Credit Capital Gain Tax against Capital Acquisition Liability

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IrishTAL

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I am planning to sell my house and gift some amount of money to my sister. She currently lives in the house and this would allow her to buy her own place. So as an exampe of some numbers: Estimate the gain amount from selling will be 500K with a CGT estimate of 165K. So the remainder 355K I will gift to my sister. Now will she have to pay CAT on the full 335K or can you reduce the CAT based on the CGT amount paid? And if so how is that calculated?

Thanks
 
No, that’s not how it works. You’re selling the property and then gifting the proceeds to her. Credit for CGT against CAT is only available where both taxes arise in relation to to the same property and the same event. In your scenario, it’s not the same property (it’s property vs cash) and it’s not the same event (it’s a property sale vs the gifting of cash).

It would only work if you gifted her the property. The main problem with that is you have to fund the CGT on the disposal from other sources because you haven’t sold it.

What if she bought it from you for an amount that broadly equated to your CGT liability? It should be possible to work that in a way that locks-in the credit.

Is her Group B threshold (siblings etc) still intact?
 
Can you provide more details on the house to understand your CGT liability? Was it ever your PPR, it might help reduce your CGT, subject to rules...
 
Gordon Gekko said:
No, that’s not how it works. You’re selling the property and then gifting the proceeds to her. Credit for CGT against CAT is only available where both taxes arise in relation to to the same property and the same event. In your scenario, it’s not the same property (it’s property vs cash) and it’s not the same event (it’s a property sale vs the gifting of cash).

It would only work if you gifted her the property. The main problem with that is you have to fund the CGT on the disposal from other sources because you haven’t sold it.

What if she bought it from you for an amount that broadly equated to your CGT liability? It should be possible to work that in a way that locks-in the credit.

Is her Group B threshold (siblings etc) still intact?
Click to expand...
Thanks for response. Yes, Group B threshold is still intact (assume you mean she can qualify for the exemption of around 32K)



Below is what I saw on the Revenue website. So what you are saying is that I have to transfer the property to her (as in the shares example below). Then you can credit for CGT. I can't sell the house and then give a cash gift.
  • John gives a gift of shares and cash to Séamus. The total CAT on the gift is €900 (€500 of this applies to the shares). Only the shares are liable for CGT. The CGT payable on the shares is €600.
    The credit for CGT on the shares cannot be greater than the amount of CAT on the shares. Therefore, the credit for CGT paid is €500 (not €600) and this is what Séamus may claim.
    The revised CAT to be paid by Séamus is €400 (€900-€500).

 
Scoobydoobydoo said:
Can you provide more details on the house to understand your CGT liability? Was it ever your PPR, it might help reduce your CGT, subject to rules...
Click to expand...
Thanks for response. It will not qualify as PPR.
Gordon Gekko said:
No, that’s not how it works. You’re selling the property and then gifting the proceeds to her. Credit for CGT against CAT is only available where both taxes arise in relation to to the same property and the same event. In your scenario, it’s not the same property (it’s property vs cash) and it’s not the same event (it’s a property sale vs the gifting of cash).

It would only work if you gifted her the property. The main problem with that is you have to fund the CGT on the disposal from other sources because you haven’t sold it.

What if she bought it from you for an amount that broadly equated to your CGT liability? It should be possible to work that in a way that locks-in the credit.

Is her Group B threshold (siblings etc) still intact?
Click to expand...
What if she bought it from you for an amount that broadly equated to your CGT liability? It should be possible to work that in a way that locks-in the credit.
I'm curious how this might work. Let's say the property mkt value is 600K. Adjusted cost basis is 100K. So CGT liability is 500K. So what would she have to pay for the property to get credit for the CAT?

What if I was to take let's say 300K from the proceeds and buy her a smaller place to live. The property will be in my name. Can you reduce/eliminate CGT this way?
 
No, you can’t eliminate CGT or CAT that way. Unless you loaned her the purchase price and wrote off the loan over time.

If you gifted the property to her, and we ignore other incidental points, your CGT bill is 33% x €500k, so €167k. Her CAT bill is (€600k - €35k) x 33%, so €186k.

So she pays €21k of CAT.

Big issue is where you get the €167k from because you haven’t sold the house.

I’d look at getting her to pay you something like €167k for the house (get a mortgage etc).

Then you’re gifting her €433k, you pay €167k of CGT with the money she gives you, and she pays no CAT.

Or just give her a right of residence or similar for the rest of her life? Why gift what’s yours to her absolutely?

Either way, I’d get professional advice.
 
Gordon Gekko said:
No, you can’t eliminate CGT or CAT that way. Unless you loaned her the purchase price and wrote off the loan over time.

If you gifted the property to her, and we ignore other incidental points, your CGT bill is 33% x €500k, so €167k. Her CAT bill is (€600k - €35k) x 33%, so €186k.

So she pays €21k of CAT.

Big issue is where you get the €167k from because you haven’t sold the house.

I’d look at getting her to pay you something like €167k for the house (get a mortgage etc).

Then you’re gifting her €433k, you pay €167k of CGT with the money she gives you, and she pays no CAT.

Or just give her a right of residence or similar for the rest of her life? Why gift what’s yours to her absolutely?

Either way, I’d get professional advice.
Click to expand...
Thanks. Yes, prob need some more professional advice.
 
I used a professional tax advisor ... was a similar transaction.
He said it was one of the most complex cases he had dealt with.
This is a guy who challenged Revenue on a CAT case - the eligibility of Dwelling House Exemption.
He won the case, and Revenue had to rewrite their tax rules.
 
fistophobia said:
I used a professional tax advisor ... was a similar transaction.
He said it was one of the most complex cases he had dealt with.
This is a guy who challenged Revenue on a CAT case - the eligibility of Dwelling House Exemption.
He won the case, and Revenue had to rewrite their tax rules.
Click to expand...
Thanks. I see the Dwelling House Exemption. Unfortunately I have not lived in the house so this does not apply in my case.
 
Thanks to all for the feedback. I guess my initial idea is to avoid inheritance situation which also has the CAT (same as if you gift). So if I sell and then gift some of the proceeds my sister can buy her own place. But that's a hard pill to swallow when you pay CGT and then on the very same money pay CAT. A compromise might be the Gordon suggestion of her paying an amount to cover CGT and then gift property with credit for CAT. So have to think a bit more about this. Merry Christmas to all.
 
This seems pretty simple, and the only costs are a bit of legal and stamp duty, which are a small fraction of the CAT in issue.

Step 1: value the property in January
Step 2: On 1 February, gift your sibling a proportion of the property equal to the amount you want to gift her, based on that valuation (roughly 2/3 based on the figures in your OP).
Step 3: Sell the property. You'll get 1/3 of the proceeds, she'll get 2/3. Provided your valuation was reasonably accurate/ erred on the high side, she shouldn't owe any CGT on her share of the proceeds.

The tax fallout is that you've made two disposals, totalling the whole 500k and will owe CGT accordingly*. This won't be due for payment until late next year.

Your sister will have received a gift of property, but the CGT/CAT offset will apply to the amount in excess of the relevant threshold plus 3k, because your CGT liability on the disposal to her arises on the same event as her CAT liability.







(* Just in case anyone pedantic ambles by, yes, part disposal rules come into play, so the gain / CGT arising on the gift won't be exactly 2/3 of the total gain / CGT, but it shouldn't affect the overall outcome.)
 
torblednam said:
This seems pretty simple, and the only costs are a bit of legal and stamp duty, which are a small fraction of the CAT in issue.

Step 1: value the property in January
Step 2: On 1 February, gift your sibling a proportion of the property equal to the amount you want to gift her, based on that valuation (roughly 2/3 based on the figures in your OP).
Step 3: Sell the property. You'll get 1/3 of the proceeds, she'll get 2/3. Provided your valuation was reasonably accurate/ erred on the high side, she shouldn't owe any CGT on her share of the proceeds.

The tax fallout is that you've made two disposals, totalling the whole 500k and will owe CGT accordingly*. This won't be due for payment until late next year.

Your sister will have received a gift of property, but the CGT/CAT offset will apply to the amount in excess of the relevant threshold plus 3k, because your CGT liability on the disposal to her arises on the same event as her CAT liability.







(* Just in case anyone pedantic ambles by, yes, part disposal rules come into play, so the gain / CGT arising on the gift won't be exactly 2/3 of the total gain / CGT, but it shouldn't affect the overall outcome.)
Click to expand...
Thanks for laying this out. At least it does reduce the overall tax impact. But wanted to confirm on the cost basis that will be used. Let's assume the following numbers:
Bought property for 120K (converted to euro from pounds as purchase was done in 1996) and apply the indexation relief will make the cost basis around 150K. So can I use this cost basis for your example . For ease of math will assume Fair market value is 650K. So CGT liability of 500K.
 
I like the idea from Gordon and Torblenam on gifting with a way to credit the CAT against the CGT. But I did want to confirm if I do that what is the cost basis for the house when I effectively gift her 2/3 of the value.

Bought property for 120K (converted to euro from pounds as purchase was done in 1996) and apply the indexation relief will make the cost basis around 150K. So can I use this cost basis for your example . For ease of math will assume Fair market value is 650K. So CGT liability of 500K.
 
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