Liable for CGT if buying land off parents ?

M

merb

Guest
Hi there

My wife and I are planning to buy some land from her parents in order to build a house. The price we have been discussing wont be too far off the market value of the property so my question is who (if anyone) will be liable for CGT ?

Even if the price we settle on is below the market value, Im assuming that we (my wife and I) wont be liable under the parent to child exemption, but not sure if my wifes family will be expected to pay.

Any help appreciated as every time I ask the Revenue office they send me the brochure on CGT, which is generic and doesnt cover the situation where money changes hands on a transfer of land for development to a child.
 
You will only get an acre free of CGT, that is what we got, and it must go only into the name of the person who's parent own the land.

If you pay for it then it may be different, it would be better if the land was gifted then no CGT will be due.
 
Yes but as there is a threshold for parent to child then does this impact the amount that would be charged, or is it the standard rate across the whole amount ?
 
The 1st acre is free after that it is the normal rate unless it is agricultural land then its free, it was for us but it may have changed. Our land was worked and still is so my wife parents paid nothing.

It is also the difference in the gain from when they had it and when it was transferred to you, if they have had it for 20 yrs and it was 100/acre and now its 20000/acre then the CGT is payable at 19900 by the % applicable.
 
First things first, there is potentially exposure to two different taxes here.

The person disposing of the land may realise a gain that is subject to CGT (Capital Gains Tax).

The person(s) acquiring the land may be in receipt of a gift that is subject to CAT (Capital Acquisitions Tax).

CGT:
The amount of money that changes hands is irrelevant in a transaction like this, all that matters is the market value - their gain is calculated as the difference between the cost of the land when they acquired it (or its value when they acquired it if it was willed/gifted to them) and its value when they disposed of it.

There is a relief, and it is outlined at Page 16 of the CGT1 guide to CGT, and also in Revenue's manual - as a previous poster mentioned it only applies to a transfer to a child (not a child and their spouse), but can be worked around as you'll see from the underlined bit at the end:

[19.7.2A] Transfer of site to child (S.603A) ​
2A.1
[FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]This section provides that capital gains tax will not apply on the transfer of a site from a parent to a child (as defined) where the transfer is to enable the child to construct his/her principal private residence on the site. [/FONT][/FONT]​

2A.2
[FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]The value of the site must not exceed €500,000 (€254,000 for disposals prior to 4 December 2007) to qualify for the relief. For disposals on or after 1 February 2007 the site cannot exceed an area of 0.4047 hectare (1 acre) in addition to the area occupied by the dwelling house itself. [/FONT][/FONT]
20.3 [FONT=Times New Roman,Times New Roman][FONT=Times New Roman,Times New Roman]If the child subsequently disposes of the site without having occupied a principal private residence on the site for at least three years, then the capital gain which would have accrued to the parent on the initial transfer will accrue on the child and a clawback of relief will arise. However, this gain will not accrue to the child where he or she transfers an interest in the site to his or her spouse. [/FONT][/FONT]

CAT / "Gift Tax":
There is a lifetime threshold for the value of gifts that you can receive from a parent tax free - if the amount paid for the site is below the market value then the difference is a gift from parent to child, which eats into this threshold.​
 
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