Gifting a rental property can be a costly business

Q&A:I want to give my daughter an apartment I own, which at the moment is rented. How much money will it cost me to transfer it into her name? Is there any tax due? I have no mortgage on this property. Is there any stamp duty, etc?

It's probably worth about €200,000 to €250,000. She is a student so therefore the income could go towards her expenses as she is a postgrad student and we get no grants. Ms AD, Dublin

There are several issues at play here if, as I understand it, you are suggesting transferring an investment property that is currently rented to your daughter with a view to her benefiting from the rental income.

First, you will have a capital gains tax obligation on the difference between the price at which you bought the property and the value when you transfer it to your daughter. You will be allowed to deduct expenses incurred in buying and transferring the property from the gain before assessing tax, and there is also an exemption from CGT of the first €1,270 of the gain.

The situation is even more awkward from your daughter’s perspective. The transfer is deemed a gift and, at that value, brings your daughter close to the threshold above which she would be paying capital acquisitions tax. That threshold is currently €250,000 on gifts and inheritances between a parent and a child.

If she has received no such gifts or bequests to date, she will be fine, but would have little scope for further benefit down the line.In relation to stamp duty, she is also likely to have to pay it at 1 per cent on the value of the property.

If she is benefiting subsequently from the rental income, she will be liable to income tax on that income, minus certain allowable expenses.

If the purpose is to fund postgraduate course costs and maintenance, you might consider other ways to do so. If, on the other hand, you are looking to provide her with a home, the costs to her should not be particularly onerous.

A matter of principal

I have a principal private residence and a holiday home in the country. If I sell my principal private residence and move into my holiday home on a permanent basis, what tax liability would I have? Would I have a capital gains tax liability on my principal residence or would I have any liability? Mr AT, Meath

It’s a fancy name, but principal private residence effectively means your home. Everyone who owns a property has a principal private residence – but only one, although clearly it can change over time.

If you have more than one property, the principal private residence will be the place where you habitually reside. Any other properties – houses and apartments bought as investments, or holiday homes – are considered investments.

The bottom line is that you will never have a capital gains liability on your principal private residence as long as it has never been rented out.

In your case, you are talking of selling your main home and moving into your holiday home. Assuming you never rented out your home during your period of ownership, you will have no liability to capital gains or any other tax.

The situation will be slightly different on your new home. Once you move in, obviously, it becomes your principal private residence and no tax will be liable on the period of ownership for which it has this status. However, you will be liable for tax for that part of your ownership during which it was a holiday home.

If you bought the property in 2007, move in next year and sell it in turn in, say, 2020, you will have owned the house for 13 years, for seven of which it will have been your family home, or principal private residence.

Thus, seven-thirteenths of any eventual profit on the sale of the property will be exempt from capital gains; you will be liable to the tax on six-thirteenths of any eventual gain. Of course, in today’s circumsta-nces, there might be precious little gain to worry about.

Multiplier for gains, not losses

Can the multiplier be used to enhance a loss in the sale of shares – say shares bought in 1980 and sold today? Is it the actual monetary loss that can be carried forward or the multiplier enhanced loss? Mr MS, Dublin

The multiplier is a feature that no longer exists, having been abandoned at the end of 2004 by then minister for finance Charlie McCreevy. Essentially it adjusted the original purchase price to allow for inflation for the purposes of assessing capital gains tax.

The multiplier was set by Revenue each year – back then tax years ran from April 1st to March 31st and multipliers were allocated to tax years, not calendar ones. Thus, if you bought shares in March 1980 at, say, 72 pence and were looking to sell them today, you would multiply the 72p purchase price by a multiplier of 3.742. That would increase the purchase price to £2.69.

Of course, to assess the impact on capital gains tax today, you would have to convert that to euros, dividing 2.69 by 0.787564 to give €3.42.

This however is relevant to you only if you have a capital gain on the sale of the shares. So, if you are selling today at a price in excess of €3.42 a share, it will help defray any liability to capital gains, but it cannot be used to enhance a loss. When it comes to losses, only the actual monetary loss is factored into the equation.

Converting your original 72p purchase price to euros (without the multiplier effect) gives you a euro purchase price of 91 cents. If you sell below this, the multiplier is irrelevant.

If you sell between 91 cents and €3.42 a share, the multiplier can be used to offset any nominal gain but no further. If you sell below 91 cents, you will be nursing a capital loss and this can be offset against gains in subsequent years.

This column is a reader service and is not intended to replace professional advice. Please send your questions to QA, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com. No personal correspondence will be entered into.