gifting part of the value of property to a child to avail of annual small gift allowance

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Dannyvito

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There is a 3000/parent allowance to give a tax free gift each year to a child. Is it possible to give a portion of the value of our primary residence as that gift?

i.e. when the house is eventually inherrited - say 10 years later - the child can say they already own a portion of the property worth €60,000 (3000*2*10)

If so how would you document such a gift?
 
I think it would be difficult to document such a gift as you are splitting ownership. I'd talk to a solicitor in the first call. I can see stamp duty issues and a transfer won't be able to be done if there is any type of mortgage on the property. The small gift exemption is worth using but perhaps not with a property.
 
Dannyvito said:
There is a 3000/parent allowance to give a tax free gift each year to a child. Is it possible to give a portion of the value of our primary residence as that gift?

i.e. when the house is eventually inherrited - say 10 years later - the child can say they already own a portion of the property worth €60,000 (3000*2*10)

If so how would you document such a gift?
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Brilliant question been on my mind for years.
 
dublin67 said:
I think it would be difficult to document such a gift as you are splitting ownership. I'd talk to a solicitor in the first call. I can see stamp duty issues and a transfer won't be able to be done if there is any type of mortgage on the property. The small gift exemption is worth using but perhaps not with a property.
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Some complexities for sure but in my mind if you split the equity in the property into the slice that you own & the slice the banks owns then you could perhaps gift your children a thinslice from your equity every year. It's a novel idea but definetly worth pursuing with a solicitor.
 
Horatio said:
Some complexities for sure but in my mind if you split the equity in the property into the slice that you own & the slice the banks owns then you could perhaps gift your children a thinslice from your equity every year. It's a novel idea but definetly worth pursuing with a solicitor.
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How do you avoid your children incurring a CGT exposure on any appreciation in value, bearing in mind that they're unlikely to live with their parents forever?

(The idea of splitting the equity in the property into the slice that you own & the slice the banks owns is wishful thinking too.)
 
Not certain I understand the question behind your question but I'll have a stab at answering.

They wouldn't avoid a CGT. In my mind the CGT liability would be realised upon sale of the property in much the same way as if they had inherited it on my death & sold it 2 years later.

Ok, I think I see your point now: If they start to accumulate slices of equity now & over the next 20 years, then the capital gain would most likely be higher & by extension the CGT would be higher than if they inherited it all in 20 years time. Then the answer is still that they wouldn't avoid CGT.

Edit: They would however have equity on hand with which they could get on their own property ladder journey.
 
T McGibney said:
(The idea of splitting the equity in the property into the slice that you own & the slice the banks owns is wishful thinking too.)
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Why so? It'm my slice of equity who & on what grounds could I be prevented? Property rights etc.
 
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Horatio said:
In my mind the CGT liability would be realised upon sale of the property in much the same way as if they had inherited it on my death & sold it 2 years later.
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Unless property prices stagnated or deteriorated for years or decades on end, the CGT liability they'd pay after owning chunks of it for long periods should be much higher than that relating to the capital appreciation achieved in the limited window of the 2 years after your death.
 
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Horatio said:
Why so? It'm my slice of equity who & on what grounds could I be prevented? Property rights etc.
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That misunderstands the basis on how mortgages work. They're taken over the entire property, not your "slice of equity" in it.
 
Horatio said:
Why so? It'm my slice of equity who & on what grounds could I be prevented? Property rights etc.
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The bank have a right to repossess if you dont pay. You cant give away a bit of the property . when you get a morgage, you sign away the right to give a part of the property away without the mortgage holders permission.
 
T McGibney said:
Unless property prices stagnated or deteriorated for years or decades on end, the CGT liability they'd pay after owning chunks of it for long periods should be much higher than that relating to the capital appreciation achieved in the limited window of the 2 years after your death.
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T McGibney said:
How do you avoid your children incurring a CGT exposure on any appreciation in value, bearing in mind that they're unlikely to live with their parents forever?
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This is the key point which puts the kibosh on the very creative idea.

Leaving aside the legal costs and transaction hassle for the moment, by giving the child €3,000 worth of the house, the child saves €1,000 in CAT (Assuming that they get in excess of €335k over the course of their life.)

But the child would face CGT on any increase in value on disposal of the house. Over a long period of time, this could be 100% which would wipe out the benefit completely.

The child would probably also lose any advantage of being a First Time Buyer as they already own or part-own a home.

So 100% for creative thinking.
But it doesn't work.

Go back to giving the child old-fashioned cash instead.

Brendan
 
Brendan Burgess said:
This is the key point which puts the kibosh on the very creative idea.

Leaving aside the legal costs and transaction hassle for the moment, by giving the child €3,000 worth of the house, the child saves €1,000 in CAT (Assuming that they get in excess of €335k over the course of their life.)

But the child would face CGT on any increase in value on disposal of the house. Over a long period of time, this could be 100% which would wipe out the benefit completely.

The child would probably also lose any advantage of being a First Time Buyer as they already own or part-own a home.

So 100% for creative thinking.
But it doesn't work.

Go back to giving the child old-fashioned cash instead.

Brendan
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Thanks Brendan,

I'm trying to minimize inheritance tax as property value is above the 320K CAT exemption value and I don't want them to have to sell to inherit. If I understand correctly the CGT wont apply for them unless the house is then eventually sold which is their problem. They can pass it on eventually themself!

The other thought we had was to sell them the house officially for the current value and also a loan which would have them owe 6k in interest - which we then forgive as our 6k gift. We would presumably be liable for cgt from when I inherited and also stamp duty?
Giving cash is not really viable unfortunately.
 
Brendan Burgess said:
This is the key point which puts the kibosh on the very creative idea.

Leaving aside the legal costs and transaction hassle for the moment, by giving the child €3,000 worth of the house, the child saves €1,000 in CAT (Assuming that they get in excess of €335k over the course of their life.)
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Hang on a minute now! They don't save €1,000 in CAT. They save 33% of whatever that €3000 has increased to whenever they would have inherited it.
Brendan Burgess said:
But the child would face CGT on any increase in value on disposal of the house. Over a long period of time, this could be 100% which would wipe out the benefit completely.
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If the increase was indeed 100% then the 3k slice of house (about a square meter's worth!) would have increased to 6k. CAT, if inherited at that point, would be 2k. If sold at that point, CGT would be only 1k. The benefit is not wiped out completely.

This assumes the child sells the house on the death of the parent(s) and has already exceeded the CAT threshold. Should the child.choose to live in the house as PPR, then the CGT falls away and the benefit is 2k per annual transfer. (Minus any stamp duty which is quite small)

Brendan Burgess said:
The child would probably also lose any advantage of being a First Time Buyer as they already own or part-own a home.
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True, but let's assume they already own a home.

Brendan Burgess said:
So 100% for creative thinking.
But it doesn't work.
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It can work - in certain, admittedly limited, circumstances. Let's assume we've got a property owner who has:
A) a valuable, mortgage-free property in which they intend to remain living for the rest of their life.
B) not a lot of free cash
C) a child to whom they would like to leave the house to in their will
D) said child has already received an apartment worth €335k from the parent
E) said child is a practicing solicitor who can handle the transaction in firm.
 
I think there's something very obvious being ignored here: if there was something like this that could be done, accountants everywhere would be advising clients about it and we'd all know about it.
 
Right Winger said:
Hang on a minute now! They don't save €1,000 in CAT. They save 33% of whatever that €3000 has increased to whenever they would have inherited it.

If the increase was indeed 100% then the 3k slice of house (about a square meter's worth!) would have increased to 6k. CAT, if inherited at that point, would be 2k. If sold at that point, CGT would be only 1k. The benefit is not wiped out completely.

This assumes the child sells the house on the death of the parent(s) and has already exceeded the CAT threshold. Should the child.choose to live in the house as PPR, then the CGT falls away and the benefit is 2k per annual transfer. (Minus any stamp duty which is quite small)


True, but let's assume they already own a home.


It can work - in certain, admittedly limited, circumstances. Let's assume we've got a property owner who has:
A) a valuable, mortgage-free property in which they intend to remain living for the rest of their life.
B) not a lot of free cash
C) a child to whom they would like to leave the house to in their will
D) said child has already received an apartment worth €335k from the parent
E) said child is a practicing solicitor who can handle the transaction in firm.
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f) Chid has no risk of a creditor coming after them ( bankrupcy, business debts, messy divorce) and the "slice" of the house being an asset which they might try to come after
 
I'm not sure this idea is viable for most given the legal fees and likely mortgage on the property but just for pig iron (say a solicitor in the family does the legal work for free and there's no outstanding mortgage), would CGT be due at all if the parent gifted say 3k a year for 25 years and then the parents and child sold the property (I assume no CGT is due here as it would be the PPR of all parties still) and split the proceeds according to ownership and each bought their own new downsized properties?
 
It’s a crazy idea which, in Garrett FitzGerald speak, neither works in theory nor in practice.

There’d be legal fees, other costs, tax costs such as CGT, not to mention the time and the hassle.

You’d still have the CGT, but an easier approach would be to sell a bigger share (or all of it) for an IOU and then use the €3k a year exemption to write-off some of the IOU each year. But waiting until death probably wins.
 
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