Gift property now or leave in will?

A

abacab

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There's a key post for this but it is a few years old and I'd like to see if my understanding of the current situation is correct.

It would appear that there's no benefit for an elderly parent to gift their principal private residence (with parent retaining right of residence) to a child, if the child lives in another house. If the house is gifted then CAT is due on the market value of the house in excess of the group A threshold (225k), so if the house is currently worth 300k then CAT at 33% is immediately payable on 75k. If the property is later sold by the child after parent dies, when market value has increased to 400k, say, then CGT (also at 33%) is due on the subsequent 100k gain.

If the house is not gifted, but is simply inherited and sold for 400k, then CAT is payable on the 175k excess over the Group A threshold of 225k.

As CAT and CGT rates are the same, the amount of tax payable is the same and there's no benefit in gifting the property; indeed when fees etc are taken into consideration it could be more expensive.

Does the above seem roughly correct or are there some wrong assumptions here?
 
Roughly

If a father gives a son a property worth €300k now, the father is disposing of that property and may have a CGT liability on the disposal.

If the father disposes of it on death, it is not a disposal for CGT purposes.

So, if the asset has an unrealised gain in it, it's better to will it than to gift it.

Brendan
 
Brendan,

Thanks for the quick reply. In this case the house is the father's principal private residence/family home, so my understanding is that any gain would be exempt from CGT. Given that, would it change the conclusion?
 
It is complicated by the principle private residence exemption.

All things being equal if you were to transfer the property to the child the gain would be exempt too.

So an initial CAT payment may result in a overall reduction in the amount of the increase in value.
 
Joe 90,

While the CGT portion would be reduced, would the total tax not be the same?

i.e. (gift) CAT now + CGT later = (will) CAT later

In either case if house is sold by child on death of parent there's a tax at 33% on the amount over 225k?

Thanks
 
Ok let's see.

Transfer today @ 300k and pay CAT on 75k.

Then in 10 years time on death of parent sell for 400k. The gain for the child of 100k will not be subject to tax as the property will qualify for PPR while occupied by the parent as their only residence.

Or sell in 10 years and pay CAT on 175k.

Usual Ts & Cs apply in relation to changing tax rates and reliefs.
 
Joe 90

Got it - the CGT PPR exemption still applies for the period when parent lives in but does not own the house.
 
Indeed, the 7 year CGT exemption is another example where a rise in the value could be removed from a charge to CAT by transferring it before the end of the year.
 
Yes - my understanding of the 7 year exemption is that the property has to be purchased for 80% or more of market value, so at least in theory the child could purchase the house from parent for 240k, and parent then gifts the 240k back to child, on which CAT is paid (5k). If property held for 7 years there's no CGT liability.
 
You have done your research, I think it's in excess of 75% of the market value.

But that is not required in the case where PPR applies.
 
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