We will look at the example of Mary and John who are in their late 30’s and have one child aged 15. Following an inheritance from their own parents they are in the fortunate position of being a cash buyer. They want to buy a property now which they will give to their child in 10 years time.  We will examine the three different alternatives referred to above by way of the following example.

	Example 1	Example 2	Example 3
Name the Property  is in:	Parent’s  Only	Parents 50%  Child  50%	Child’s  Only
Property Cost	€350,000	€350,000	€350,000
*Estimated Value in 10 Yrs Time	€570,000	€570,000	€570,000
Estimated Taxes arising when giving property to Child in 10 Yrs Time
Stamp Duty	€5,700	€2,850	Nil
Capital Gains Tax	€55,000	€15,750	Nil
Gift Tax	€2,900	€11,750	*€3,000
Total Tax	€63,600	€30,350	*€3,000

* Property values could fall as well as rise during the period. Tax rates might also change during the period.
*This Gift tax is due immediately as the €350,000 value of the property exceeds the Parent/Child threshold of €332,084.

Commentary

Example 3 involves the immediate payment of Gift Tax but no tax payable when the property is transferred into the Child’s name in ten years time. This is because it was bought in trust for the child from date of purchase. The parents were the registered owner but did not beneficially own the property.

Example 2 comes in second place because the child owns a 50% interest in the property from the date of purchase. This reduces the capital gains tax due but Stamp Duty arises on the transfer of the parents 50% interest to their child.

Example 1 shows the highest tax liability. This is because the parents are deemed to have sold the property to their child at market value. Both Stamp Duty and Capital Gains Tax arises on the transfer of the property to the child.

Capital Gains Tax 
This tax is due on the full value of the property in Example 1. However this capital gains tax reduces the amount of gift tax payable at the time of transfer provided certain conditions are met.
In Example 2 Capital gains Tax is due on half the value of the property at the time of transfer to the child. The amount due is €27,500 but €11,750 of this amount can be offset against the Gift tax due subject to certain conditions.

There is no Capital Gains Tax due for Example 3.

Gift Tax 
For  Example 3 there is an immediate Gift tax charge due of €3,000. However no Gift tax then arises at the time of transferring the property to the child.

For Example 2 the value of the 50% benefit is initially below the Parent/Child tax free threshold of €332,084 so no gift tax arises at the time the property is purchased. However, part of the lifetime tax free threshold is used up so that when the child receives the remaining 50% interest in 10 years time Gift tax is due. This amounts to €11,750 but as the capital gains tax is higher the total for the two taxes cannot exceed €27,500.

 

Comparison of the 3 Ownership Structures

The tax costs of the parents giving the property to the child in ten years time range from an estimated €55,000 down to zero and can be summarised as follows:

Purchase Method	Tax Cost
Property bought in Parents’ Names	€63,600
Property bought jointly	€30,350
Property bought in Child’s name	€3,000

The decision of who should own the property from the beginning has a significant affect on the tax costs of the child getting the property for their own use after ten years. This matter should be very carefully considered and professional advice sought to consider your own personal circumstances before any decisions are made.

We have not considered the income tax position if the property was rented for the 10 years until it was transferred to the child. This would also need to be considered.

Overall Summary

The above examples illustrate the different taxes that can arise when transferring property to children. They also show how the impact of the tax charge varies with different ownership structures. In practice what we find is that parents have often owned a property for a number of years and now want to transfer it to their children. Quite often there will be a mortgage thereon which reduces the value of the property for gift tax but not for stamp duty or capital gains tax purposes. The impact of these three taxes has to be carefully considered.

If a child uses the property for a period of three years before the property is transferred to them it may qualify for exemption from gift tax. Please refer to our section on Gift and Inheritance Tax. However three years down the road this may mean increased stamp duty and capital gains tax if the property has gone up in value.

If you are considering the transfer of a property to a child then you should obtain professional advice to see if the tax charges involved can be reduced having regard to your own particular circumstances. We can provide this service by way of consultation for which an extra charge will arise.