Capital Gains Tax Question, is it avoidable in this situation?

[nossie]

A house was bought by a couple in the 1950s. We’ll refer to them as Grandfather and Grandmother here. Grandfather died and that left only Grandmother on the title. Later Grandmother decided to add her son to the title so now the owners named on the title of the house are Grandmother and Father. Later still Grandmother moves to England and is never seen again.
Father marries Mother and the marriage lasts a few years and then Father leaves what has at this time become the family home but still at this point only Grandmother and Father are on the title of the house but neither of them lives there.
After years of legal battling in the year 1987Mother gets her name on the title due to many factors such as she’s lived there for decades and he never paid maintenance etc so now the title shows Grandmother, Father and Mother as the owners. Later on 1997Grandmother died and this leaves only Father and Mother on the title.
Some more years of legal battling and Mother became the sole name on the title in 2005.

Now Mother wants to sell this house that is worth €350,000 to Son for €100,000. And one last piece of the puzzle, Mother has been a legal resident in the United States for the last 17 years.

Q 1. What is the situation with the capital gains? Remember she lives in the USA. Can we say that this is the Mother’s primary residence and therefore exempt from CGT?
Q 2. Is it possible to transfer the house without using a Solicitor to keep costs down?
Q 3. Assuming 100% trust by Mother and Son what is the best way financially to make the sale between them. Can she put the son’s name on the title and then maybe remove her own later?

 

[ubiquitous]

Q 1. What is the situation with the capital gains? Remember she lives in the USA.

You will need to get professional tax advice on this. Assuming the property is in Ireland, there is definitely a CGT issue, regardless of the residence of the owner.

Can we say that this is the Mother’s primary residence and therefore exempt from CGT?

You can say what you like, but telling lies in order to evade tax is a serious matter. You will not get any guidance in this regard on AAM. You may find it difficult to retain a reputable professional advisor to assist you unless they are satisfied as to your bona fides and willingness to comply with tax laws.

Q 2. Is it possible to transfer the house without using a Solicitor to keep costs down?

What do you think yourself

 

[nossie]

Hi Ubi.
Fair enough I'm not trying to bring the integrity of AAM into question but simply looking at all the options. The question of main residence could come down to ones opinion since time is spent here and in the states to suit herself and often the weather.
If it is considered the main residence according to this link there is no CGT [broken link removed]

11. If I sell my house will I have to pay Capital Gains Tax? No. If the house (including grounds of up to one acre) has been occupied as your sole or main residence throughout your period of ownership you will be exempt from Capital Gains Tax on the sale.

So in this case it's the interpretation of "main residence" that needs to be looked at.

The next question is that assuming that she would have to pay CGT and the house is worth 300k today then how much would the bottom line figure be when you have to argue at what point the house came into her possesion.

 

[ubiquitous]

It is up to her to determine and prove that this property is her PPR. This may be difficult if as you say that "she lives in the USA" and that she "has been a legal resident in the United States for the last 17 years". There may be some leeway in this regard depending on her own domestic/financial/employment circumstances if she has occupied the property off and on during these years. An element of PPR relief may also apply to prior years before she lived in the USA.

It is impossible to calculate a bottom line CGT liability given the complicated nature of the case and the limited information you have provided. The eventual CGT liability will be based on the market value of the property at the date of disposal, not the agreed sale/transfer amount. There will be some difficulty, given the history of the case, in determining the deductible items in the CGT computation.

As I have said, you will need specific professional advice to determine the liability.

 

[Newby]

As I have said, you will need specific professional advice to determine the liability.

Amen. You (or more likely an advisor) should also look at whether or not any US tax issues arising from that situation. Though I have no experience of it myself I would imagine that the sale of a property by a US resident would have US tax implications.

 

[nossie]

Is it possible that Gift Tax is the answer [broken link removed] ?

WHAT IS GIFT TAX?
Since 28 February, 1974 gift tax is payable on certain gifts made during the lifetime of the donor. The person
making the gift is called the donor or disponer and the person receiving the gift is called the donee. A gift is
taken when a donee becomes beneficially entitled in possession to some property and does not give full
consideration for it.
The tax is payable by the person receiving the gift.
WHAT GIFTS ATTRACT GIFT TAX?
Gift Tax is payable on all gifts if certain totals called thresholds are exceeded. Some of the more usual
transactions under which gifts are taken might take the following form -

a present of cash

a present of jewellery or of a car

a transfer of a house or lands

the use of a house for life.
HOW MUCH OF A GIFT IS TAX FREE?
There are three tax-free thresholds. There are different thresholds depending on the relationship between
the person receiving the gift and the person making the gift. New thresholds were introduced on
1 December, 1999
Group A:
£381,000. This applies to a child, a step child, a foster child in certain circumstances and to a grandchild
under the age of 18 of the donor whose parent is dead.
Group B:
£38,100. Included in this class are brothers, sisters, nephews and nieces
Group C:
£19,050. This applies to a donee who does not come under Class A or B.
These thresholds can be reached either by a single gift or by a collection of a number of gifts and
inheritances over a period of years. Only prior gifts and inheritances to which the same group threshold
apply are aggregated (added together) for the purposes of calculating tax. Special arrangements may apply
where there has been a prior inheritance from a parent.
The thresholds are index linked and increased in line with inflation since 2001. The indexation factor for 2001
is 1.056.
In determining relationship, preferential treatment is given to certain categories of donees -

the surviving spouse of certain relatives of the disponer.

certain nieces and nephews will effectively be treated in certain circumstances as daughters and
sons.

certain grandchildren of the disponer who take a benefit under a marriage settlement.

 

[ubiquitous]

I can really only repeat that you need to get professional advice on this situation. With all respects, the circumstances of the case are simply too complex for you to be able to address the tax issues simply by reading Revenue online guides and/or posting here and trying to arrive at a definitive answer in this manner.

 

[nossie]

I see your point but faced with a bill of up to 60k it's only natural that I would do a bit of research

 

[liteweight]

I see your point but faced with a bill of up to 60k it's only natural that I would do a bit of research

I agree, it's better to research yourself first, if only to tease out exactly what questions you should ask your tax consultant...they don't come cheap! Having said that, Ubiquitous is correct. You've outlined a very complicated situation and a specialist is needed. The thresholds given in the above excerpt from Revenue are out of date. When last I looked, a mother could 'gift' a son approx. 478k without giving rise to a tax liability on the gift. Capital gains tax is payable on the market value of the property. I don't think the Mother can genuinely claim the house as her PPR for the last 17 years at least. Prior to that, if it was genuinely her PPR, she is probably entitled to some deductions.

Did a member of her family reside in the house while she was away or was it rented?

 

[Newby]

I see your point but faced with a bill of up to 60k it's only natural that I would do a bit of research

Spend a couple of grand on tax advice or 60 grand in tax if it goes wrong...

 

[alowe]

Now Mother wants to sell this house that is worth €350,000 to Son for €100,000.

I'm just wondering, are you allowed do this? i.e. sell a property or land for well below market value? If you can't, who determines market value?

 

[ClubMan]

Yes you are allowed do it but some tax issues (e.g. CGT and/or CAT) will be assessed on the fair market value and not any discounted price if there is a significant discrepancy between the two. There is another recent thread covering this in detail.