Q We would like to give our adult child and spouse a small flat we own in Dublin to help them on to the property ladder. We bought the flat in 2014 and it has probably increased in value, by approximately € 15,000. My question is: can we give this property to our child and their spouse without any tax liability on our part, since we are giving it away outright rather than selling it? Likewise, without tax liability on their part? The flat is worth a lot less than the gift-tax threshold of € 280,000 for son or daughter. I'd be most grateful for your advice.
A Your Liability, CGT: a gift of an asset is a disposal for capital gains tax (CGT) purposes. A liability to CGT arises when the proceeds (less incidental costs of sale) are greater than the original purchase price (plus purchase costs). Irish tax legislation states that where a property is transferred by way of a gift to a connected party (ie a lineal descendent), the transfer is deemed to pass at market value. Therefore, while no consideration may be received for the property, you will be deemed to have received consideration on disposal, ie the current market value of the property. Based on the information provided, a gain of €15,000 will arise on the disposal of the property with CGT payable on this deemed gain.
Please note that principal private relief applies to the sale of an individual’s only or main residence. For the purposes of this advice, we assume that the flat is not your only or main residence. You should, however, be entitled to the annual exemption of €1,270. If you hold the property jointly with your spouse, you are both entitled to the annual exemption. If this is the case, the first €2,540 of your chargeable gains should not be liable for CGT.
Your child's / child's spouse liability, CAT: a liability to capital acquisitions tax (CAT) may arise when a person receives a gift, if the value of the benefit is over a certain limit or threshold. The relationship between the person who provided the gift (the disponer) and the person who received the gift (the beneficiary), determines the maximum tax-free threshold, known as the "group threshold". A disposal below the value of these group thresholds will not give rise to a CAT liability provided the individual has not previously received a gift within the group. There are three group thresholds: group A – son or daughter (€280,000); group B – parent / brother / sister / niece / nephew / grandchild (€30,150); and group C – any other relationship (€15,075).
As we understand, the property has a current market value below €280,000 so a transfer of the property solely to your child should not give rise to a CAT liability provided he/she has not utilised some of the group A threshold through a previous receipt of taxable benefits from you and the increased valuation of € 15,000 does not exceed € 280,000. If, however, the property is gifted 50:50 to both your child and his / her spouse, a CAT liability is likely to arise for the spouse as they would only get relief from the group C threshold, of € 15,075, provided they have not previously utilised this amount through receipt of a previous gift. The small-gift exemption should apply, resulting in an exemption of the first €3,000 of the taxable value of the gift received by your child’s spouse. Where CGT and CAT are liable on the same event, a credit for the CGT paid may be claimed in certain circumstances.
Please note that dwelling house relief applies to the gift of residential properties provided certain conditions are met in advance of the disposal.
Stamp duty: based on a valuation of less than € 280,000, stamp duty at a rate of 1 per cent of the market value would apply. Either party to the transaction can be liable for stamp duty in the case of a gift.
We would recommend you contact a tax adviser prior to the disposal of the property to calculate any taxes that may arise and assist with the submission of tax returns, where required. Niamh Horgan, tax manager, RSM
Help with heating
QWe are planning a major remodel of our two-bedroom, 15-year-old apartment, including extending into the attic to make it a three-bedroom duplex. Currently, we have electric storage heaters in the hall and living room, and instant electric heaters in the bedrooms, neither of which are satisfactory, either in terms of cost or comfort. Are there better heating options available? Is underfloor heating a possibility? The complex does not have gas.
ARemodelling a property offers an ideal opportunity to improve older and inefficient heating systems and nowadays there is no shortage of options to choose from.
Electrical storage heating was typically used in apartments to take advantage of night-saver electricity rates and in situations where gas was not available. Replacing your electrical storage heating with modern, more efficient equivalents is one option. However, it is not one that I would be quick to recommend. Storage heating, although offering benefits in terms of the use of cheaper electrical rates, typically provides heat even when it is not needed. The control of temperature is less precise and there is considerable inefficiency in terms of the speed of reaction to a demand for heat. There are alternatives which should be considered.
Due to the absence of gas in your apartment, you are limited to the provision of an electrically operated system. Options for space heating have moved on dramatically in the recent past and you now have the option of moving to an electrically operated water-based system. An ‘air to water’ system could be incorporated, which will allow you to use underfloor heating as you desire. There are some restrictions, however, when dealing with existing buildings.
Heat-exchange technology is used to extract heat from the air. The system works much like your refrigerator but heats, rather than cools air through compression. The air transfers heat to the water, which then circulates through the heating system, either by way of underfloor pipes or wall-mounted units. The system will need an external condenser and this should be placed on an external balcony, rather than on a visible facade within your apartment complex.
There is also an option of using electrical underfloor heating, which does not incorporate water. This may be more appropriate if you are not open to having wall-mounted units. The problem with underfloor heating on the upper floor of an apartment building is that a lot of heat will be lost through the floor. It may not be possible to introduce significant levels of insulation into the existing concrete structure. The situation at attic level is likely to be different. It may be possible to incorporate a number of solutions in your case.
All properties are different and they must be looked at holistically. You should seek the advice of a chartered building surveyor with specialism in the specification of modern heating systems.
Your surveyor will also assist you in obtaining consent from the owner’s management company with regard to conversion of the attic, potential for placing roof-lights / windows on the roof surface and can also advise with regard to any particular improvements in terms of fire precautions, which may be required once the attic is converted. Depending on the orientation of your property, it may also be possible to provide solar panels to complement the new heating system, however, again, consent would be required for the placement of solar panels, external condensers and the like from the management company. A key aspect of your remodelling should be a review and upgrade of insulation levels.
You should also explore the Sustainable Energy Authority of Ireland’s website www.seai.ie to see what grants are available.
Noel Larkin is a chartered building surveyor and a member of the Society of Chartered Surveyors Ireland, scsi.ie
