Will parents face capital gains tax bill for selling us derelict property?

I have a query on a property owned by my parents (both alive and retired, aged 77 and 78) as a second house, which we (my wife and I) are intending to purchase off them, once we investigate further. The property was never lived in since it was bought in 1987-88 and remains derelict. The property is in need of a lot of work to bring it up to code and standard, and it sits in a small regional town. We were hoping to avail of the vacant property refurbishment grant being offered.

The house we believe is of a market value of approx €110,000. The house was bought for approx £12,000 punts. I have gone through your capital gains multiplier indexation advice and come up with an initial purchase price of approx €24,119.94 in 1988. I am investigating what the repercussions of the capital gains portion due for payment by my parents would be, if any.

Our own circumstances is that we own a small house in the same town, but our family is growing and we need a bigger home.

Mr E.McD.

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In the context of the housing crisis, the Government is cranking up incentives to bring disused property back into the housing stock, so your plan is very much in line with what they are trying to encourage.

However, this property is not your parents’ main home – or what Revenue calls their principal private residence – and does not therefore qualify for capital gains tax relief. Regardless of the state of the place, it is seen as an investment property and therefore subject to capital gains tax.

Of course, should they die and the property pass to you under inheritance, any capital gain would die with them but, as you say, that’s not the case and, with your growing family, your housing need is now and not at some indeterminate point in the future. And them gifting it to you – as against selling it to you at market rates – does not get them out of the capital gains tax bill.

You’ve got the figures spot on. Allowing for indexation up to the end of 2002 brings the purchase cost of this property to £18,996 in “old money”.

Translating that into euro gives you an adjusted purchase price of €24,120, rounding to the nearest euro. That leaves a gain of €85,800. From this they deduct the €1,270 capital gains exemption that anyone can claim in a single year, giving you a taxable gain of €84,610 and a tax bill of €27,921 at the prevailing capital gains tax rate of 33 per cent.

It will actually be lower than that because they can deduct any costs incurred in both buying and selling the property.

But is that the only option? Maybe not.

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There is provision for relief in the capital gains tax code for a site gifted by a parent to a child or a child’s spouse or partner (or, not that it applies here, from a civil partner to the child of either partner or those children’s spouse or partner).

There are limits, however. The value of the site must be no more than €500,000 and cannot be larger than one acre in size. I know the town you’re talking about well and assuming this property is in the town proper, neither of those factors should be an issue for you.

The other key thing is that the property you build on this site must be your principal private property. You will need to get professional advice here. The rules do not say that you cannot ever have owned another property from what I can see, only that the property built on this site will be your main home, and that is what you intend – presumably selling your current home as soon as the new home is ready, though that does not seem to be required either.

Anyway, in case I am missing something in the minutiae, it’d be worth checking. I am also not clear whether “site” means a cleared site or one such as this with a derelict dwelling on it, something you will also need to check.

The advantage, clearly, is that your parents avoid the capital gains tax bill and face a maximum potential charge of the demolition cost of the existing building.

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And that brings us to the vacant property refurbishment grant which seems tailor-made for your situation.

This will pay you up to €30,000 to refurbish/rebuild the property. In addition, in your case, you will get another €20,000, as the property is derelict, so that’s a €50,000 kitty on top of whatever you might raise yourself in bank finance and/or through selling your existing home. It seems that, if approved, the grant is paid at the end of the works, so you will need funding to carry these out anyway.

There are details on the Department of Housing, Local Government and Heritage website here and a helpful quick guide on Citizens Information.

To prove dereliction, the site will either need to be on the Derelict Sites Register, which you can check with your local authority, or you will need a report from an independent and qualified professional – a surveyor essentially – confirming that it is structurally unsound and dangerous.

That report will need to be submitted with your application to the local authority for the grant, alongside the application form and documents showing the property has been vacant for at least two years, and that you own it or are trying to buy it.

Other conditions for eligibility include that the property was built before 1993 (which it clearly was), that you live in it as your family home when completed, and that your own tax affairs are in order.

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The amount of grant given is determined by the local authority on the basis of the work it approves, receipted expenses for those works and a final inspection by the council.

You should also be aware that there is a ranking system of approvals on the basis of limits on funding, I am assuming. That prioritises first-time buyers or those seen as a “fresh start” who no longer own a home because of events such as divorce or bankruptcy. After these parties come applicants with particular needs, such as those with disabilities, or older people.

Only then do we come to folks such as you who are selling their home and want to refurbish a vacant home to live in.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice