Welcome to the Financial Column in association with award winning Money Plus, Bridge St., Boyle.
Q. We have one son, aged 24, who is working and living in an apartment in Dublin which we bought in 2012. The apartment is currently worth c. €550,000. We have read recently that the Revenue are looking at restricting or closing the Dwelling House Exemption.
1) Can you remind us of the rules for availing of the Dwelling House Exemption if we were to gift the apartment over to him?
2) If we were to die can he inherit other assets from us up to the new €280,000 threshold without having to pay tax or does a certain time have to elapse first after gifting over the apartment?
A. First – Your son could be exempt from Capital Acquisitions Tax (Gift or Inheritance Tax) under the Dwelling House Exemption provided certain conditions are met. If these conditions are met then this would not count for inclusion in the €280,000 inheritance threshold that he can receive tax free from you over his lifetime.
To qualify for this exemption, your son must have lived in the apartment for at least 3 years before you gift the apartment to him, and, if he is under 55, he would have to continue living in it for at least 6 years after receiving the gift. He must not own or have an interest in any other property either here or abroad. If any of these conditions are not met, then he would be liable to Capital Acquisitions Tax on the excess of his CAT threshold of €280,000. The CAT tax rate on the excess is 33%.
If he qualifies for the dwelling house exemption he can also inherit up to €280,000 tax free in total, from yourselves. This threshold will be reduced by any taxable gifts received from you since 1991. However small gifts of up to €3,000 a year from each of you would be ignored for tax purposes.
One important point to note is that while you may gift the apartment to him and assuming that this qualifies for the Dwelling House Exemption, this may trigger a Capital Gains Tax liability for yourselves if the market value at the date of transferring ownership to your son is higher than the price which you acquired it for in 2012. Capital Gains Tax is currently charged at 33%.
This is the main difference between gifting an asset and inheriting an asset – there is no capital gains tax on death.
For advice on gifts and inheritance planning including using the annual small gift exemption you should consult a local independent financial broker or adviser such as Money Plus. In this regard Belinda McCauley and her colleagues at Money Plus, Bridge St, Boyle would be delighted to assist you. Belinda can be contacted at 071-9194000/ 086-7847827 or by email: [email protected]