I own a small flat in Dublin, and would like to sell it to help my daughter buy a house near to where I live. The problem is that I have already helped her to buy a flat outside Dublin (which she will have to sell), and if I give her more money, it will exceed the amount I am allowed to give her or leave her in my will without her paying tax. However, as I calculate it, she (or I) could pay the tax entailed out of the proceeds of the sale of my flat. Is this permissible?
From what I understand, you already provided a gift to your daughter to buy a flat. You want to sell a flat that you own and give her the proceeds that remain after payment of the tax to your daughter. The benefit will need to be added to the previous benefit and the cumulative lifetime tax-free threshold is €335,000. It is worth noting that you can gift up to €3,000 tax-free to your daughter each year, and this does not erode the €335,000 threshold. This is known as the small-gift exemption.
It is possible to provide a gift to a person which is inclusive of tax, and this means that you pay the tax. The benefit taken is deemed to include the amount of capital acquisitions tax on the gift or inheritance. In effect, the benefit taken by the beneficiary is increased by including the tax on the gift or inheritance as an additional benefit. I’m not sure that this is particularly helpful in your case, however.
As an example, let’s presume your daughter has used all her category A threshold from your previous gift and you wish to give your daughter a cash gift of €300,000. You must calculate the tax due on this amount, ie €300,000 at 33 per cent, or €99,000.
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The taxable value of the gift would be deemed to be €399,000 (gift value plus tax-free benefit).
You must then calculate the tax due on the €399,000 (€399,000 at 33 per cent), which amounts to €131,670 payable.
You should also note that capital gains tax (CGT) may be due to be paid by you on the sale of your flat if it was not used by you as a principal private residence, and so this tax should be factored in. Similarly, if your daughter did not live in her flat for the full ownership period, CGT may arise.
Suzanne O’Neill is a tax partner at RSM Ireland
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