Relative gifting us a share of a family home?

B

BumpkinBilbo

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Hi all,

My FIL is selling a house he owns with his brother and sister to us.

Purchase price was 120k, sale price will be 246k (valued at 330k, and we're happy to pay the CAT).

He's gifting his share of the house to us, but he's worried about the CGT on the house and it's turning into a pain.

He's insisting on us paying the CGT as a courtesy to him, but he's quoting different numbers every time I talk to him, currently 26k which sounds way off to me.

Any idea how to get the actual number?
 
I think you are both making this too complicated; just buy the house at market value & let him (and the other two owners) take care of the CGT.

He can then gift you 3k each (and if you have children they can be gifted 3k each also) every year if he wants till his (unlooked for) end.
 
We can't afford to buy it at market value, hence the gift.
 
Plus if you pay the CGT for him, who will pay his CAT on the CGT you pay.
Is it not better to pay him enough where he is happy to pay his CGT himself from your payment for the house!
 
That's not a bad idea - buy the 2/3's share & keep FIL as joint owner? Would that work?

He could leave you his share when he passes away and CGT dies with him.
 
His tax will presumably depend on how he acquired his share and what it was worth then.

Do you have that information?
 
So his share is worth €110k and it cost him €40k. There’ll be some allowance for buying and selling costs, but let’s call it a €20k CGT bill for him.

I don’t understand how he’s gifting his share if the price is €246k? If he’s gifting his share, it should be €220k?

Although €220k plus €26k (his estimate of the CGT bill) is €246k.

It actually sounds very fair to me if that’s the case; you’re paying €220k to your spouse’s aunt and uncle plus €20-26k to your father-in-law to cover his CGT bill. There is no ‘gift’ to your father-in-law; the price is simply being set to cover his tax-bill.

As others have pointed out, the gift from him to you and your spouse should be managed via loans and loan write-offs.
 
BumpkinBilbo said:
Purchase price was 120k, sale price will be 246k (valued at 330k, and we're happy to pay the CAT).
Click to expand...

Here is my best interpretation of what you are saying.


Your uncle and aunt are selling at market value, so you have no CAT liability from them.

Your dad is gifting you €110k so well below the exemption, so no CAT liability from them.

If you pay your dad €26k, it changes the figures as follows:



No change to the CGT. You just use up less of the CAT exemption from your dad.
 
Brendan Burgess said:
You just use up less of the CAT exemption from your dad
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It's Bumpkin's father-in-law (FIL).

The applicable Group Thresholds/exemptions are (assuming any gift element arises, more on this below):

- Group A (€335,000 - to cover gift from B's FIL to B's spouse),
- Group C (€16,250 - to cover gift from B's FIL to B),
- Small Gift Exemption - €3k.

BumpkinBilbo said:
He's insisting on us paying the CGT as a courtesy to him, but he's quoting different numbers every time I talk to him, currently 26k which sounds way off to me.

Any idea how to get the actual number?
Click to expand...

First thing I'd check (as you are doing) is the CGT calculation.

It could be a straight 33% of the difference between the purchase price and the market value of the property, adjusted for the owner's share in the property. However, the following items could factor into the CGT calculation:

- indexation relief depending on the date of acquisition,
- deductions for purchase and selling costs (legal fees etc),
- deduction for stamp duty paid (if any) on the original acquisition,
- deduction for enhancement expenditure (if any),
- section 604A CGT relief if acquired in the period 2011 to 2014, and
- annual CGT exemption.

Does your FIL have any capital losses carried forward? Get a handle on the CGT due as it will factor into the workings below.

The second item to have a look at is what are your financial resources - what are your constraints here?

The third item to look at is the proposed legal nature of the transaction.

Is it the intention that you are purchasing the property in joint names?

The fourth item to look at is the CAT implications that follows on from the proposed legal nature of the transaction and planning around this i.e. (should the property be purchased 50/50, best use of a loan arrangement, utilisation of small gift exemption(s), CAT/CGT relief on the same transaction etc).

To help inform this particular aspect - have you received a gift or inheritance before that has impacted on your Group C CAT threshold of €16,250? Is your spouse likely to receive any further gifts or inheritances from their parent(s)?

Fifth item to take into account is Stamp Duty payable by the property purchasers at 1% on the market value of the property, so €3,300.
 
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@AAAContributor

Thanks for that.

Can you explain the principles of a gift to a married couple.

If the father gives his son and dil a house worth €200k jointly, is it €100k to him and €100k to her. She gets the stranger(?) allowance so has a cat liability.

So he should give it to the son only to avoid cat. Is that correct?
 
Brendan Burgess said:
If the father gives his son and dil a house worth €200k jointly, is it €100k to him and €100k to her. She gets the stranger(?) allowance so has a cat liability.
Click to expand...

If the registration of the property is in both names pursuant to the contract and deed of conveyance, then DIL has a beneficial and legal interest in 50% of the property, as I understand it.

This situation brought to mind this Tax Appeals Commission case where there was a similar situation of a gift element in a property transaction from a parent to the daughter and son-in-law. The conveyance created a liability for the son-in-law.

The parties tried to correct it after the fact by amending the ownership share but it was too late and a charge to CAT was assessed.
 
so the planning point is to gift it to the child only. And then let the child add the spouse's name afterwards?
 
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