Sunday 4 December 2016

Why you can be hit for tax when passing on property to your children

Published 17/04/2016 | 02:30

Leaving property to a charity could even land you with a major tax bill - despite your altruistic intentions
Leaving property to a charity could even land you with a major tax bill - despite your altruistic intentions

Many parents are getting hit for major tax bills after passing on property or land to their children.

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Despite going out of their way to ensure their children won't get hit with gift or inheritance tax when transferring a second property or a site to them, parents often overlook the tax implications for themselves - and pay a big price as a result

"We have regularly seen instances where parents, in their eagerness to give something to their child, have ensured that all the conditions of a tax exemption are met so that a child can inherit or get a gift of an investment property tax-free," said Oonagh Casey-Grehan of Fagan & Partners.

"However, the parents then often find themselves liable for Capital Gains Tax (CGT) - even if they've given the property to the child for free. Property prices are coming back so this is becoming an issue again."

When transferring an investment property to a child, you are typically liable for CGT on the difference between the original purchase price of the property and its market value at the time it is transferred to the child.

You won't usually face a CGT bill if you transfer your private home (including garden and grounds of up to one acre) to a child as there is CGT relief for principal private residences.

You could, however, face a CGT bill after transferring some of your land to your child even if you give the land away for free.

It is possible to transfer a site to a child without triggering a CGT bill for yourself - but certain conditions must be met. The child must be using the land to build a principal private residence for himself, the site must not be more than one acre - and its market value must not be more than €500,000.

Leaving property to a charity could even land you with a major tax bill - despite your altruistic intentions.

"If you have a house and you decided to gift it to a charity, there's a CGT charge on that -unless you have applied for a specific relief known as Section 611," said Barry Flanagan of Taxback.com. "This also often comes up if you're gifting shares to a charity. You must claim Section 611 relief to avoid getting hit with a tax bill should the shares go up in value."

Children could be liable for gift or inheritance tax when property or land is transferred to them.

For parents passing on a particularly valuable family home to one child, the dwelling house tax exemption could be the only way for the child to inherit the home tax-free.

Understand how this exemption works before using it though.

"There are so many ways people can get tripped up when claiming an exemption," said Ms Casey-Grehan.

"When looking to use a tax exemption, understand the terms of it - and regularly review the exemption to ensure its conditions have not changed when you are in the process of claiming it."

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