Transferring home before death to children.

I

IsleOfMan

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A father has willed his home to his 3 children. He is now in a nursing home and his home stands empty. He says owning it is a burden. Is there any reason why the house cannot be transferred to the 3 children while he is still alive. Any positives or negatives to this scenario?
 
Father : Pro's

He gets rid of it. It's not his problem anymore.

Cons

He has given away a substantial asset. If family don't do the right thing? What does he sell to pay his nursing home fees.

Does it affect the Fair Deal Scheme?

Children

Pro's

They get the inheritance early. They can sell it.

Cons

They pay stamp duty on the value - no stamp duty if inherit on death.
If they don't sell it, they have the expense and responsibility of keeping it.

There may be Capital Acquisitions Tax payable- but that would be payable on death also.

mf
 
Thanks mfi. Father paying full cost of nursing home, not on Fair Deal Scheme. Sufficient funds to fund nursing home for lifetime. What is the stamp duty from father to children?

By transferring the property to the children now is the value of the property on date of transfer taken as the value of the property when assessing inheritance tax. How is the property valued for inheritance tax?
 
In the event of your father not being able to fund his nursing home care in the future, his home will be liable to pay unless the property has been handed over more than 5 years.Browtal
 
When you say he wants to hand over to the 3 kids what exactly do you mean? Will he sell the house and divide the proceeds by 3 or will 3 kids own the house? Will someone live there? Will it be rented out? Who will pay the outgoings/manage the house? Will everyone agree? Will their partners/spouses agree?

If he doesn't want the worry of the house IMHO it makes sense to sell it, gift all or some of the money to whomever he wants and place the rest on deposit. By the way I don't think you mention Dad's age - am assuming he is quite old - otherwise there may be a problem if he sells house and his condition improves.
 
Thanks Mfi. I am trying to figure out if the house is valued for Inheritance Tax purposes on the date the house is transferred in to the childrens names? The house is probably at it's lowest value now since before the Tiger days. If the property is transferred in to the childrens ownership now and it increases in value over a few years, then sold am I right in saying that the increased value of the house will not be counted when calculating Inheritance Tax.
 
Hi Isle of Man

Do the three children want the house? Or do they want cash?

Joint ownership of a house often leads to huge problems. It can also be the cause of people falling out.

If your father gives you the house now, you will pay 1% stamp duty, no CGT and no CAT. You will pay the various home taxes as owners of the house.

If you sell the house for €300k at some time in the future, you will be liable for CGT on the increase in value.

If you father leaves the house to you in his will when it is worth €300k, there will be no CGT or very little as it was his principal private residence for most of his life.

If your father sells the house now for €210k and gives you €70k each, there is no stamp duty, no CAT, no CGT.

You are all free to do as you like with the cash.

If neither you nor your father want the house, then it is best to sell it now.
 
Brendan Burgess said:
If your father gives you the house now, you will pay 1% stamp duty, no CGT and no CAT. You will pay the various home taxes as owners of the house.

If you sell the house for €300k at some time in the future, you will be liable for CGT on the increase in value.
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Thanks Brendan. This is where I am a little confused. I understand that I will have to pay stamp duty on the transfer of the house to the children. You also say that there is no CGT or CAT.

You then indicate that there is CGT if the house is then sold down the road.

If the house were sold today we would expect the house to sell for €600k.
This would be divided 3 ways and each child would get €200k. The inheritance threshold is €250k per person. So in theory there is a further €50k per child to inherit tax free.

Supposing the house was transferred in to the childrens names today and sold a few years later for €750k. Each child would then get €250k. Still within the inheritance threshold. Because it is still within the inheritance threshold of €250k per child would CGT still have to be paid on the increased value?
 
You're confusing CAT - an acquisition tax - with CGT - a tax on gains/profits. They are two separate taxes.

The house has a current value. If kids take it now, they deal with CAT now.

If they sell it for a profit down the line, they may pay CGT - if it increases in value- on the gain they made on the increased value of the property. The CAT situation does not change. The house was worth what it was worth when they got the gift of it.

mf
 
Thanks for clarifying. I was confusing CAT and CGT. It seems that the most sensible and practical thing to do is to sell the house now.
Holding a house for a few years, hoping that it will increase in value, then having to pay CGT on any profits seems pointless. As others have said there will be the problems of ownership, costs etc. Renting it out is not really an option as about €60k would need to be spent on it to bring it up to spec.
 
Most people I imagine try and have the valuation of the house being transferred to them reduced in value in order to save on stamp duty costs. Your house valued by an auctioneer, €600k, would result in €6k in stamp duty being paid.
If however your valuer valued the house at €750k and you paid the 1% stamp duty on it you would pay €7.5k.
Is there anything stopping you from doing this? When you then go to sell the house in a few years time when it has increased in value to €750k it seems that there would be no CGT to be paid because technically it has not increased in value.
 
"Is there anything stopping you from doing this?"

Tax evasion.

Valuers have to stand over their valuations. They are not mere "puppets" at the hands of the person who asks for the valuation. They should not facilitate tax evasion.

mf
 
We recently had a house valued from 3 auctioneers (well known names) and it ranged in price from €495k to €575k to €650k.
I am not sure about the Tax evasion bit. If the revenue are happy to accept the higher valuation and consequently the stamp duty payment, I am not sure if they could start whining down the road.
 
SlurrySlump said:
Most people I imagine try and have the valuation of the house being transferred to them reduced in value in order to save on stamp duty costs. Your house valued by an auctioneer, €600k, would result in €6k in stamp duty being paid.
If however your valuer valued the house at €750k and you paid the 1% stamp duty on it you would pay €7.5k.
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You have the house valued at date of transfer in order to calculate the tax due (CAT, stamp duty).

SlurrySlump said:
We recently had a house valued from 3 auctioneers (well known names) and it ranged in price from €495k to €575k to €650k.
I am not sure about the Tax evasion bit. If the revenue are happy to accept the higher valuation and consequently the stamp duty payment, I am not sure if they could start whining down the road.
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When you receive differing valuations, which is always a possibility, then you have to choose which one to use. Revenue can of course query it or request an independent valuation and I have seen cases where the two valuers have argued their points and come to a compromise.

SlurrySlump said:
Is there anything stopping you from doing this? When you then go to sell the house in a few years time when it has increased in value to €750k it seems that there would be no CGT to be paid because technically it has not increased in value.
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If you submitted a valuation for €600k when paying the stamp duty/CAT then that valuation must also be used for CGT when the time comes to sell and in this case you would be liable for €45,000 in CGT.

Alternatively you could claim that the actual value on date of acquisition was €750k but then you would have to deal with the deliberate underpayment of stamp duty which could cost a lot more!
 
Mrs Vimes said:
Alternatively you could claim that the actual value on date of acquisition was €750k but then you would have to deal with the deliberate underpayment of stamp duty which could cost a lot more!
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No. I am suggesting that you pay the stamp duty applicable on €750k at the time of acquisition. Then wait a few years for the house to increase in value to €750k. Then sell it. I am sure when the time comes to sell you could end up with a range of valuations just as you did when you had it transferred a few years previously.
 
SlurrySlump said:
No. I am suggesting that you pay the stamp duty applicable on €750k at the time of acquisition. Then wait a few years for the house to increase in value to €750k. Then sell it. I am sure when the time comes to sell you could end up with a range of valuations just as you did when you had it transferred a few years previously.
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Valuation is irrelevant on an open market sale (i.e. at arms length), as the sale price achieved is de facto the market value...
 
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