By: Liam Mc Grath F.C.C.A, A.I.T.I,

Chartered Certified Accountants &

Professional Tax Advisors

Main Street, Roscrea.

www.lmcgrath.com

0505 22992 / 0505 31702

It is important when Tax Planning, to look at the consequences of the property transaction across all the tax heads, and not just one tax head in isolation.  The main taxes that affect property transactions are;

            Capital Gains Tax

            Capital Acquisitions Tax

            Income or Corporate Taxes

            Stamp Duties

Sale or Transfer of Property & Assets – Capital Gains Tax – CGT

CGT is payable on the disposal of a full or part interest in a property, or when the ownership of the asset changes.

The remaining CGT reliefs in relation to property are:

• Principal Private Residence Relief on the disposal of ones home.  This relief is pro-portionately reduced for periods where the residence was not ones principle private residence.
• Transfer of land or a site valued below certain values, to children for construction of a residence.
• Retirement Relief: Where an individual aged over 55 years, disposes of a business or farm for less than €500,000, and where the assets were used in his/her business for over 10 years. Certain marginal relief rules apply where the disposal value exceeds €500,000.
• The disposal of business or farm to one’s own children is completely exempt from CGT subject to the child retaining the land for a period afterwards.  A child includes a “favourite nephew/niece” who has worked substantially in the business for the last 5 years (as defined).
• Transfer of assets between husband and wife does not give rise to a disposal for CGT. The first €1270 of chargeable gain per person is exempt.  This is not transferable to ones spouse.
• The disposal of tangible movable property (not a wasting asset) for less than €2540 is exempt from CGT.
• Property transferred under a will is exempt from CGT.

Indexation of the base cost of the asset only applies up to 31.12.02, so that this will increase the amount of CGT payable on future disposals.  Rollover Relief has also been abolished.  For more detailed information on Capital Gains Tax, visit www.lmcgrath.com

Income Tax on Property

For a landlord renting property which is not held in a company structure, then income tax on the rental profits (rental income less appropriate expenses less interest on the capital) is payable at the taxpayer’s marginal income tax rate.  With the reduction in number of property tax incentives left, it will become more difficult to reduce this income tax payable.  However tax plans can be put in place to suit each individual circumstances.  For more detailed information on income tax, visit www.lmcgrath.com

Stamp Duties on Purchasing Property

The main relief’s in relation to Stamp duty are

• Transfer of property under wills are exempt
• Purchases of certain new houses & apartments costing less than €127,000
• Transfers between spouses are exempt
• Certain commercial woodlands
• Young Trained Farmers (as defined) are entitled to purchase agricultural property without paying stamp duty. However they must be less than 35 years old, hold a relevant agriculture certificate and declare in writing that they intend to spend in excess of 50% of normal working time in farming the land and that they will retain ownership of the land, for a specified period.
• Rather than buying a property, one could consider building the property on their own site with a building contractor.  However one needs to weigh up the lost opportunity of rental income or extra time costs (business rents) associated with the time to build versus an immediate purchase now.
• Transactions between related persons are payable at reduced rates.

Gifts & Inheritances  Received – Capital Acquisitions Tax – CAT

Capital Acquisitions Tax is payable by the donee (person Receiving) of a gift or inheritance, and is calculated based on the aggregate of previous gifts or inheritance.

Depending on the doner of the gift or inheritance, 3 class thresholds apply as follows

• Class A is the highest threshold, from parents to children.
• Class B for lineal ancestors or descendants including brothers, sisters, uncles, aunts, etc.
• Class C for all others persons.

The main CAT relief’s in relation to property are

- Set off of Capital Gains Tax payable by the doner on the transfer of the property is available for credit against the Capital Acquisitions Tax payable

- Favourite nephew / niece relief allows a nephew or niece who has worked substantially on a full time basis, in the doner’s business for over 5 years to claim Class A threshold as if they were a direct descendant/child of the doner.

- Agriculture & Business Relief

The market value of an agricultural holding and associated agricultural assets, or of a business can be substantially reduced for the purpose of CAT tax. There are various rules to be applied, but broadly for agricultural relief the donee must be domiciled in the state and hold 80% of his/her gross asset base in agricultural assets, after taking possession of this gift of inheritance.

Broadly for business relief to apply, the assets must have been used in the business and must have been owned by the disponer for at least 5 years. The property must be held for at least 6 years after the transfer, and there are other rules to be applied before the relief’s can be obtained.

- Inter spouse transfers are exempt from CAT.

- Surviving spouse relief allows a widow(er) to receive gifts or inheritances from their deceased spouses relatives. This is most relevant in the case of transferring assets from father or mother in law to son or daughter in law, in order to obtain the class A threshold mention above.

- Inheritance of house (or part of) from a brother or sister, where successor is over 55 years and resided with brother or sister for at least 5 years are exempt from CAT.

- An inheritance taken by a parent from a child, where the child had taken a non-exempt gift or inheritance from either parent’s in 5 years prior to child’s death.

Background on L McGrath & Company

Liam McGrath FCCA AITI is a Chartered Certified Accountant & Professional Taxation Advisor, and runs his Practice from Main Street, Roscrea, Co. Tipperary. He has worked in taxation advisory roles for 17 years since 1989, and has extensive experience of managing the taxation affairs of a broad range of clients from around the country throughout this time. For more information on the services offered, visit www.lmcgrath.com, telephone 0505 22992 / 0505 31702 or email lmcgnenagh@eircom.net.

Disclaimer:

While every effort as been made by the author of this article to ensure its accuracy, we do not accept responsibility for any losses incurred or loss of opportunities as a result of this article. Professional Advice should always be obtained in relation to all decisions regarding tax planning.