Buying my sister’s apartment: what tax issues will I face?

A sibling advanced in years purchased a private apartment six years ago. Due to illness, she was unable to make the change and is still living in her own house. The apartment requires remedial work as it was let out before purchase and therefore should still be about €300,000 in value.

She is paying a high service charge as well as property tax, and also an amount of €800 was paid toward a sinking fund.

The apartment has been unoccupied since purchase. If l was to purchase this apartment from her and register it in my name, would there be much cost involved to me? And are there any Revenue issues?

I would have to refund to her the money she paid for the property. Would the 33 per cent capital acquisitions tax (CAT) apply as the property is as purchased with remedial works pending? Is the stamp duty reduced on this transaction between siblings? Can the VAT be reclaimed at any stage?

On the Money: the personal finance newsletter from The Irish Times

---

What would Sinn Féin’s ‘Robin Hood’ income tax policies mean for you?

---

VHI cancelled our policy over a year ago without us knowing. Now they want us to pay €7,000 in arrears

---

Temu accused of ‘manipulative’ sales techniques and lack of transparency

---

Seeing the same solicitor dealt with the purchasing of the apartment, does he just charge for the change of name and new deed in my name or are there other hidden costs?

Ms EB

The nub of this is that your sister has bought an apartment that she thought would suit her better than her current home six years ago but declining health means she has never made the move and, it appears, is unlikely to do so at this point.

You’re right to consider the tax issues. As far as I can see, there would be several. However, to get one out of the way early, I should mention that VAT will not be an issue as residential property is exempt from VAT in Ireland.

My biggest concern is around your statement that “the apartment requires remedial work as it was let out before purchase and therefore should still be about €300,000 in value”. I would think this is most unlikely.

The remedial work was required presumably back when your sister bought the place six years ago, and the price it fetched at the time would have reflected this. The market has risen substantially in the intervening period and it is most unlikely that the property will have the same value now, regardless of the ongoing need for refurbishment. You certainly will not be able to assume that.

You will need to get a fresh market valuation to determine its value, and there is little point trying to get a “friendly valuer” to put one together as it would be open to Revenue to challenge any assessment they feel does not reflect the value of the property compared with surrounding properties.

[ Your Money: more articles  ]

I suspect the value will have risen significantly. If it matches the general rise in values over that time, you could be looking at a market value of closer to €420,000.

That means two things. First, as your sister has not lived here and has her own house, which Revenue will consider her principal private residence, she will be liable to capital gains on this property even though it has never been let out to the rental market. On the value above, that would mean a capital gains tax bill for her of about €40,000.

From her perspective, if she holds on to the apartment until she dies, any capital gain will die with her so there would be no tax bill at that point. But then she has her money locked up in an apartment she is neither using nor renting.

If she sells to you below the market value, she will still have that capital gains tax charge. In addition, you will be deemed to have received a gift from her on the difference between its market value and what you actually pay her. So if you pay her the €300,000 the apartment cost her but it is worth €420,000, you are deemed to be getting a gift of the €120,000, which is far above the lifetime limit of €32,500 you can receive in total large gifts (over €3,000 a year) and inheritances from siblings, aunts, uncles and grandparents over your lifetime.

That would leave you with a capital acquisitions tax (gift tax) bill of €27,875-€40,000 on top of what you pay your sister.

You could rent it from her, but that will also raise income tax issues for her that she may struggle with if she is elderly and unwell. If any rent is below the market rent, that also raises gift tax issues for you.

You might want to consider whether, financially, this is the best plan for you right now

Then we come to stamp duty. There is no sibling exemption here, so you would be required to pay stamp duty on the property transfer of 1 per cent of the property value – so about €3,000-€4,200, or possibly more – depending on the market valuation.

Finally, if you are using the same solicitor and he has already carried out a full conveyance when your sister acquired the property, it might reduce the price somewhat but not by a lot, I suspect.

* More to the point, as one of my legal readers has pointed out, statutory instrument 375 of 2012, which came into force at the start of 2013, prohibits a solicitor from acting for both vendor and purchaser in a conveyancing transaction. There are very limited exceptions but I don’t think your situation falls under one of them.

That means you are going to have to find another solicitor and can expect to pay the normal conveyancing fees as they will be working from scratch on this property. That will run anywhere from around €1,150 including VAT to 1 per cent of the property value plus VAT at 23 per cent. But I suspect his or her costs will be the least of the issues you have to consider here, along with any cost of registering the property with land registry and so on.

And all that is before you consider the recurring charges, such as what you describe as “high” annual service charges/management fees. Those sinking charge contributions are unlikely to be one-off so you would want to get some assessment of that by looking back at recent accounts for the apartment complex’s management company. And lastly, of course, there will be the local property tax, which, naturally, will be levied on the apartment’s current value, not what prevailed six years ago.

You might want to consider whether, financially, this is the best plan for you right now. If it is, at least you will be going in with your eyes open.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

* This article was amended on Tuesday, July 4th, 2023