Gintax answers Sunday Independent readers’ questions on tax.
Article published on 2 August 2020

SALE OF INVESTMENT PROPERTY

Q In 2015, I bought a new house for €145,000 using the proceeds from my Additional Voluntary Contribution (AVC) fund on retirement. The price of the same house in the present building phase is €225,000. I wish to sell the house to my son for €100,000. What, if any, are the tax implications for both my son and myself in such a scenario? Jerry, Waterford City

A. Capital Gains Tax (CGT), which applies to gains on the sale of assets and is charged at a rate of 33pc, is the main tax to consider here. There is an exemption for disposal of a principal private residence (PPR) - however, I assume this house was never your main residence so PPR relief is not relevant here.

For tax purposes, you are treated as if you sold the house to your son at market value. Whilst the list price on next phase is a good approximation here, you should obtain an independent valuation, especially given the current market.

As well as the purchase price, you can also deduct the costs of acquisition (such as stamp duty and legal costs) from the sale proceeds - and the costs of disposal and enhancement. If you have capital losses, these losses can be used to reduce the taxable gain on the house. You can also claim the €1,270 annual CGT exemption (where the first €1,270 of taxable gains in a tax year are exempt from CGT) to reduce the taxable gain.

Your son will have a stamp duty liability of 1pc of the market value of the property. The difference between the market value and price paid will be regarded as a taxable gift.

However, this should be within his lifetime tax-free threshold of €335,000, assuming he has not received any prior parental gifts or inheritances. If he is subject to gift tax here, then he will be able to reduce this by your CGT liability, where he retains the house for two years.

FAIR DEAL ASSESSMENT

Q My mother needs to go into a nursing home and we are applying for the Fair Deal scheme. I am one of five children. In September 2015, we each received a gift from my mother of €25,000 - after she had inherited €125,000 from her brother. As the financial assessment for the purposes of Fair Deal includes any gifts within the last five years, we understand the total amount of €125,000 (that is the five gifts of €25,000 each) now needs to be added to the financial assessment figure. Can we apply for a reassessment for Fair Deal after one year and if so will the 'gifts' fall out of the reassessment because they would then be over five years old? Noreen, Co Limerick

A. You are correct that the gifts totalling €125,000 may need to be added to your mother's financial assessment. The key date for the purposes of the five-year test is the date on which the application for Fair Deal State support is first made. It is the five-year period before that date which is examined for the transfer of assets. This remains the period even on a reassessment at any future time.

If the first application for Fair Deal State support is made in say October 2020 or at any point afterwards, then the gifts will not need to be included in the assessment. To the extent required, your mother or the family could fund any care required in the interim. Tax relief, at up to 40pc, is available for nursing home costs or certain carer costs. Any funding by your mother would also reduce her future assessable means. Note too that support provided under the Fair Deal scheme will not be backdated.