Sunday 23 October 2016

Home economics: Answering your property questions

Published 24/06/2016 | 02:30

Couple looking to buy a house together
Couple looking to buy a house together

Q: My son is being left some land by his great aunt in her will. He is 15 and it is probably worth around €30,000, which will be great when he’s older. However, I’m concerned he’ll pay tax on this. Will it be immediately or can it somehow be transferred to my wife, under a bigger threshold, and then to our son without incurring a penalty now or in the future?

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A. Under anti-avoidance rules, it is not possible to transfer the property (or a portion thereof) to your wife now and then immediately on to your son as Revenue will “look through” any arrangement they deem to be made purely to avoid tax and will disallow the relief. If it is left to his mother, any future transfer to your son could potentially be challenged by Revenue. I asked Barry Flanagan of for his thoughts. 

“If the property is transferred to your son immediately, two potential taxes arise. The great aunt may have a Capital Gains Tax (CGT) liability, and your son could have a Capital Acquisitions Tax (CAT) liability, with relief given up to the ‘Group C’ Threshold (€15,075). If sufficient CGT is payable, no CAT may be due. If the land is left in a will, only a CAT liability will arise. Some other options exist.

A Discretionary Trust could be formed, holding the land in a trust for your son until he turns 21. While Discretionary Trust tax will arise using this option, the overall bill ultimately payable may be lower. The cost of setting up such a trust should be factored into the final decision. 

Firstly, the great aunt could transfer land with a value of up to the Group C threshold immediately without CAT consequences (though CGT would still potentially be due). Land of up to €3,000 in value could then be transferred each year without CAT using the “small gift exemption”, until such time as all has been passed, but her poor health may prevent this arrangement”.

Q. I’m giving my son a deposit towards a house from a recently matured bond. It’s €38,750 and I understand there won’t be a tax implication. However, my concern is his girlfriend — they are buying the house ‘together’ and I’m concerned that if they split up, she could get half of it. This is really for him, not them, although I have no objection to her (I’d prefer they were married though).

A. With the Central Bank’s new mortgage rules, first-time buyers are increasingly turning to parents for assistance in meeting deposit requirements. There’s nothing inherently wrong with this, although lenders also like to see a strong savings record from the borrower.

“You are correct that there is no tax implication — the amount is well under the parent/child threshold, but it will be counted toward future gifts and inheritances.

“I asked solicitor Susan Cosgrove of Cosgrove Gaynard about protecting the deposit.

“The funds can be given as a loan to your son. This can be interest free but essentially the document should clearly set out that the money is due back to the parent. A co-ownership agreement can be put in place between your son and his girlfriend to confirm that the money was a gift and should be repaid to you, and acknowledging that it is your son’s should the property be sold.

“In addition, unequal shares of the property can be registered to increase your son’s ownership by the amount of the deposit. However, if they are getting bank finance, a bank will generally look for equal ownership.

“It should be noted that the property in all of these circumstances should be held by your son and his girlfriend as tenants-in-common and not joint tenants.

“This allows them to own their shares of the property individually as opposed to a joint tenancy, which essentially means that when one dies, that person’s interest passes to the survivor automatically.”

The Ryan review

Paypal’s VP of Global Ops, Louise Phelan, has told Ireland Inc it needs to “get over” the idea of home ownership in favour of renting.

Speaking at the Dublin Chamber ‘Dublin 2050’ event, she outlined challenges in the housing market.

Well, let’s see how badly we’re doing. The 2015 ‘Housing Europe’ review shows the split between private home ownership and private rentals across EU member states.

Ireland, as expected, shows a reasonably high level of owner occupiers (OO) at 69.7pc, with private renters (R) at 18.5pc. Compared to our neighbours, we’re actually pretty much in the median.

Belgium is 64.8pc (OO), 27.5pc (R); France is 57.7pc (OO) and 21.9pc (R) while the UK has 64.2pc owning their own homes and 17.6pc renting. The Dutch have 60pc (OO) and just seven per cent in the private rental sector, but a high 33pc in State rental accommodation.

Where we and they differ is in countries with a strong rental culture and excellent laws protecting landlord and tenant. Germany is the only country with more people renting (50.4pc) than buying (45.4pc), while Denmark isn’t far behind with 51pc (OO) and 49pc tenants.

What this all means is that it’s fine and dandy to tell the Irish they’d better get used to paying someone else for their accommodation, but putting the pillars in place to support those decisions are a way off yet.

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