The tax implications of transferring a site are in many circumstances not given enough attention, more particularly the longer term implications are often underestimated.
On the face of it, there are some standard tax reliefs which will go much of the ways in mitigating the taxes which would otherwise arise.
For capital gains tax purposes, a parent can transfer a site to a child entirely tax-free from capital gains tax, where the transfer is to enable the child to construct his/her principal private residence on the site.
The value of the site cannot exceed €500,000 and the site cannot exceed an area of 0.4047 hectare (one acre), in addition to the area occupied by the dwelling house itself.
If the child subsequently disposes of the site without having constructed a principal private residence on the site and occupied it as such for at least three years, then the capital gain which would have accrued to the parent(s) or civil partner, on the initial transfer, becomes the liability of the child, and the relief will be clawed back by way of a CGT assessment on the child.
However, this gain will not accrue to the child where he or she transfers an interest in the site to his or her spouse or civil partner.
Looking at the legislation, it is important to understand the nuances which can result in tax pitfalls.
Firstly, the size of the size is strictly interpreted, and a transfer in excess of an acre plus house area causes a total default of the relief.
Secondly, the relief is designed to facilitate the construction of a residence which will be the beneficiary’s only or main residence.
Therefore, if the child intends on living elsewhere, then the relief will be denied.
The relief only applies to transfers to children, and therefore transfers to nephews, nieces or other relatives are not exempted from capital gains tax with this relief, although alternative reliefs such as retirement relief may apply
Equally, a transfer by a parent directly and jointly to their child and their partner will not qualify for the relief.
From a gift tax perspective, a child can receive gifts from parents totalling €310,000 in their lifetime without a liability to gift/inheritance tax (all gifts and inheritances aggregated from December 5, 1991).
Where a child hasn’t received gifts or inheritances previously, then a site with a value of up to €310,000 would be exempt from gift tax.
From a practical perspective, transferring a site with a high value may limit the child’s ability to receive future gifts or inheritances on a tax-free basis.
Where there is a possibility that future gifts or inheritances may cause the child to breach their tax-free threshold, then, from a practical perspective, it is worthwhile considering transferring a site subject to planning, which would have a value much less than a site with
approved planning permission. However, such a strategy might not work where planning cannot subsequently be obtained.
Where a site has restricted planning permission, restricting development to the applicant or their family, this will usually impact on the market value of the site.
From a stamp duty perspective, there have been a number of changes over recent years.
Prior to December 8, 2010, the transfer of a site to a child was exempt from stamp duty.
Over more recent years, the stamp duty rate of just 1% applied where a child was entitled to consanguinity (blood relative) relief.
Consanguinity relief was restricted to agricultural land only from 2014 onwards, meaning the transfer of sites from a parent to a child were now subject to the standard rate of 2% from 2015 onwards.
Following changes introduced in Budget 2017, stamp duty now applies at 6% on commercial property, however a new relief has been built into the legislation.
A refund of two thirds of the stamp duty is available, effectively bringing the rate back to 2% where the site comprises no more than the footprint of the house itself and its associated curtilage up to a maximum area of an acre.
A claim must be made within four years, starting on the date on which a local authority acknowledges the particular commencement notice underlying the refund claim.
A development must be completed within two years of a local authority acknowledging a commencement notice or a seven-day notice.
Construction must commence on or before December 31, 2021, meaning that completion must occur by 2023.
The local authority certification process can apply to one-off houses, whereby a certificate of compliance on completion is submitted to the Council.
But, for one-off houses, an alternative test can be used, being an Electrical Completion Certificate, that is provided following connection to the electricity network.
Separate tax returns apply for stamp duty, capital gains tax and capital acquisitions tax.
The transfer of property to a child is a complex transaction, and each individual should obtain professional tax advice relevant to their own circumstances.