

redsheeps

This relates to the possibility of parents half gifting a house to a child and the child pays for the other half.

Folks own a house outright worth ~€250,000. Based on Revenue CGT indexation factor they have gained €100,000.

If I buy the house from them for €125,000 and receive the other €125,000 as a gift, how would CGT be calculated for them?

ThreeGreens

CGT for them is based on the market value (as it's between connected parties). So what you pay is irrelevant.

If the home was their principal private residence they may be exempt from CGT or partly exempt if it was their home for some of the period of ownership.

redsheeps

I should have said that €250,000 is market value.

As I understand it, if they gifted the whole house they are liable for no CGT so I'm trying to understand what they are liable for if they only accept €125,000 for the house so effectively are gifting the other €125,000. Would they pay only 50% on the €100,000 gain?

awec

https://www.boards.ie/discussion/comment/119173766#Comment_119173766

If it's your parents PPR, they are not liable for any CGT. If it's not their PPR, they pay CGT on 250k minus what it cost them (i.e. their profit). CGT is based on market rate in this scenario I believe.

The 125k difference between market value and what you're paying would constitute a gift and would presumably become part of your CAT allowance (inheritance allowance). This is about ~335k.

I think.

One other thing to note is that stamp duty is calculated against the market rate.

redsheeps

OK so based on the Revenue's indexation, their original purchase value versus the current market rate equates to a gain of €100,000. As in, original purchase price based on Revenue indexation equates to €150,000. The current market value of the house is €250,000.

The house is not their PPR. So if it cost them €150,000 (based on Revenue indexation) and they are receiving €125,000, then that means they have made no gain (technically minus €25,000) and so are not liable for CGT?

Allinall

https://www.boards.ie/discussion/comment/119173863#Comment_119173863

This is not correct.

If the whole house, or part of it is gifted, the parents are deemed to have disposed of it at market value, and will be assessed for CGT on that basis.

The OP has estimated that if the house was sold for €250,000 ( It's market value), there would be a gain of €100,000.

This gain still exists for CGT purposes, regardless of how much the OP pays the parents- once it's not more than €250,000.

Obviously the difference between the €250k market value and whatever the OP pays for the house will be classed as a gift from parents, and assessed for gift tax accordingly.

awec

Updated my post, cause this is a bit complicated. Still not 100% sure I'm on the money.

Basically, CGT is calculated on the market rate, you can't semi-gift to avoid tax. I think. So they'll pay CGT of 33% on 250k minus whatever they paid for it, no matter if they sell it to you for 125k or 250k.

awec

https://www.boards.ie/discussion/comment/119173925#Comment_119173925

Yea I edited my post like 3 times as more things came into my head, you just got there too fast. 😁

redsheeps

https://www.boards.ie/discussion/comment/119173925#Comment_119173925

So doing it the way I've described gets us hit twice technically.

#1. Parents hit with CGT on €100,000 (difference between original purchase price and current market value)

#2. I'm hit with €125,000 subtracted from my lifetime tax free gift allowance.

That's a bummer. Cheers though for the clarity - I had read things incorrectly and thought a gift to a child was CGT exempt.

DFB-D

Hi, you should get a tax advisor.

Options such as rent free and use your CAT threshold or the grant of a life interest may reduce the tax payable in the short term.

Claw Hammer

The parents can sell for 250, accept 125 and register an unpaid vendors lien on the property for 125 and there would be no CAT until they waive the 125 or leave it by will.

DFB-D

https://www.boards.ie/discussion/comment/119178344#Comment_119178344

CGT was the issue I believe and the OP states that the CAT threshold covers the gift.

But interesting thought!

redsheeps

Cheers for the info. I think a tax advisor might be the best thing to do here as I had no knowledge of a grant of life interest nor an unpaid vendors lien. We're looking to avoid as much tax as possible but obviously not engage in any tax evasion, so whether that's reducing CGT or CAT then I'd jump on it.

Geuze

I recall something about CGT and CAT on the same transaction, can one be put against the other.

I'm not sure, you'd need to look it up.