Buying house and site from parents

[robyn]

My parents inherited some land and an old cottage some years back. They completely renovated the cottage and my sister and her husband are currently living in the property. My sister has approached my parents as they wish to purchase the cottage and a site next door to it, where they intend to build their primary residence. I'm not aware of what their intentions for the cottage but I assume it's to maintain their privacy. While my parents are delighted about that the couple plan to build in the area they are a bit reluctant to also sell the cottage, thinking that it would give a rental income for future years. There is also the issue that this cottage and site are situated on land which has a large development potential. While my parents are not in any hurry to do this, they do realise that they will not be around for ever and maybe when they got too old to farm the land it may be sold. Does anyone know what the tax implications are for my parents as this land was inherited? My sister has offered to pay current market prices but I think the final price will be a lot less than this.

 

[mf1]

I think the question you are formally asking is

"Does anyone know what the tax implications are for my parents as this land was inherited? "

If and when they sell everything and assuming they paid CAT due( if any) on inheritance, then they will have a CGT liability on any market value gain on the property from the date of inheritance until the date of the disposal. If the property sells for enormous amounts of money, they will have a big tax liability. They will not be left short.

I think the sub text though is whether they should sell the cottage and site to your sister. The simple answer is : If they want to, they can and if they don't want to, they don't have to. Its unclear from your post (and perhaps I am reading too much into it- if so, ignore ) but it sounds as if there is a subtle pressure being exerted by the sister on the parents as in "I'd like to buy and I'd like you to sell and I'd like to build here". But if sister does buy and decides not to build but rather sell and makes a profit with the development potential, who does that profit belong to?

There is no automatic entitlement by offspring for anything off parents.

mf

 

[robyn]

There has been a very large gain in value on the property since the land was inherited, therefore I assume that they will have a large tax liability.

My parents would be gutted if they were to sell. To be honest I can't see them doing this but then who knows. I agree 100% with you that "there is no automatic entitlement by offspring for anything off parents", however the situation is that my parents do have a large amount of land and they are unsure of the best path forward. They want every child to be treated equally. I certainly don't expect anything from them, I would wish to see them enjoying their retirement years comfortably. But they do worry about what to do with the property in the future, should it all be divided up (and sold) or hope that one offspring may decide to farm it. I think this is an issue for alot of land owners.

What is the approxiate tax liability, does it matter if it is from parent to offspring?

 

[mf1]

I think they really need to sit down with their solicitor / accountant and talk about what they want, what they should be thinking about, whether they should sell or gift property to family or outsiders, when they should be doing this, what their potential tax liability will be, what is the most tax efficient way of dealing with what they have now/in the future/on death, how they provide for themselves in retirement, how they prevent the breakup of a farm etc.,etc

I'm aware of one situation where a father made primary provision during his lifetime for one son by giving him the family farm. No strings. The rest of the family got an education and a site to build on. The father died, the son sold the farm for many millions, the rest of the family are apoplectic and there is nothing they can do - by and large, ( with some small exceptions) people may do what they wish with their estate.

I do accept that where farmland is concerned that feelings run deep ( witness the recent tragedy in Carlow and the regular court cases about disputes over estates) but I wonder is that on the wane given the move away from farming that seems to be almost inevitable for the farming community?

mf