The gift of future security may not have been very high on your child’s Christmas list and Santa may have been stumped if it was but for concerned parents, now may be the time to do it. Many people with their own land may have long-considered it as a future site for their children to build a home. This, however, may prove troublesome with proposed changes for Capital Gains Tax (CGT) when gifting a site to a child.

The transfer of land to a child by a parent potentially gives rise to CGT, Capital Acquisitions Tax (CAT) and stamp duty. These arise even where a parent receives no money.

A parent, however, can make a transfer of a site to a child, to allow the child to build a house, free of CGT and Stamp Duty, provided a number of conditions are satisfied. According to Barry Kennelly, Senior Consultant with Astons Tax & Wealth consultants, under the current rules a transfer of land worth €200,000 with a tax cost of €10,000 could be transferred free of tax. If the exemption was abolished, the tax liability would be in the region of €50,000.

Kennelly says: "Many people in Cork own land that they have always planned to give to their children to build a home. However, in the Budget, the Minister specifically mentioned that he will examine the curtailment and removal of certain tax breaks in the Finance Bill, which is due in early February. One of the reliefs that could be threatened is the relief that allows a parent to make a transfer of a site to a child, to allow the child to build a residence, free of CGT and Stamp Duty.

"The recent Commission on Taxation report recommended that this exemption should be abolished. We are endeavouring to highlight these impending changes to the people of Cork who may be considering giving their child or children some land that they own to build a house. For these people, prompt action in advance of the forthcoming Finance Bill may be warranted. Our concern would be that unless the timing is correct the transfer of a site to a child could end up giving rise to a significant tax cost." Kennelly also adds that the current exemption does not extend to CAT but considering a child can receive lifetime gifts and inheritances up to €414,799 from parents, the CAT cost may not be a concern.

"A number of conditions must be satisfied," says Kennelly. "The value of land being transferred must not exceed €500,000 and the area of the land (excluding the area on which the house is to be constructed) must no exceed an acre. The CGT exemption provides for a claw back of the relief if the relief if the land is sold by the child (other than to a spouse), unless the child has built the house and lived in it for three years as his or her principal private residence.

"The tax clawed back is assessed on the child rather than the parent if this occurs. The exemption does not apply to second, or holiday homes. It is also important to note that the exemption only applies to a child. It does not apply to a transfer to a child and the child’s spouse. If that is the intention, some further tax planning may be required." The best bet for anyone who may find himself or herself in this position in advance of the Finance Bill is to seek professional advice on the matter. It could end up saving you a considerable sum.

Comments (0) »

Show/Hide comment form

Name

Email

Title

Comment

Write the displayed characters

Add Comment