Newly built house - sell it and pay Vat/CGT or gift it to my teenager?

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Windsor23

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I'm putting finishing touches to a house I've built this year on some land I own. I'm aware that if I sell this as a new-build I will need to pay both VAT and CGT.
My solicitor has suggested that it would be far more tax efficient to gift it to my son who can then sell down the line if he chooses and avail of PPR relief.

Thoughts on this strategy? The house would be worth 800k or so in the current market so there would indeed be a lot of tax to pay if we choose to sell it now.
 
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T McGibney said:
Income Tax possibly instead of CGT.
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The link quoted is broken so I can't ascertain why Income tax would be the case here since CGT applies to asset sales as far as I'm aware?
I will of course be taking further advice but I'm curious from a broadstrokes perspective as to whether the strategy of gifting to a child has any merit.
 
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Your son would be paying CAT on a gift worth €800k
However, if you pay CGT , he would get a credit for any CGT you pay as they arise from the same transaction.

However, if it turns out that you pay Income Tax on the transaction, then he would not get any credit for this.

The amounts involved are very large, so you absolutely must get a tax specialist involved.
 
Windsor23 said:
(he has additional needs
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This raises another issue.

If you provide a house to a dependent relative, the capital gain on sale may be exempt from CGT. Not if you sell it or gift it to him, but if you give it to him rent-free.

These are the types of issues which you mentioned in passing which a tax specialist should pick up on when making the best plan.
 
Brendan Burgess said:
If you provide a house to a dependent relative, the capital gain on sale may be exempt from CGT. Not if you sell it or gift it to him, but if you give it to him rent-free.
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In the context of the OP's query...

Windsor23 said:
My solicitor has suggested that it would be far more tax efficient to gift it to my son
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...that's both self-contradictory and misleading Brendan. It took me a couple of reads to understand what you were getting at.
 
Just to be clear what I am saying.

1) If you gift it to him now, you will face a CGT bill or an Income Tax Bill and he will face a CAT Bill.

2) If you keep it and provide it to him rent-free and sell it at some stage in the future, the gain between now and the time of sale may be exempt from CGT

Tax Relief for Dependent Relatives | Parfrey Murphy

Capital Gains Tax An individual’s principal private residence, together with land occupied as its gardens or grounds up to a maximum of one acre, is exempt from CGT if the individual has used it as his / her principal private residence throughout his / her period of ownership. In addition to...
parfreymurphy.ie parfreymurphy.ie
 
Brendan Burgess said:
If you keep it and provide it to him rent-free and sell it at some stage in the future, the gain between now and the time of sale may be exempt from CGT
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Worth noting that the exemption in this case is partial, highly specific and highly conditional and will undoubtedly be further tightened if there is ever a perception that it is being used as a tax planning tool.
 
Brendan Burgess said:
2) If you keep it and provide it to him rent-free and sell it at some stage in the future, the gain between now and the time of sale may be exempt from CGT
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'The gain between now and the time of sale.' Am I correct in assuming that if the house is worth 800k now (but has cost me a significant amount to build), and I decide not to sell it, but keep it and allow my son to live in it rent-free. when/if a few years down the line it is worth say 900k, it's only the 100k gain between now and then that is allowable for relief?
Or the entire 900k?
 
Windsor23 said:
when/if a few years down the line it is worth say 900k, it's only the 100k gain between now and then that is allowable for relief?
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No. The principle of how partial PPR CGT relief is dealt with is illustrated in example 2 here:

Principal Private Residence (PPR) Relief

This page outlines Principal Private Residence (PPR) Relief
www.revenue.ie www.revenue.ie
The same general approach would apply if dependent relative PPR style relief was available for some period of ownership of the non PPR property.
 
Windsor23 said:
Am I correct in assuming that if the house is worth 800k now (but has cost me a significant amount to build), and I decide not to sell it, but keep it and allow my son to live in it rent-free. when/if a few years down the line it is worth say 900k, it's only the 100k gain between now and then that is allowable for relief
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There is no certainty whatsoever that you will be allowed any relief. We simply don't know enough of the facts of your own and your son's situation. Nor do we know what the CGT rules will be when you eventually dispose of the property.
 
ClubMan said:
No. The principle of how partial PPR CGT relief is dealt with is illustrated in example 2 here:
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Thank you. So it seems Dependent Relative Relief operates much the same as PPR relief in that the entire amount would be exempt from time of occupation. This must be what my solicitor was getting at.
While I will need to provide my son with assistance when it comes to his living arrangements going forward, I'm still not entirely convinced letting him live in a brand new 800k property is the way to do it!
 
Windsor23 said:
I'm still not entirely convinced letting him live in a brand new 800k property is the way to do it!
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This is a much more important question for you to address.

Don't make your decision based on the tax planning.

Decide what is the best for your son and do that. Then take tax planning advice about how to do it most efficiently. But don't let the tax tail wag the dog.
 
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