I’m considering selling our previous family home to jointly buy three apartments with my three adult kids. It’s probably worth €800,000. I plan to stump up half (€200,000) of the purchase price for each and keep the remainder. What are the tax implications for us?
If I spent the remainder on an apartment for myself does it change the tax implications?
Mr J.C. email
I am not quite clear whether this is an innovative family joint investment in a portfolio of properties or a particularly generous case of that most Irish of funding options – the Bank of Mum and Dad – helping your adult children get on the housing ladder.
There are three broad areas to consider: the tax implications of selling the property; what the joint investment would mean for you and/or your adult children; what future tax liabilities might arise as a result of the arrangement.
Taking them in sequence, the first issue for you is the sale of the property. It was, as you say, the family home but that has not been the case for the last number of years.
That being so, the issue of your liability to capital gains tax comes into focus. While family homes – or principal private residences in formal Revenue terms – are exempt from capital gains tax, once you have moved on to a new home, the first property becomes an investment.
So, if you lived there for 14 years and then move out six years ago, 15/20ths of any increase in value over that period is discarded for tax purposes. Why 15, not 14? Well the final year of ownership is automatically considered to be owner occupation for tax purposes, regardless of the reality.
Capital gains are reset to zero when an owner dies and the property becomes part of their estate
So, in this example, you would be liable for capital gains tax at 33 per cent on 5/20ths, or a quarter, of the increase in the value of the property since you bought it. Costs incurred in selling the property will reduce the size of any capital gain and you would also be exempt from tax on the first €1,270 of any liability.
So that’s the house sold. Moving now to the joint investment: if you are investing jointly with your adult children – and the apartments will be in joint names – there is no tax liability for them. For you, however, each of these apartment purchases will be seen as an investment as you already have a family home.
Reset to zero
That means you will be liable for any capital gain on their eventual sale – unless you hold on to them until you die. Capital gains are reset to zero when an owner dies and the property becomes part of their estate.
If, on the other hand, you are giving the children money to buy these apartments which will be their main homes, the gift comes under the capital acquisitions tax rules governing gifts and inheritances.
As long as the adult children have not already received substantial inheritances from their mother, or gifts from either of you, there should be no immediate issue. As of this year, they can receive up to €335,000 from their parents without facing a tax bill.
Any eventual sale of the apartments will have no tax implications for you or for your children if they are being acquired as their main homes
Of course, the €200,000 given to each will reduce their ability to inherit tax free down the line as the €335,000 is a lifetime limit. However, if now is when their need is most acute, and you have the financial ability to help out, it makes more sense to do so.
Obviously the money you spend on an apartment investment for yourself does come under the capital gains tax rules outlined above for investments. It doesn’t change the position in tax terms either for you or for your children. There is no provision for rollover relief in these circumstances to allow you defer any capital gains tax charge.
Finally, aside from eating into their gift/inheritance tax exemption thresholds, any eventual sale of the apartments will have no tax implications for you or for your children if they are being acquired as their main homes. If, however, they are investments, both you and they will have capital gains tax issues to consider when and if they are eventually sold.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
