Question of Finance: What are the rules on land gifts to children?
QI WANT to gift some of my land to my son so that he can build a house. Do any taxes arise in such a transaction?
A The transfer of land to a child by a parent potentially gives rise to capital gains tax (CGT), capital acquisitions tax (CAT) and stamp duty, even where no money is received by the parent. However, a parent can make a transfer of a site to a child, to allow the child to build a residence, free of CGT and stamp duty, provided a number of conditions are satisfied.
The Commission on Taxation Report (2009) recommended that this exemption be abolished, and there is a possibility that this could be introduced in next month's Finance Bill. Because of this, I would advise you to act fast -- but to ensure that you take specific tax and legal advice.
Currently, a transfer of land which is worth, say, €400,000 with a tax cost of €100,000 could be transferred to a child without CGT and stamp duty, if the conditions are satisfied.
If the exemption was abolished, the tax cost could be around €84,625.
The value of the 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 not exceed an acre.
The CGT exemption provides for a clawback of the relief if the land is sold by the child (other than to his spouse), unless the child has built the house and lived in it for three years as his principal private residence.
The tax clawed back is assessed on the child rather than the parent if this occurs. The exemption does not extend to CAT. However, as a child can receive lifetime gifts and inheritances up to €414,799 from parents, the CAT cost may not be significant.
- Barry Kennelly, solicitor, Astons