Gifting property to son - any taxation involved

[spider7]

Hi,
I would greatly appreciate any advice I can get on this query.

I wish to gift an apartment I own to my son.
He is a resident in U.S.
upon receipt of the gift of the apartment, is he liable to pay tax on this property as a gift.
The cost of the property is circa €380,000
As the property is small (i.e.a 1 bed apartment) he may wish to upgrade to a 2 bed apartment (it is not let out but used by other family members)

Should he wish to sell the property, will he be liable for capital gains tax in Ireland and /or the U.S.(taking into regard that he lives in the U.S.)

Many Thanks in advance for any replies.

 

[Nige]

Firstly, presuming you are Irish resident, this gift will be within the remit of Irish Capital Acquisitions Tax (CAT). He will have to get US advice on the US position.

If your son has not, since 5 December 1991, received any other gifts or inheritances from his parents, this gift will not create a tax liability as a person can receives gifts/inheritances from their parents of up to €520k before tax (at 20%) kicks in. If this gift brings him within 80% of that threshold he will be obliged to file a CAT return (form IT38).

If the property is situated in Ireland, he will be subject to Irish CGT at 20% on the uplift in value from the date of the gift and date of the sale, should he sell (or otherwise dispose of it).

You also need to bear in mind that you may have a CGT liability on the gift of the apartment to your son.

 

[spider7]

Hi Nige,
Many Thanks for your reply.
just one question. why would I be liable to pay CGT on gifting the property.
(the apartment was bought for 70,000 punts and now has a value of circa €380,000).
can't see why I would have to pay a tax on a gift?

 

[Nige]

Hi Nige,
Many Thanks for your reply.
just one question. why would I be liable to pay CGT on gifting the property.
(the apartment was bought for 70,000 punts and now has a value of circa €380,000).
can't see why I would have to pay a tax on a gift?

Making a gift is treated, for tax purposes, as if you sold the property for its market value. So, you will be subject to CGT at 20% on the difference between the current value and what you paid for it (after indexation and costs of acquisition/disposal).

 

[seriams]

My understanding was that he would only be liable for tax if his son was to sell on the property within six years....correct me if I'm wrong.

 

[Nige]

My understanding was that he would only be liable for tax if his son was to sell on the property within six years....correct me if I'm wrong.

You are confusing the situation with that of retirement relief. With retirement relief if a person aged over 55 disposes of certain business property, they don't pay CGT but if that person is a child and they sell within 6 years, the CGT becomes payable.

An apartment is not an asset which would be a business asset for retirement relief.

 

[Ned_ie]

I agree with Nige on this. CGT will be payable by OP on the disposal of the property.

Also, the federal tax system in the US is as far as i know very extensive when it comes to taxing gifts. Your son needs to really get it checked out over there by his tax advisors.

Finally, he will have to pay Stamp Duty on the gift of the property. rule son this have chagnged recently so am not sure exactly how much he will have to pay.

 

[Iceman732]

You will however receive credit for the tax paid. This will fall you under the single event tax legislation. In general a CAT liability tends to be higher than a CGT liability (Depending on thresholds, indexation etc...)

So when calculating the CAT liability, you should claim relief (input credit) for CGT paid. I'm assuming the CAT liability will be greater than the CGT liability.

Do you intend to gift your son anything else within the state? You/ he may decide not to eat into his threshold at the moment. It would prove more efficient to leave the threshold for an inheritance rather than gift as CGT will not arise on the transfer during inheritance.