Transfer of a Site to a Child – A Case Study

by | General

As tax advisers, we come across many diverse scenarios in regards to the transfer of a site to a child.

We recently had a case where a mother, Margaret wished to gift a site in her garden to her son, Joseph and his partner, John.

We considered three different scenarios.

  • The site is transferred in the sole name of Joseph the son.
  • The site is transferred to both Joseph and his partner John.
  • The site is transferred to Joseph and he transfers half the interest to his partner John.

Scenario 1

The site is transferred into the sole name of the son, Joseph

There is tax relief in S603A of TCA97 which exempts CGT on the disposal of a site to a child provided:

  • The child must build a house on the site
  • The site must be less than 1 acre
  • The site value must be less than €500,000
  • There must not have been a prior disposal of a site to the child
  • The child must not sell the site to a third party without building a house, otherwise the CGT would be payable by the child
  • Before any disposal, the child must have occupied the house for 3 years

This section only provides relief from capital gains tax if the site is transferred:

  • To a child or stepchild of the transferor
  • A spouse or civil partner of the transferee will also qualify for the relief

Let’s say the site value is €100,000

CGT nil as section 603A will apply

CAT – the value of the gift: €100,000 is below the group threshold for a parent to a child, so no CAT liability.

Total Tax = Nil

Scenario 2

The site is transferred to both the Joseph and his partner John.

CGT – section 603A would not apply as the John is not a spouse or civil partner of Joseph.

PPR and part disposal rules will apply to the calculation of the CGT

For our purposes we will assume the CGT is €20,000

CAT – the partner, John, will receive a gift of half the value of the site €50,000 – from the mother, Margaret – this will be categorised under group threshold 3, as they are strangers in blood.

So –  €50,000 less the small gift exemption = €3,000 – The gift value is €47,000

€47,000 less the threshold amount €16,250 = €30,750 tax at 33% = €10,148

Section 104 of the CATA 2003 allows for an offset of the CGT against CAT where both taxes are incurred on the same event.

In this scenario the CAT = €10,148 less CGT= €20,000 so CAT reduced to nil.

CGT – €20,000

Total tax = €20,000

Scenario 3

The site is transferred to the son, Joseph and the son transfers half his interest to his partner, John.

As indicated above there will be no tax implications on the first transfer of the site from the Mary to Joseph.

There will however be a CAT liability on the transfer from the Joseph to John. This will be under the group threshold 3.

So €50,000 less the small gift exemption €3,000 – the gift is €47,000

€47,000 less the threshold amount €16,250 = €30,750 tax at 33% = €10,148

Total Tax = €10,148

If Joseph and John were planning on getting married then Joseph could then transfer half the site to his spouse after marriage without any CAT or CGT implications.

However there is anti-avoidance legislation which addresses gift splitting per S8 CATA 2003. This means that if you transfer a gift or part of the gift within three years of receiving It, the gift is deemed to come from the original disponer i.e. the mother, Margaret.

In this case the CAT payable would be the same as the transfer from the son, Joseph, as it is under the group threshold 3.

Don’t forget the Stamp duty

Provided the site is 1 acre or less and is part of the curtilage of the house the stamp duty rate will be at the lower rate of 2%.

This is an example of how a seemingly straight forward transaction requires in depth analysis in order to get the best result for the client.

Please reach out if you have any queries regarding this case study, or indeed, if you require any tax advice.

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