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Is Revenue Looking Your Gift Horse In The Mouth?
Important information for those receiving a gift towards the purchase of their property
If you’re lucky enough to be receiving a gift towards the purchase of your new home or property it is very important that you read the following from start to finish. It contains valuable information in relation to tax implications and other matters which may arise as a result of your windfall.
My parents are giving me €100,000 towards the purchase of my new home which is costing €500,000. Am I not entitled to receive a straightforward gift from my own family to help us out?
If you are buying your property as sole owner and the gift is from parent to child, then, assuming you have received no prior gifts or inheritances from your parents, €100,000 falls well under the current tax-free threshold amount for gifts/inheritances between parents and children (otherwise known as capital acquisitions tax – CAT) and there will be no CAT payable by you. However, you are obliged to inform Revenue, as any gift to you during your parents’ lifetime will be deducted from your inheritance tax-free allowance on their death. There are exceptions to this however, for example when a certain amount of time has elapsed since the gift was made. Please see HERE for tax thresholds and other information in relation to CAT.
My spouse is purchasing this property jointly with me. Isn’t it up to me whether or not my spouse will benefit from the gift?
Unfortunately, there really is no such thing as a free lunch! As potential joint owners, your spouse will own 50% of the property you are purchasing. Consequently, in the case described above, your spouse would be considered to be receiving the benefit of 50% of the gift from your parents (i.e. €50,000).
Despite being their daughter or son-in-law, your spouse is considered to be a “stranger in blood” to your parents. This status falls under the Group C threshold – currently only €16,250.
Therefore, subject to the small gift exemption which may apply to the gift, your spouse will be liable for tax (currently at the rate of 33%) on the balance, i.e:
€50,000, less threshold of €16,250 = €33,750.
This figure equates to a whopping tax bill of €11,137.50 for your spouse which no doubt would be far better spent on your new home.
If, however, your spouse can prove that he or she contributed an equal amount to the gift out of their own money directly towards the purchase, then this could be used to offset your gift and the property can be owned on a 50/50 joint tenancy basis. Your spouse would however have to demonstrate this by corresponding banking transactions.
But we are a married couple – isn’t any gift between us tax-free?
In the normal course of events, a married couple can “gift” any amount of money or assets from one to another without any liability to tax. In this case, however, Revenue will view the gift as being a direct benefit from parent to daughter or son-in-law. It is only after a period of three years following the gift that a spouse may benefit under a husband to wife scenario. This is called the rule against gift splitting.
Therefore, if the gift was given to you say two years ago and you were to wait a further year before purchasing a house together, in that case, there would be no tax liability for your spouse.
We want to buy our house now – is there anything we can do to avoid a large tax bill?
Yes. You can opt to purchase your property as “tenants-in-common” (as opposed to a joint tenancy) in proportionate shares which take into account the percentage of the purchase price constituted by the gift. As tenants in common, this does however mean that, in theory, either party is entitled to dispose of their share of the property either by selling it or bequeathing it to a third party under their Will without your consent. This means that if you do acquire the property as tenants in common it would be extremely important for each of you to make a Will specifically stating how your share in the property should pass to the surviving owner on your death.
After the three year period has elapsed, as you are married, you will then be entitled to transfer the property into your joint names as joint tenants with no liability to capital acquisitions tax or capital gains tax, assuming you are both living together. Once registered as such in the Land Registry, on the death of either spouse the other will automatically inherit the deceased’s share with no tax consequences and sale of the property cannot take place without the other’s consent under any circumstances.
How is the tenancy in common calculated?
Using the figures referred to above, your spouse’s €50,000 share equates to 10% of the purchase price. Therefore, ownership of the property as tenants-in-common would be on a 45%/55% basis in favour of the spouse who received the gift.
Read more about this topic HERE.
We are co-habitants and may or may not marry in the future – what about us?
As co-habitants you are unfortunately currently still considered to be “strangers in blood” in the eyes of the Revenue. When purchasing your property, you can however avail of the “tenants-in-common” scenario described above.
I have received the gift from somebody other than a parent – what then?
This will undoubtedly result in significant tax liability for you as the direct beneficiary. Please refer to the Revenue’s website for further information. As regards your spouse, however, the situation as outlined above will remain the same.
Can we not just accept the gift as a “loan” and avoid all of this?
If you decide to treat it as a personal loan and repay the money to your parents/ benefactor over a period of time, then yes, it can be considered a loan. However, if you are availing of a mortgage to purchase your property, your lender will require evidence of how you received the money and how you intend paying it back without jeopardising your ability to discharge the monthly mortgage payments. Sometimes, a lender will require a commitment from you that the loan from your parents will not be paid back until after the mortgage loan has been repaid in full.
How do we go about transferring the property into joint names after the three year period is up?
This is a fairly simple and inexpensive matter which can be done by your solicitor. A deed will be drawn up, transferring the property between you both as joint tenants by way of “natural love and affection” and registering the document in the Land Registry. As you are spouses, there is no stamp duty and no registration fees are payable to the Land Registry. Furthermore, as set out above, there will be no capital gains tax on the transfer of the property provided you and your spouse are living together under the same roof at the time of the transfer.
My parents are selling their house to me/us at a reduced price – does this also constitute a gift?
Yes, it does and it is treated the same as if it were a cash advance. A valuation of the property must be carried out by a registered professional at the time of the sale stating the full market value at that date. You are entitled to obtain a number of valuations and select the lowest value applied to the property, assuming it is not inordinately low. The difference between the sale price and the valuation constitutes the gift amount. It should be also be noted that stamp duty is payable on the full market value.
So now that we have got over that bombshell, is there anything else we need to know about when receiving a gift towards purchasing our property?
Yes! There is one further matter which relates to the title to your property which must be addressed.
If you are availing of a mortgage, your benefactor (the person or persons giving the gift) is obliged to sign a Deed of Confirmation. This document confirms that they will have absolutely no right over or interest in the property, either real or financial on foot of their gift to you. In other words, they cannot at some point in the future say “hey, wait a minute, I gave you €100,000 towards buying that house – I own one-fifth of it” (or something along those lines!).
As part of our undertaking to your lender, we must be able to give them comfort that when it comes to the title to your property, you and your spouse as mortgagors are the only persons entitled to ownership and, in the unlikely event that the lender were to re-possess the property there will be nothing (or nobody) impeding this.
A Deed of Confirmation is not the same as a gift letter (which will likely already have been signed by your parents). It will require attendance by your parent/s at the office of an independent solicitor who will witness the signing of the Deed and provide us with a letter confirming that independent legal advice was given. If the gift is coming from one parent only then their spouse will be required to sign a consent to the giving of the gift.
This will attract fees for you/your parents which will need to be borne in mind. You should advise your benefactor of this requirement and satisfy yourself that they are agreeable to do so before you sign contracts to purchase your property.
Please note whilst every effort has been made to ensure the accuracy of the contents of the above article it is not to be construed as legal or taxation advice nor does it purport to be so. Specific tailored advice is required for every specific scenario. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Consequences Of Purchasing A Property Involving A Gift”, please contact Wendy Scales, Legal Executive at Amorys Solicitors firstname.lastname@example.org, telephone 01 213 5940 or your usual contact at Amorys.