Tax traps in land transfer

Q&A:Before they died some 30 years ago my parents transferred some agricultural land to me, which I have rented yearly since. It's recently been zoned for housing and may be worth a million or more. Now it's time for me to pass it on to my family, some abroad. I am looking for the most tax-efficient way. Should I (a) transfer it to them jointly now, (b) sell it and divide the proceeds between them, (c) just leave it to them in my will.

Ms E.P., e-mail

Clearly, there are implications whichever way you ultimately choose to pass on the land to your children and, given its likely value with residential zoning, I would seriously suggest you take some professional advice.

Clearly, I can just work on the limited information you have provided but, on the basis that the land is now valued at around €1 million and that you have just two children, one of whom is not tax resident in Ireland, David Kearny, a tax manager with Grant Thornton, gave me the following guidance.

Under scenario (a) where you gift the land to your children now, you will incur a capital gains tax liability of around €200,000. In certain circumstances, this might be eligible for exemption as a "qualifying business asset", assuming you are over 55. However, the fact that you have rented out the land will probably rule this out.

From your children's perspective, under option (a) they would have a taxable benefit of around €500,000. However, this should be covered by the capital acquisitions tax (CAT) exemption on gifts to children from parents - provided they have received no other gifts or inheritances from a parent up to now.

The exemption threshold last year was €496,824 and the 2008 rate will be announced this month. It is likely to rise to about €520,000. The children in this scenario would also face a stamp duty liability of about 4.5 per cent of the value of the land.

Under scenario (b), if you sell the land and divide the proceeds, the tax situation would be the same as under scenario (a), except that the children will have no liability to stamp duty.

Under scenario (c) where you simply bequeath the land in your will, the children inheriting will still have to assess liability under capital acquisitions tax, but stamp duty would not apply and you would avoid the capital gains tax bill, as any capital gain would die with you.

You should also examine CAT agricultural and business reliefs, as they apply to your children under such a transfer and any applicable clawbacks. As I say, professional advice would be a sound investment given the likely sums at issue.

CGT liability

For the first nine months of 2007, we made capital gains and paid the appropriate amount of tax by end October. Between the beginning of October and end December, we had capital losses and, as a result, we had an overall capital loss for 2007. Are we entitled to a refund of the tax paid in October? If not, do we treat October to December as a separate tax "year" and carry the losses forward to 2008?

J&P McP, Dublin

Not quite the way you would like to end your investment year, is it? You have fallen foul of the newish Revenue rules that require people to settle their capital gains tax liability more quickly. Previously, capital gains tax was settled on a "year after" basis.

As you note, you are now obliged to settle any capital gains made in the first nine months of the calendar year by the end of October of the same year, with the balance of the year being settled by the end of January of the following year.

Of course, this comes unstuck in the sort of turmoil the markets have witnessed over recent months. Ideally, one would not sell at a loss in such a market, but we don't always get to choose the timing of these things.

My information is that you are fully entitled to claim a refund of the tax paid. As you are claiming - and your January return will clearly show - that the losses incurred in the last three months of the year more than offset any capital gain made in the first nine months, you are in line for a refund.

Any losses over and above the gain you made in the first part of the year will be carried over into this year.