|What is a Voluntary Transfer?
A Voluntary Transfer arises where a person wishes to transfer some or all of their property to another, usually a close family member, as a gift during their life time.
How is land transferred voluntarily?
A voluntary transfer is carried out by a Deed of Transfer. A deed of Transfer is a document which transfers the legal Estate or interest in property from the Transferor (the person giving the property) to the Transferee (the person receiving the property). If a Mortgage or a Charge is registered against the property to be transferred, then in order to effectively voluntarily transfer the property from one party to another, the financial institution, the owner of the Registered Charge, may need to be joined as a party to the Deed of Transfer.
Are there any tax issues to be considered when carrying out a Voluntary Transfer?
In all transfers/dispositions of property, a number of tax issues may arise, for example Capital Gains Tax, Capital Acquisitions Tax and stamp duty.
Capital Gains Tax:
Capital Gains Tax is a tax on the gain arising on the sale/transfer of an asset by a chargeable person on or after the 6th of April, 1974. As it is a tax on disposals, gifts also come within this scope including Voluntary Transfers. The standard rate of tax is now 22%. Certain assets are excluded from the tax and some gains are relieved from the tax.
Who is a chargeable person?
A chargeable person is any person who is resident or ordinarily resident and domiciled in the State for the year of assessment. This person is liable to tax or chargeable to tax on chargeable gains accruing and all disposals of chargeable assets made during that year.
What is the disposal of assets for the purpose of Capital Gains Tax?
A disposal of an asset includes:-
• A transfer by sale, exchange or gift.
• The settlement of assets on Trustees.
Disposals that are not made at arms length, for example gifts, are deemed to have been made at market value of the asset at the date of disposal.
There is an annual exemption of €1,270 per individual. This is not transferable between spouses. The annual exemption applies to individuals only.
How do I calculate a gain?
The Capital Gain is the difference between:-
(c) The consideration for the disposal of the assets (or the market value of the assets at the date of disposal, if it is a gift) and
(d) The cost of acquiring the asset, or its market value if acquired by way of a gift, and any expenditure incurred on its improvement. This figure may be adjusted to account for inflation. Incidental costs of making the disposal may also be deducted.
What are incidental costs?
Incidental costs are allowable deductions when calculating the gain on the disposal of an asset and can include the cost of acquiring the asset, for example surveyors, stamp duty and legal fees; the cost of improvement works completed on the property; and the costs connected with the disposal of the asset, for example legal fees, advertising etc.
Are there any reliefs available in relation to Capital Gains Tax?
There are a number of reliefs available to persons in relation to Capital Gains Tax. Such reliefs include relief on the disposal of a site to a child; Principal Private Residence relief; house occupied by dependent relative; retirement relief.
Disposal of a site to a child
No Capital Gains Tax is payable on the disposal of a site from a parent to a child on or after the 6th of December, 2000, where the site is valued at €500,000 or less, and the purpose of the transfer is to enable the child to build a dwellinghouse on the land which the child will occupy as his or her only or main residence. The site must not exceed one acre in measurement exclusive of the area on which the house is to be built.
On a subsequent sale of the site (other than a disposal to a spouse), the child pays Capital Gains Tax on the site transfer unless he or she can show that a dwellinghouse was built on the site and he or she occupied it as his or her only or main residence for a period of at least three years. If the child disposes of the site without building the dwellinghouse and occupying it for at least three years, the child must at that stage pay Capital Gains Tax on the site transfer.
Capital Acquisitions Tax
Capital Acquisitions Tax is divided into two areas: Gift Tax and Inheritance Tax. An inheritance is taken on a death while a gift is taken inter vivos (from a living person). A voluntary transfer is a transfer taken inter vivos. Therefore Gift Tax is payable on a gift received from another during their life time.
The rate of Gift Tax has been increased to 22% in respect of Gifts taken on or after the 20th of November, 2008. However, the Gift Tax payable depends on the relationship between the donor (the person giving the property) and the donee (the person receiving the property). The Gift Tax payable also depends on prior benefits taken from any Donors in relation to whom the donee has the same relationship. Put simply, if you inherit property from your mother in 2003 and is subsequently gifted property from your father in 2005, then you would have received property from two people with whom you have the same relationship, therefore the first gift from your mother would be taken into account when calculating the Gift Tax payable on the gift from your father.
The group thresholds for 2009 are as follows:-
Group A: Child/Foster Child/Minor child of a deceased child €542,544.00
Group B: Lineal ancestor or lineal descendent, for example
brother/sister/child of brother or sistern € 54,254.00
Group C: All other relationships € 27,127.00
Therefore, you are allowed to receive gifts or inherences from both your parents to the total combined value of €542,544 without having to pay Gift Tax.
It is important that everyone is fully advised of the full range of reliefs and exemptions from Gift Tax.
Such reliefs/exemptions include but are not limited to:-
• Surviving Spouse relief
• Dwellinghouse relief.
• Business relief.
• Agricultural relief.
• Small Gift exemption, which currently stands at €3,000. This €3,000 is firstly deducted from the value of the gift before calculating the CAT payable on that gift.
What is Agricultural Relief?
Agricultural Relief can provide relief of up to 90% on gifts or inheritances of Agricultural land and property. Agricultural relief will apply where any gift or Inheritance consists of agricultural property:
(a) at the date of the gift or the date of inheritance
(b) at the Valuation date
(c) is taken by a farmer as defined by the Capital Acquisitions Consolidated Act, 2003.
Who is a Farmer for the purposes of Agricultural Relief?
A farmer is an individual in respect of whom not less than 80% of the market value of the property to which he is beneficially entitled in possession is Agricultural property. This farmer test is therefore financial and one need not actually be a farmer in order to qualify for Agricultural relief.
What is Agricultural property?
As per the Capital Acquisitions Tax Consolidation Act, 2003, agricultural property means, agricultural land, pasture and woodland situate in the State and crops, trees and underwood growing on such land and also includes such farm buildings, farm houses and mansion houses (together with the land occupied by such farm buildings, farm houses and mansion houses) as are of character appropriate to the property, and farm machinery, livestock and bloodstock on such property. Milk quotas also form part of the agricultural property and therefore qualified for the reliefs. Similarly the EU Single Farm Payment entitlement will also qualify as a Agricultural property when passing with Agricultural land.
What is stamp duty?
Stamp duty is a tax on Deeds for example, conveyance on sale, Lease, Mortgages, Transfers, not on transactions. Where property is transferred as a gift for less than its full value, stamp duty is charged on the market value of the property. New changes were introduced in the 2008 budget regarding stamp duty and same are available on the Revenue website or from your Solicitor.
Are there any reliefs from Stamp Duty?
There are a number of reliefs available from stamp duty in relation to Voluntary Transfers. Such reliefs can include:
(a) Young Trained Farmer Relief; Section 81AA of the Stamp Duties Consolidation Act, 1999 provides an exemption from stamp duty where agricultural land, including such farm buildings, farm houses and mansion house occupied therewith are conveyed or transferred to young trained farmer. The parties to the Deed do not have to be related for the relief to apply. To be a young trained farmer, an individual must show that he or she was under the age of 35 at the date of signing the Deed (Transfer) and that he or she has completed a qualifying farming course.
In order to qualify for the exemption from stamp duty, the Deed must contain the appropriate certificate confirming that this relief is being claimed. The young trained farmer must also furnish a Statutory Declaration confirming the intention to spend not less than 50% of his or her normal working time farming the land.
(b) Consanguinity Relief: If parties to a transaction are related to each other they may qualify for a reduction in stamp duty. Stamp duty at the rate of one half the normal rate is chargeable where a relationship certificate is included in the Deed. This relief is available in either the sale or gift of property between certain related persons and the Deed is stamped at 50% of the specified rate for such Deed. It is important to note that in order to claim a relief, you must include the appropriate certification in the Deed.
In order to avail of the relief, each of the persons to whom the property is transferred must be related to each of the Transferors to the required degree. The degree of relationship is mainly based on direct ancestry and extends to nephews and nieces but does not include cousins or in-laws.
Transfer between spouses; A Conveyance or Transfer of any property between spouses is exempt from stamp duty.
Exemption for transfer of a site from a parent to a child; There is now an exemption from stamp duty for a Conveyance, Transfer or Lease of a site from a parent to a child. This relief applies to Deeds executed on or after the 6th of December, 2000. It is similar to the exemption from Capital Gains Tax on a disposal to a child of a site up to the sum of €500,000 and of less than one acre in measurement. This stamp duty relief is available to a natural or an adopted child or indeed a foster child. Again, one must be careful to insert the appropriate certificates into the Deed when claiming a relief. It is common to also include the certificate regarding consanguinity relief when claiming an exemption for the transfer of a site from a parent to a child.