Reader query

Dear Sir or Madam. I am 86 years old. I buy the Irish Farmers Journal weekly. My nephew wants to buy my house. I am single. Would you do a piece in the paper on the best way to do this to avoid gift tax or stamp tax? Who has to be notified of the sale? Does the deed have to be recorded? Any information will be valuable.

Aisling responds

I would stress at the outset, that tax considerations are not the main factor that should dictate a house transfer and you should also be conscious of the legal and practical considerations. The transfer should be structured in such a way as to prevent potential conflict within the family into the future and also to enable a practical way of transferring the house to further generations. Your financial and emotional security should also be provided for. You have not mentioned as to whether you are prepared to “give up” living in the house and I presume that you would want to continue to live where you have always lived. That being the case, you should ensure that a right of residence is retained by you in the house ie, a right to live in that property. Generally speaking there are three taxes that must be considered in such a transfer and I will go down through each one and highlight any reliefs available.

Capital gains tax

This is a tax on the uplift in value from when you acquired the house and the current market value. The gain is taxable at 33%. However, there is a relief available to shelter any potential capital gains tax called Principal Private Residence Relief. If you have lived in the house as your principal private residence as long as you owned it, you will get relief in full.

Capital acquisitions tax

This is the gift or inheritance tax that could be liable on your nephew. You mention that your nephew wants to buy your house. If he pays the market value for it ie, the price you would expect to be paid by an unconnected person, there is no gift. However, if you transfer it to him at less than the market value, there is a gift. A person can receive a certain amount of a gift tax free each year called the small gift exemption. This is currently set at €3,000 per person. Thereafter there is a “group threshold” and gifts between blood relatives, excluding gifts between parents and children, generally fall within the Group B threshold. This is currently set at €32,500.

He can deduct the small gift exemption amount of €3,000 and also the Group B threshold (assuming he still has it all left) of €32,500 and whatever that results in is taxable at 33%

However any other gifts or inheritances your nephew may have received from aunts/uncles/grandparents/brothers/sisters since 5 December 1991 could have used up some of this Group B threshold. He could well have the full amount left if he has not received any prior gifts/inheritances from relatives.

It is the difference between the market value of the house and the price he is paying (if any), that is the amount of the gift. He can deduct the small gift exemption amount of €3,000 and also the Group B threshold (assuming he still has it all left) of €32,500 and whatever that results in is taxable at 33%.

In terms of tax reliefs from capital acquisitions tax, the potential reliefs available are “agricultural relief” and “dwelling house exemption”.

Dwelling house exemption, which sheltered gift tax where a person had been living in a house before it was transferred to them, was severely curtailed in the last few budgets

However for agricultural relief to apply to the house, he would also have to be transferred agricultural land surrounding the house at the same time as the house. Dwelling house exemption, which sheltered gift tax where a person had been living in a house before it was transferred to them, was severely curtailed in the last few budgets. Generally it is only available in a gift situation where the person receiving the gift is a dependent relative ie, incapacitated or over 65 years of age and has been living in the house with you. Thus it is unlikely to apply in your particular circumstances.

Stamp duty

The current rate of stamp duty on residential property is 1% on the market value of the house and would be payable by your nephew.

Notification of sale

In order for the transfer to have legal effect, it has to be recorded in a deed. You will also need independent solicitors – one acting for you and one acting for your nephew. The deed will need to be stamped and a return lodged with the Revenue Commissioners. The stamped deed would then be lodged to the Land Registry to have your nephew’s name noted as the owner of the property. Both of you would have to supply your PPS numbers to have the deed stamped.

Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors does not accept responsibility for errors or omissions howsoever arising. E-mail aisling@agrisolicitors.ie

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