Can we gift our flat to our child tax-free?

Q We would like to give our adult child and spouse a small flat we own in Dublin to help them on to the property ladder. We bought the flat in 2014 and it has probably increased in value, by approximately € 15,000. My question is: can we give this property to our child and their spouse without any tax liability on our part, since we are giving it away outright rather than selling it? Likewise, without tax liability on their part? The flat is worth a lot less than the gift-tax threshold of € 280,000 for son or daughter. I’d be most grateful for your advice.

Your Liability, CGT: a gift of an asset is a disposal for capital gains tax (CGT) purposes. A liability to CGT arises when the proceeds (less incidental costs of sale) are greater than the original purchase price (plus purchase costs). Irish tax legislation states that where a property is transferred by way of a gift to a connected party (ie a lineal descendent), the transfer is deemed to pass at market value. Therefore, while no consideration may be received for the property, you will be deemed to have received consideration on disposal, ie the current market value of the property. Based on the information provided, a gain of €15,000 will arise on the disposal of the property with CGT payable on this deemed gain.

Please note that principal private relief applies to the sale of an individual’s only or main residence. For the purposes of this advice, we assume that the flat is not your only or main residence. You should, however, be entitled to the annual exemption of €1,270. If you hold the property jointly with your spouse, you are both entitled to the annual exemption. If this is the case, the first €2,540 of your chargeable gains should not be liable for CGT.

Your child’s / child’s spouse liabilityCAT: a liability to capital acquisitions tax (CAT) may arise when a person receives a gift, if the value of the benefit is over a certain limit or threshold. The relationship between the person who provided the gift (the disponer) and the person who received the gift (the beneficiary), determines the maximum tax-free threshold, known as the “group threshold”. A disposal below the value of these group thresholds will not give rise to a CAT liability provided the individual has not previously received a gift within the group. There are three group thresholds: group A – son or daughter (€280,000); group B – parent / brother / sister / niece / nephew / grandchild (€30,150); and group C – any other relationship (€15,075).

As we understand, the property has a current market value below €280,000 so a transfer of the property solely to your child should not give rise to a CAT liability provided he/she has not utilised some of the group A threshold through a previous receipt of taxable benefits from you and the increased valuation of € 15,000 does not exceed € 280,000. If, however, the property is gifted 50:50 to both your child and his / her spouse, a CAT liability is likely to arise for the spouse as they would only get relief from the group C threshold, of € 15,075, provided they have not previously utilised this amount through receipt of a previous gift. The small-gift exemption should apply, resulting in an exemption of the first €3,000 of the taxable value of the gift received by your child’s spouse. Where CGT and CAT are liable on the same event, a credit for the CGT paid may be claimed in certain circumstances.

Please note that dwelling house relief applies to the gift of residential properties provided certain conditions are met in advance of the disposal.

Stamp duty: based on a valuation of less than € 280,000, stamp duty at a rate of 1 per cent of the market value would apply. Either party to the transaction can be liable for stamp duty in the case of a gift.

We would recommend you contact a tax adviser prior to the disposal of the property to calculate any taxes that may arise and assist with the submission of tax returns, where required. Niamh Horgan, tax manager, RSM

Published in The Irish Times

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