Capital gains tax liability

Could you please tell me if capital gains tax is applicable when a plot of land is signed over from parent to offspring, when the land was originally inherited by the parent? If so, how is it calculated?

Mr R.O'L., e-mail

The first thing to note is that, in terms of assessing any tax liability owing by the offspring on such a land transfer, it is irrelevant whether the parent inherited or bought the land in the first place.

From the point of view of the owner of the land, the parent, capital gains tax is due on the plot once it is disposed of. Disposal also includes situations where the land is given away. The precise amount depends on the type of land and its value.

A valuation should be obtained on the plot and forwarded to the Office of the Revenue Commissioners. As I understand it, this will be treated as the value of the land for the purposes of capital gains, unless the Revenue queries it, in which case it may apply to the Valuation Office.

In any case, the amount of capital gains tax due will be 20 per cent of the agreed value of the land, less the individual annual exemption, which currently stands at £1,000 (€1,270).

Gains on development land are normally chargeable at 40 per cent, but the Government has reduced this to 20 per cent on lands disposed of between April 1998, and April 5th, 2002. However, to qualify for the lower rate, the land would have to have outline planning permission attached to it at the time it was passed on. The reason is to persuade people to free up development land for building to ease the current bottlenecks in the provision of housing in certain areas of the State. I gather the intention is to hike the capital gains tax rate on such development land up to 60 per cent after April 2002.

The one exception to the above capital gains tax scenario is the passing over of land on the death of the disponer. In such a situation, no capital gains tax applies and the person receiving the land - in this case, the offspring - will be deemed to have acquired the land at the market value at the time of death.

It is worth bearing in mind also that a signing over of land will also attract a liability to capital acquisitions tax (CAT) - also known as inheritance tax or gift tax - regardless of whether it occurs when the person signing it over is alive or dead.

In this instance, given it is being signed over by a parent to a child, adult or otherwise, no tax will be due if the value of the site is less than £192,000 old. Remember that CAT is cumulative, meaning any previous gifts or inheritances will have to be taken into account in deciding whether the £192,000 threshold has been breached. The first £1,000 of any gifts in any given year are not included in the cumulative sum. The only difference between gift tax and inheritance tax is that the former takes place during the life of the benefactor and attracts tax at 75 per cent of the normal rate.

As if all that were not enough, stamp duty will be payable on the land on the basis of its market value, regardless of whether it is passed on as the result of a sale or a gift.

Long-term investments

I recently received a cheque for £4,400 from an investment that has matured. The original investment was £138 in May 1969. Could you please advise if this is liable for capital gains tax and, if so, how is it calculated?

Mr B.B., Wicklow

You really give no information about the type of investment from which you have benefited, making it very difficult to determine what your position is. If you are talking about a life assurance unit-linked or with-profits policy, all taxes due will have been paid before you got the cheque.

In other circumstances and depending on the type of investment, the tax treatment will differ.

Tax and joint ownership

My wife and I are joint owners of our dwelling house. We are also joint holders of a deposit account with a bank to the value of £90,000. Should either of us die, am I correct in stating that the remaining partner will automatically become the owner of the house and the bank deposit?

Mr J.M.M., Dublin

I would imagine that in this particular instance you are correct, but it is important for people who do share joint ownership of an asset to check whether that ownership is truly joint or simply ownership in common. This is particularly true of a property.

In the case of joint tenancy or joint ownership, the surviving owner - in this case your spouse or yourself - automatically assumes ownership of the house and the deposit account.

However, if the joint ownership of the house was under tenancy in common, either party can bequeath their portion of the asset to whomever they wish.

In the case of couples, there is rarely any doubt but confusion can easily arise where friends or business partners purchase property as an investment.

Domicile and tax

I am a tax resident in Luxembourg but domiciled in Ireland. I was a tax resident in Ireland until September 1997. I wish to buy an old house in Dublin, which will cost in excess of £350,000. Am I liable to stamp duty on this property?

Mr J.L., e-mail

In short, yes. As someone, who is domiciled here but not resident, you are liable to tax on income arising within the State and on property purchased in the State. In this case, you would be liable for stamp duty at 9 per cent, given the value of the house. If you were subsequently to rent out the house, you would be liable to tax on that income.

There are arrangements, as I am sure you are aware, to prevent double taxation on individuals. In the case of Luxembourg, it has had such an agreement with the Republic since 1972. Under such agreements, certain taxes paid in one country can be offset against taxes due in another or it can exempt certain types of income from tax in one or other state. However, this is unlikely to apply to stamp duty or to income accruing from rent paid in Ireland, unless such income would also be taxable in Luxembourg.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 11-15 D'Olier Street, Dublin 2, or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.