Gift investment property

We are in our late 60s and looking at the best way to pass on our investment properties to our daughter and son. Daughter is married with young family and renting an apartment. Son also married with young family, but has his own house.

We currently rent out the two properties but at this stage want to reduce our own tax rate and at the same time provide another stream of income for our son and daughter. I have two questions:
a) If we gift them both a property thereby using some of their inheritance allowance, is today's value of each recorded somewhere for calculation purposes when we are six foot under?
Or
b) would we be better to look at selling the properties to them at a reduced market rate - (is that allowed?) and pay the tax on the sale ourselves. Our main residence would then be the only property for them to sell - down the line - currently worth about €750k when their inheritance would then kick in.

Hope I've made myself clear and that this makes sense.

Thanks in advance.

if you gift the property to your child, then the market value at the date of the gift is the value of the gift. This is the value used for the CAT calculation now and in the future

You can sell the properties below the market rate, but the market rate will be used for all CAT and CGT calculations. You will be liable for the CGT tax but not the CAT, if any

Will that be the extent of their inheritance or will you be leaving them more when you kick the bucket? That may affect how you approach the situation.

Thanks both for the replies.
Others assets …..we both currently have pensions (3kpm and (1.5k pm)and some savings (approx€65k). Not in the millions anyway.

The big issue to consider is that the liability to cgt disappears on death.

So it might be better to leave any assets with cgt liability until then.

Brendan Burgess said:

The big issue to consider is that the liability to cgt disappears on death.

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I agree that this is a big factor. There is no point paying CGT on a sale six months before you die and your child paying CAT on the inheritance afterwards. That's a reason to hold for life.

At the same time it's likely one of the two people in their late 60s will need to make use of the Fair Deal. If you need to make use of it you'll pay 3.75% of your total assets above €36,000 and 40% of income from your rental properties as a Fair Deal contribution. Double those numbers if one of you has predeceased the other. However if you gift your children the properties today then after five years the properties are not counted toward the Fair Deal contribution.

Another thing to factor in is that you get older you may not have the health or energy to manage the properties.

A lot depends on valuation. What is the total value of your properties? What is the likely CGT bill if you sold today?

Broadcaster said:

Daughter is married with young family and renting an apartment. Son also married with young family, but has his own house.

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OK, reading this again, the more important issue is probably to help your daughter get on the housing ladder.

I am not sure that gifting her an investment property is going to be the best way to do it, unless she would be happy to live in the property?

While the avoidance of CGT on death is an important issue, the urgency of your daughter's needs probably trumps that.

Even if you feel obliged to treat your two children equally, you don't need to give them both part of their inheritance at the same time. So you could give your daughter money now and make it clear that it's part of the inheritance and that you will adjust your will to reflect that.

1) Decide if you are prepared to help your daughter now ahead of your son
2) Check if she would live in either investment property?
3) If not, sell the property with the lowest CGT liability and gift her the proceeds.

Brendan

NoRegretsCoyote said:

At the same time it's likely one of the two people in their late 60s will need to make use of the Fair Deal. If you need to make use of it you'll pay 3.75% of your total assets above €36,000 and 40% of income from your rental properties as a Fair Deal contribution. Double those numbers if one of you has predeceased the other. However if you gift your children the properties today then after five years the properties are not counted toward the Fair Deal contribution.

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I hadn't thought of that. It is a consideration, but how serious a consideration should it be?
1) They might not go into a nursing home - Does nearly everyone end up in a nursing home?
2) The average length of time in a nursing home is quite short.
3) With a family home worth €700k, won't they pay most of the costs themselves?
4) The rules may well have changed by the time they end up in a nursing home.

Brendan

Brendan Burgess said:

1) They might not go into a nursing home - Does nearly everyone end up in a nursing home?

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It's a reasonable assumption that one in a couple will end up in one. About 30k people die in Ireland every year and I think entrants to nursing care is about 10k.

Brendan Burgess said:

2) The average length of time in a nursing home is quite short.

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True, I think it's about 12 months, but there is variability around that. A stay of 5 years could cost a lot (see more below)

Brendan Burgess said:

3) With a family home worth €700k, won't they pay most of the costs themselves?

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Ballpark nursing home cost of €5k a month or €60k a year. For a couple the family home contribution is only 3.75%*€750k= €28k and another €24k from pension income. So another €8k will come from assets.

Brendan Burgess said:

4) The rules may well have changed by the time they end up in a nursing home.

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I can only imagine contribution rates increasing.

I've never worked out the numbers exactly but for retirees with material assets outside ARF and PPR it makes sense to think about Fair Deal implications. It's not likely to be a deciding factor but it is relevant. Of course having assets means you can pay for nursing care at home if you like. For some people that's a good use of their wealth.

NoRegretsCoyote said:

Of course having assets means you can pay for nursing care at home if you like. For some people that's a good use of their wealth.

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That is a very good argument for not disposing of your assets.

Brendan

Brendan Burgess said:

That is a very good argument for not disposing of your assets.

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Or if you trust your children you can give them their inheritance early and they can pay for your home nursing care and they claim tax relief.

If children pay out of pocket they can claim up to €75k between them per annum at their marginal rate.

There really is no simple advice here.

Thanks so much for all the replies. You’ve certainly given us more food for thought.

Hadn’t even considered the Fair deal scheme. Our focus was mainly on how best, tax wise, to pass on the 2 investment properties while also releasing the need for us to look after them along with reducing our income tax rate which is currently at the highest rate. Looks like we will have to consider things more carefully. Never an easy answer.
Many thanks.

NoRegretsCoyote said:

I agree that this is a big factor. There is no point paying CGT on a sale six months before you die and your child paying CAT on the inheritance afterwards. That's a reason to hold for life.

At the same time it's likely one of the two people in their late 60s will need to make use of the Fair Deal. If you need to make use of it you'll pay 3.75% of your total assets above €36,000 and 40% of income from your rental properties as a Fair Deal contribution. Double those numbers if one of you has predeceased the other. However if you gift your children the properties today then after five years the properties are not counted toward the Fair Deal contribution.

Another thing to factor in is that you get older you may not have the health or energy to manage the properties.

A lot depends on valuation. What is the total value of your properties? What is the likely CGT bill if you sold today?

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40% of rent is presumably on net rather than pretax value of rent? Overall value of property versus actual net rent might actually become a question there? If the properties have a good value and rent isn't high could sell on? Depends if your children have their own properties or not now.