Advice: What are the key tax implications of gifting a site to a family member?

Site issues: The taxes that can arise when gifting a site to a family member are Capital Gains Tax, Gift Tax and Stamp Duty
Site issues: The taxes that can arise when gifting a site to a family member are Capital Gains Tax, Gift Tax and Stamp Duty

Martin O'Sullivan

Seldom does a week pass that I do not get a query from a farmer about the matter of gifting a site to a family member and the possible tax implications of doing so.

The family member could be a son, daughter, brother, sister, niece or nephew and the taxes that can arise are Capital Gains Tax, Gift Tax and Stamp Duty. The relationship to the person getting the site will generally determine if a tax exposure exists for any of the parties involved and what the nature of the tax exposure will be.

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Most people have the impression that there will be no tax implications for gifts and that is generally true in the case of transfers to children, but transfers to other related parties may not be quite so simple. Indeed, even parent-to-child transfers are subject to strict rules which if not observed could land a tax liability back at the door of the son or daughter who received the site.

In this article I will deal with the issues surrounding the transfer of a site to a child and to a family member other than a child.

Transfers to a child

For the parent gifting the site their primary concern will be Capital Gains Tax. Thankfully, there is an exemption to Capital Gains Tax which only applies to transfers to their children or jointly with that child's spouse or civil partner. A child can only ever receive one site but there is no restriction on the number of children who can receive a site. The rules which are strictly enforced are as follows:

■ The site must be for the construction of a principal private residence. In other words, building a house on the site for the purpose of renting out does not qualify;

■ The child cannot dispose of the house not having lived in it for three years;

■ The child cannot dispose of the site without building a house on it;

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■ The area of the site excluding the house footprint cannot exceed one acre.

If any of these rules are broken it is the child, not the parent, who will be liable for the Capital Gains that would have otherwise been incurred by the parent but for the existence of the exemption.

However, where the child transfers an interest in the site to his or her spouse or civil partner, this situation cannot arise.

For the child receiving the site the matter of Capital Acquisitions Tax (CAT), more commonly known as Gift or Inheritance Tax will apply. However, as a child is entitled to receive total lifetime gifts or inheritances of €320,000 from a parent(s), it is highly unlikely that they will have a liability. It should be noted that if they receive subsequent gifts or inheritances from one or both parents, the value of the site will be included in determining if they have breached their €320k threshold. Accordingly, where future inheritances from one's parents are a possibility, it is important that the site value is kept as low as is legitimately possible in order to avoid a possible liability in the future.

Transfers to other family members

The exemption from Capital Gains Tax that applies to transfers to a child does not extend to any other related person. Accordingly, it is commonly the case that the giver has an exposure to Capital Gains Tax and the receiver to Capital Acquisitions Tax.

The good news however for the person receiving the site is that a relief called 'Same Event Relief' means that any Capital Gains Tax incurred by the giver can be offset against any Capital Acquisitions Tax payable by the recipient.

However, either party could still have a liability in certain circumstances. For example, the recipient could have a gift tax liability if the site value was greater than €35,500 (Group B threshold of €32,500 plus annual small gift exemption of €3,000) and the giver was exempt from tax due to the availability of Retirement Relief.

Alternatively, a liability to Capital Gains Tax could arise for the giver where they were not entitled to Retirement Relief for whatever reason but the recipient had no gift tax liability because the value of the site did not exceed their tax-free threshold.

Stamp Duty on sites

A site is non-residential property. You pay Stamp Duty on the cost of the site at 6pc, but you can claim a refund of two-thirds of the Stamp Duty you pay by way of availing of the Residential Development Stamp Duty Refund Scheme. The principal rules of the scheme are as follows:

■ The site area excluding the house footprint cannot exceed one acre;

■ You must file a Stamp Duty return and receive a Stamp Duty certificate;

■ You must commence building a house on the land within 30 months after the date of the transfer;

■ You can make your claim only after you commence building work and you must make it electronically.

Case study: A €45,000 site gifted to a niece

Jimmy Farmer gifts a site worth €45,000 to his niece, Joan. Jimmy bought the farm eight years ago and even though he is now over 55, he is not entitled to Retirement Relief because he does not own the land for ten years.

Jimmy's accountant informs him that he has a Capital Gains Tax liability of €9,000 based on part disposal rules. Joan had previously received a gift of €10,000 from her brother, so her tax-free threshold has been reduced from €32,500 to €22,500. She is also entitled to the annual small gifts exemption of €3,000 which leaves her with a gift tax bill of €6,435.

However, the good news for Joan is that she gets a credit for the Capital Gains Tax paid by her uncle Jimmy which reduces her liability to nil. It should be noted that the credit coming from Jimmy cannot exceed her liability so there is no possibility of receiving a refund of any of the Capital Gains Tax paid.

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