If I give my holiday home to my daughter what are the tax implications?

Could you give me some guidance regarding a holiday home that I purchased 20 years ago for €23,000 and which is now worth approximately €80,000-€100,000.

I would like my daughter to have it but I’m not sure what is the best way to do it. Do I gift it to her or do I leave it to her in my will?

My daughter has a home with a mortgage at the moment. The holiday home will be kept by her as a holiday home and she will take on any expenses and upkeep as we are getting on now.

Ms CD, email

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The good news last week on the reopening timetable from the Covid-19 lockdowns means holiday homes in Ireland can once again feature in the plans of those lucky enough to have them. However the worry over trying to keep them secure and properly maintained over the past year when they were beyond their owners’ reach will have given some people pause for thought.

So it is not entirely surprising that, as you have had time to assess your position, you are considering whether now is the right time to hand over the keys to your daughter, hopefully for her to enjoy over many more years.

You are right to weigh up how best to organise such a move but possibly looking in the wrong direction for any unpleasant surprises.

From your daughter's point of view, in technical terms, it makes not a whit of a difference whether you gift her the property now or leave it to her in your will when you die. In either circumstance, the value of the property will be set against her lifetime tax-free limit under capital acquisitions tax.

Some countries do have a system where gifts made within a certain period fall out of consideration for inheritance tax assessment after a period. In the case of the UK, gifts made more than seven years before you die are not taken into account in assessing inheritance tax. But that's not the position here. Your daughter has a lifetime limit on the value of gifts and/or an inheritance she can receive from you and her father. Currently that's €335,000 so this property on its own will not trigger a tax charge for her.

Practical impact

Now, in practical terms, there is one thing to consider. The property is now worth between €80,000 and €100,000. If that rises again before you die, it could eat into a greater portion of her tax-free lifetime limit. But then again, the €335,000 threshold could also rise. The last government targeted a threshold of €500,000 on gifts and inheritances between parents and children and it was as high as €542,544 back in 2009.

The bigger tax issue is on your side. This property has multiplied in value since you first acquired it. As a holiday home, that gain is taxable. If you gift it now to your daughter, you will be facing a capital gains tax bill of somewhere between €18,000 and €25,000.

However, capital gains die with an owner so if you hold off handing over the holiday home until you die there will be no bill for you now and no capital gains tax set against your estate.

The other thing to consider is running costs. Can your daughter afford it?

You say she has a mortgage already. Does she have the financial wherewithal to take on this additional annual financial burden? If not, she could be forced to sell the property herself and all of you would lose out on its use.

On the flip side, even if you decide to wait on the handover to avoid capital gains tax, you might ask her to help with the running costs on the basis that the property is coming to her eventually. As long as those costs are less than €3,000 a year, no tax issue arises as it is covered by the small gift exemption.

Anything above that in any given year chips into the lifetime limit of what a child can give a parent – which is just a fraction of the parent to child rate, at €32,500 – with a 33 per cent CAT tax charge on cumulative sums above that.

[ dcoyle@irishtimes.com ]