Capital gains tax on gifted site

andyd12

I am planning on building a house with my GF(fiance) on land gifted from my parents which they bought approx. 20 years ago.

Also, transferring the site into both GF and my name.

In relation to CGT, what is the implication for on my GF's side who is not a blood relative to my parents or married to me.

For example, if the site is valued at 30k. 15k to me is not applicable.

The 15k to my GF, is this subject to CGT? Or am I correct in saying there is no 'Gain' by my parents as they are gifting the site away?

Apiarist

I am not a tax lawyer, but CGT is a tax on a disposal of an asset. You and your GF are not selling the site, so you are not subject to the CGT. Your parents, on the other hand, may need to pay CGT since they are disposing (gifting) the asset. But there is an exception (see below). Quote from

https://www.citizensinformation.ie/en/money-and-tax/tax/capital-taxes/capital-gains-tax/

You dispose of an asset when you:

• Sell it
• Give it as a gift
• Exchange it
• Get compensation or insurance for it

If you make a profit or gain when you dispose of an asset, you pay Capital Gains Tax (CGT) on the chargeable gain. The chargeable gain is usually the difference between the price you paid for the asset and the price you got when you disposed of it. You can deduct allowable expenses such as the cost of acquiring and disposing of the asset.

...

The transfer of a site from parent to child is exempt if it is to build the child's principal private residence. The land must be less than one acre and have a value of €500,000 or less.

Water John

Capital Acquisition Tax (CAT) is what you're looking at. Really don't know what the situation with cohabiting couples is.

Peregrinus

You need to consider separately Capital Gains Tax, a tax payable by someone who disposes of property, and Capital Acquisitions Tax, a tax payable by someone who acquires property for free, or at an undervalue. Depending on the circumstances of the acquisition, Capital Acquistions Tax is often called gift tax or inheritance tax. In this case we'll use the term gift tax, to avoid confusion with capital gains tax.

Gift by your parents to you - CGT

When your parents made a gift of the site to you , they disposed of it. They (not you) became liable to Capital Gains Tax on any chargeable gain that had accrued since they acquired the site. In order to calculate the chargeable gain they are treated as having disposed of it at its market value.

So, if they acquired it 20 years ago at a cost of (say) 10k and when they give it away it is worth 30k, there is a gain of 20k which (subject to any exemptions, deductions, reliefs, etc) will be a chargeable gain on which they must pay CGT. As Victor points out, there's an exemption for transferring a site for a house to a child, and this transfer may well come within it.

Gift by your parents to you - gift tax

You received a gift worth 30k.

You probably have no liability to tax on this gift, since you have a lifetime allowance of 335k for gifts and inheritances that you can receive tax-free from your parents. So, unless they have given you a very large amount of other assets as well, you'll have no liability at this point.

Transfer by you of half-share to your girlfriend - CGT

You will now gift a half share to your girlfriend. You're disposing of the half share, and are deemed to dispose of it at market value, but since you are disposing of it at the same value at which you acquired it, there's no gain, so no CGT liability.

Transfer by you of half-share to your girlfriend - gift tax

Your girlfriend is receiving a gift from you. Because you are not married or civil partners, you and she are unrelated.

Her lifetime allowance for gifts from people unrelated to her is 16,250. For this purpose all gifts and inheritances she has received from people unrelated to her (in excess of 3k in any year) must be aggregated. If she has never received any other gifts or inheritances from people unrelated to her then her full allowance is available, and 15k is within the allowance, so she'll have no liability to gift tax. (However, it's a lifetime allowance, and she will now use most of it, so her capacity to receive further gifts from unrelated people, free of CAT, will now be very limited.)

Far be it from me to suggest that such a consideration should influence you, but if you and she were to marry, then gifts between you would be free of gift tax (and inheritance would be free of inheritance tax).

Alternative approach

You can compress the transactions. Instead of giving the whole site to you, and then you giving half the site to your girlfriend, your parents could give the whole site to you and your girlfriend jointly. On the figures, this will have the same result - your parents dispose of the site and must account for CGVT; you get a gift worth 15k which is well within the allowance for gifts from parents, your girlfriend gets a gift worth 15k from people who are strangers to her. The only differences are (a) your parents can't claim the "transfer of house site to child" exemption for anything they transfer to your girlfriend; she is not their child and (b) your girlfriend does not have the option of marrying your parents before the gift is made to avoid using her her allowance for gifts from strangers.

Water John

A Civil Partnership? Parents give site to you. You transfer half to your civil partner. All tax free, I think.

Peregrinus

https://www.boards.ie/discussion/comment/121112597#Comment_121112597

You can no longer register a civil partnership in Ireland.

You could only ever do so if you and your partner were of the same sex; civil partnerships were introduced as a next-best-thing for same-sex couples who couldn't marry. Once same-sex marriage was legalised, there was no further need for civil partnerships.

andyd12

https://www.boards.ie/discussion/comment/121112564#Comment_121112564

Probably, I should have made this clearer.

I am aware CAT applies to me and my GF. And CGT applies to my parents.

I will be picking up the tab for the CGT hence the enquires.

Thanks however😀

Ronney

You can probably avoid the CAT if your parents gift it just to you (should be within the lifetime threshold). When you marry there is no tax on transfer to your then wife.

Have a chat with your solicitor/accountant and see if there is some mechanism where your parents could keep ownership and you pay a rent, This rent could be offset against the annual €3k gift you can receive from both your parents so €6k total

A 2 second Google shows this:

https://www.revenue.ie/en/gains-gifts-and-inheritance/cgt-reliefs/transfer-of-a-site-from-a-parent-to-a-child.aspx#:~:text=You%20will%20not%20have%20to,civil%20partner%2C%20to%20your%20child.

You will not have to pay CGT if you transfer land to your child to build a house on. The house must be your child’s only or main residence. A transfer includes a joint transfer by you, and your spouse or civil partner, to your child.

The term 'child' includes your:

son or daughter

stepchild

civil partner's child

fostered child, whom you maintained for at least five years before they reached the age of 18. (This must be supported by the testimony of more than one witness.)

How do you qualify for the relief?

To qualify for relief, the land must:

be one acre or less

have a value of €500,000 or less.

How do you apply the relief?

Include details of the gain and relief when you file your CGT return.

Clawback

Your child may have to pay CGT on the disposal of the land from you to them in two specific situations. These are where your child disposes of the land and:

did not build a house on that land

did not occupy the house they built as their only or main residence for at least three years.

This clawback does not apply if your child disposes of the land to their spouse or civil partner.

Str8outtaWuhan

Keep the gf out of it. If you marry her then she gets a piece of it anyway but if ye split up before marriage she will have half of your land.

andyd12

https://www.boards.ie/discussion/comment/121119152#Comment_121119152

Thanks however this does not answer my question around half the land being gifted to my GF(fiance). And the CGT surrounding this.

andyd12

If the land is valued at 30k

For me this is 15k

CAT: Is not applicable

CGT: Is not applicable

Stamp Duty: 7.5% which 2/3rds can be claimed back

For my GF this is 15k

CAT: Is not applicable as she is within the Category C threshold of 16250 - https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-thresholds-rates-and-aggregation-rules/cat-groups-thresholds.aspx

CGT: What is this amount??

Stamp Duty: 7.5% which 2/3rds can be claimed back

Ronney

What price was the land Purchased for?

andyd12

https://www.boards.ie/discussion/comment/121126479#Comment_121126479

The land was bought by my parents at roughly 7,500 euro per acre

Ronney

https://www.boards.ie/discussion/comment/121126510#Comment_121126510

How many Acres is the Site been Give to you?

andyd12

https://www.boards.ie/discussion/comment/121126514#Comment_121126514

.65 of an acre

Ronney

https://www.boards.ie/discussion/comment/121126523#Comment_121126523

So cost of Site to Your parents was €7500 * .65 = €4,875

"Selling Price" = €30,000

Gain = 30,000 - 4,875 = 25,125

25,125/2 = 12,562.50 (Gain on Half to your GF)

Tax @33% of Gain = €4145.63

https://www.boards.ie/discussion/comment/121126575#Comment_121126575

Annual exemption from CGT of €1,270 - available for each parent.

The chargeable gain is €12,562.50 less €2,540 = €10,022.50

CGT @ 33% = €3,307

Deeec

The normal process is to transfer the site only into the sons/daughter's name. Is there a reason why you want to complicate this by transferring the site to both of you?

Before we built our house site was transferred into my name only, planning permission was applied for in only my name( advised to only apply in my name). Mortgage though is in both our names.

Peregrinus

https://www.boards.ie/discussion/comment/121126624#Comment_121126624

How is your partner granting a mortgage over property that they do not own?

Deeec

https://www.boards.ie/discussion/comment/121128372#Comment_121128372

The site was a gift from my parents so was not financed. The mortgage was to fund the house build. We were married by the time the house was started so really the site being in only my name was a non issue. We were mortgage approved before being married though so EBS didnt have an issue with this at all.

My brother recently built a house and done the same - site was only transferred to him and not to partner.

Peregrinus

OK. Slightly surprised at this. The bank is lending money to your partner, knowing that they will spend it on developing a property which they do not own, so they end up with a large debt but no asset. While this is perfectly lawful, it's an awkward position for the bank to be in if it all goes pear-shaped and they have to chase your partner for repayment. I would have expected them to require the transfer of a half-share in the property to your partner.

In this scenario, the loan is to you and your partner jointly, and both of you are legally obliged to repay it. But the mortgage — the charge over the property granted as security for the loan — is being granted by you alone.

Deeec

https://www.boards.ie/discussion/comment/121128727#Comment_121128727

We are married so me owning the site the house is built on does not matter - its a non issue for the bank.

The OP I would assume has intentions to marry his partner. I doubt the parents would want to gift a site otherwise.

Ronney

https://www.boards.ie/discussion/comment/121128752#Comment_121128752

If you are married now surely CGT can be avoided by your parents?

Deeec

https://www.boards.ie/discussion/comment/121128771#Comment_121128771

My Parents paid no CGT as transfer of site from parent to child is exempt if certain criteria are met.

https://www.revenue.ie/en/gains-gifts-and-inheritance/cgt-reliefs/transfer-of-a-site-from-a-parent-to-a-child.aspx

Peregrinus

Yes, but if they transfer the whole site to you, no CGT because of that exemption, and then you transfer a half-share to your spouse, no CGT because they're your spouse. So you can avoid CGT on a transfer from your parents to your spouse.

andyd12

https://www.boards.ie/discussion/comment/121128752#Comment_121128752

Correct, we got engaged recently.

Thinking of just scrapping the joint land idea. And having 2 on the mortgage and 1(Me) on title of the land for now.

phormium

Worked in banking for years, mortgages were often granted in joint names with site/house in one name for this very reason i.e. to avoid tax to the non relative partner who got the gift of site/property.

However I always pointed out to the non owner that they had all the disadvantages (debt) with none of the advantages (asset). Also advised them seek independent legal advice. It's a grand plan unless something goes wrong!

Deeec

https://www.boards.ie/discussion/comment/121128825#Comment_121128825

I think you are getting very confused.

We were not married at the time of site transfer.

Peregrinus

https://www.boards.ie/discussion/comment/121128877#Comment_121128877

So your parents could have transferred to you and, after the happy day, you could have transferred a half-share to your spouse. Bingo!

Donald Trump

You will always be your parents child.

Your current gf might not always be your gf

Deeec

https://www.boards.ie/discussion/comment/121129014#Comment_121129014

No need to go to the legal expense of transferring site to spouse at all - the act of getting married looked after that.

andyd12

https://www.boards.ie/discussion/comment/121126624#Comment_121126624

I was advised to go down this route. However beginning to think this wasn't very sound advice.

Is the likes of a cohabiting agreement a good option.? Then 1 go as sole title on the site and avoid the other hassle

https://www.citizensinformation.ie/en/birth-family-relationships/cohabiting-couples/property-rights-cohabiting-couples/#:~:text=Cohabitants%20Act%202010.-,Cohabitation%20agreements,such%20as%20your%20shared%20property

Deeec

https://www.boards.ie/discussion/comment/121129372#Comment_121129372

Its probably best to check this out with your solicitor.

I suppose it depends on when you plan to get married or if you intend to just live together for the foreseeable future.

Peregrinus

https://www.boards.ie/discussion/comment/121129059#Comment_121129059

No, it didn't. There's no rule in Irish law that by marrying someone you give them a half-share in (a) your property generally, or (b) the home you share with them in particular.

apkmbarry

https://www.boards.ie/discussion/comment/121132406#Comment_121132406

Exactly this, they aren't exactly entitled to half the property. But they can make a joint tenancy in the property through section 14 of the FHPA act. No stamp duty or land registry fees owed. Just wahtever the solicitor charges.

Peregrinus

https://www.boards.ie/discussion/comment/121199308#Comment_121199308

But worth making the point that they can only do that by mutual agreement. S. 14 doesn't entitle the the non-owning spouse to unilaterally register a joint tenancy over the family home. All it does is to exempt the transaction from the stamp duty and registration fees that such a transaction would usually attract.

And it only applies to the registration of a joint tenancy in the family home. At the moment, the property in question isn't a family home; it's a site on which it is intended to build a house which will, one day, be a family home.