Tuesday 27 June 2017

What tax do I pay if I sell to my daughter?

Can you advise me on selling a house I own to my daughter? I lived there for 14 years and moved out in 2004 when she moved in. She only started paying rent last year, and at less than half the market rate. What is the position on capital gains tax?

In the normal course of events, you could sell your house for whatever you please, but Revenue imposes certain rules on transactions between family members and can charge penalties if you undervalue the property.

Likewise, there is normally no tax liability if you're selling your principal private residence, as long as you have occupied it throughout the period of ownership. As you have not, you may not get full relief from Capital Gains Tax.

Barry Kennelly, Associate Director ITC Consulting explains: "A CGT liability would arise at 30pc if the current market value exceeds the historic cost."

As you bought 21 years ago, this could be an issue. "There are some other circumstances where relief can still be available even if you are not residing in the property, so you should get specific tax advice on this point."

Stamp duty of 1pc also applies on the market value of the property at the date of the sale. If you sell at less than market value to your child and the reduction is worth more than €250,000, the child may be liable to pay tax on the excess. However CGT paid by the parent could be offset against a child's Capital Acquisition Tax.

"In addition you should be paying tax on rent received from your daughter and if a formal lease was entered into, you would need to register the tenancy with the PRTB. Interest, penalties and surcharges may apply where the correct tax is not paid and return filed," he adds.

We are PTSB customers and want to move from our one-bedroom apartment to a larger house as we have a child, but we are in negative equity by about €50,000. I heard there is a new scheme which would allow us trade up. Can you explain it?

The new scheme initiated by the Central Bank applies to BOI and PTSB customers only. It allows people like you to trade up and "carry forward" the negative equity portion of your mortgage. The salient points are:

The maximum negative equity portion allowed is 25pc of the new loan. In your case, that would mean a maximum new mortgage of €250,000 (€200,000 for the loan plus €50,000 carry over).

You must sell your apartment first. This may well prove challenging for you in the current climate, especially as one-bedrooms are among the most difficult to sell.

If you have an existing tracker you will lose it. The new loan will be given out on a variable basis, so check your sums before you proceed. You will have to prove you can easily make the repayments and ironically, you will almost definitely end up back in negative equity. On the upside, you'll be living somewhere better and tax may not matter.

siryan@independent.ie

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