Am I excluded from the dwelling house tax exemption?
Q&A: Dominic Coyle
As the Group A CAT threshold is currently €310,000, does a tax liability only arise on the excess amount of €50,000?
I am in my mid-30s and I currently live in a property that was purchased and renovated by my father back in the 1980s.
My parents still live in the family home and would like to gift this second property to me. The second property, which I have resided in for the last 10 years, is valued at approx €360,000. My understanding is that the dwelling house exemption would not apply to my circumstances, since the changes following the budget last year.
As the Group A CAT threshold is currently €310,000, does a tax liability only arise on the excess amount of €50,000? If so, it would be my intention to refinance the house to fund this. How long after the transfer happens does the tax liability have to be met – ie how long would I have before I would have to pay Revenue?
Mr D.C., email
As you suspect, you will not qualify for the dwelling house exemption. Although this was introduced by then finance minister Charlie McCreevy specifically to protect people who had stayed in the family home to care for elderly family members, it eventually became one of the loosest of tax loopholes and a boon for relatively prosperous families looking to cater financially for their adult children. Effectively, it allowed them to buy a home for their children at no cost to the adult child and with no tax charge for either the parent or the child.
It was a neat trick while it lasted and an easy way for tax advisers to earn their crust. But, as usual with these things, the abuse of the “spirit” of the exemption eventually became so blatant the Revenue argued for a dramatic tightening of the provision.
And that is where we are now. To be fair, as currently provided for, the exemption is much closer to its original intention. However, from your point of view, it means you are not eligible.
So, as you surmise, you will have a tax bill to consider. Assuming you have received no other gift in excess of €3,000, or an inheritance, from either parent, you have your full capital acquisitions tax free threshold of €310,000 to avail of.
There is talk of increasing this to take account of the rising price of property but that will only happen via a budget and is therefore not an issue for you unless you are planning to execute this transaction towards the very end of the year – and even then, there’s no guarantee. There was similar talk ahead of last year’s budget and it came to naught.
As of now, assuming the value of the property is €360,000, you are facing a tax bill of €16,500 on the €50,000 excess over your threshold limit. Of course, you’ll need to get an official valuation for the Revenue and there will be legal costs involved in the handover too – especially as you are thinking of taking out a mortgage to cover the cost to you.
Your parents will also face a tax bill. As I understand it, this has always been a second home for the family and, as such, it is considered an investment property by the Revenue.
They will look at the gain between purchase price back in the 1980s, indexed up to the end of 2002 as mentioned last week, and the value at which it is transferred to you. Once they have deducted costs incurred in the purchase and handover of the property together with any capital investment – ie possibly certain costs involved in the renovation, depending on what those works were – they will be taxed at 33 per cent on any gain over €1,270.
In terms of deadline for paying the tax, any capital acquisitions tax liability incurred before the end of August in any year is payable by the end of October in that year. So, if your parents transfer the property to you before August 31st, you’ll have as little as two months to sort out the tax and the form-filing. If the transfer is after the end of August, the tax and filing is due by October 31st of next year.
For your parents, any capital gains tax due must be paid by December 15th of this year if the liability arises before the end of November. If the handover takes place in December, the CGT would be due by the end of the following month – January 2019.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to email@example.com. This column is a reader service and is not intended to replace professional advice