The transfer of a site to a child to allow them to build their principal residence gives rise to tax and other costs which we have outlined below together with the tax reliefs available.
CAPITAL GAINS TAX (CGT)
CGT will not apply on the transfer of a site by a parent (or both parents simultaneously) to a child where the following conditions are met: –
- the transfer is to enable the child to construct their own principal private residence on the site;
- the value of the site does not exceed €500,000;
- the area of the site does not exceed 0.4047 hectare (1 acre) in addition to the area occupied by the dwelling house itself. The size of the site is strictly interpreted.
The relief is clawed back by way of a CGT assessment on the child if the child later disposes of the site without having constructed a principal private residence on the site and occupied it as such for at least 3 years. However, no gain will accrue to the child where they transfer an interest in the site to their spouse/civil partner.
CAPITAL ACQUISITIONS TAX (CAT)
A child will not pay CAT on the gift if the value is below their group A threshold which is currently €320,000.
In addition, the taxable value of the gift is reduced by the small gift exemption which is currently €3,000 and may be deducted per disponer. Therefore, if both parents are making the gift to the child the taxable value of the gift is reduced by €6,000.
If the child’s group A threshold needs to be preserved for future gifts and inheritances, then it is worthwhile considering whether consideration should be paid (in full or in part) by way of loan from parent(s) to child that would then be written down annually using the small gift exemption. A loan agreement would need to be put in place and Wills updated.
A 6% rate of stamp duty applies to the purchase or transfer (by way of sale or gift) of non-residential land where the deed transferring the land is executed on or after 11 October 2017.
However, a refund of the difference between the previous non-residential rate of 2% and the current rate of 6% (i.e. maximum of two-thirds of the amount of duty paid at 6%) may be claimed in respect of land that is subsequently developed for residential purposes where the site comprises no more than the footprint of the dwelling house itself and its associated curtilage (exclusive of the site of the dwelling unit) up to an area of 0.4047 hectares. There are various conditions to be met to claim the refund but mainly: –
- Construction operations must commence on the land within the period of 30 months starting on the day after the date of execution of the deed transferring the land.
- Construction must be completed within 2 years of a local authority acknowledging a commencement notice or a 7-day notice as valid. The scheme is subject to an overall time limit and construction must commence on or before 31 December 2021. The latest date for completion of a development is therefore 31 December 2023.
The amount of the stamp duty refund is determined by the formula A x B x ⅔ where: · A represents the amount of stamp duty paid at the rate of 6% · B represents the proportion of the area on which residential development occurred.
A refund can be claimed as soon as construction commences on foot of a valid commencement notice or a 7-day notice.
PROPERTY REGISTRATION AUTHORITY
The Property Registration Authority fee for a voluntary transfer is €130 and there is also a charge of €75 for the opening of a new folio.
In accordance with the Solicitors (Professional Practice, Conduct and Discipline – Conveyancing Conflict of Interest) Regulation 2012 both sides to the transaction must be separately advised.
For further information please contact Gerrard L. McGowan Solicitors.
Ruth Higgins Partner
The material is for information purposes only and is a summary of principal points. Professional advice should be sought in all cases. Information is correct at the time of writing. May 2019