What are the rules (or where can I find them?) about transferring a family home to a child to avail of the inheritance tax exemption for the family home under CGT (capital gains tax) rules?
I understand the child must have lived in the home for the preceding three-year period and the child must retain occupancy and ownership for the following six years (but can move house providing he/she reinvests the proceeds of the sale fully in a new house).
What is not clear is the rules relating to the parents. Do they have to vacate the home in the years prior to the transfer of ownership? Can they continue to live in the home after the transfer?
Mr T P, Dublin
It is possible to transfer ownership of a family home to a child in certain circumstances but the rules differ, depending on whether the property is transferred by way of inheritance or as a gift.
To avoid confusion, I should note that CGT is not the issue here but rather CAT (capital acqusitions tax, otherwise known as inheritance or gift tax). Liability to CGT rests with the person making the transfer or sale of an asset, although there is no CGT on the sale or transfer of your family home, or “principal private residence” in Revenue jargon. CAT is payable by a beneficiary of a gift or inheritance, unless the value is below a certain threshold or they can avail of an exemption, as in the scenario you raise.
The relevant section of the legislation, if you want to peruse it yourself, is section 86 of the Capital Acquisitions Tax Consolidated Act 2003. It was brought in during Charlie McCreevy’s period as minister for finance at a time when the rapid increase in property values meant family members caring for elderly parents often found themselves effectively evicted from their family home when those parents died, as they could not afford the inheritance tax bill.
You are clearly familiar with the broad outline of the provisions – at least as they relate to inheritance.
Yes, the recipient must have occupied the home as their main residence “continuously” for three years before it is passed by way of gift or inheritance. If the family home was replaced during that time, the residency rule is that the beneficiary of the gift or inheritance must have lived there for three of the four years immediately ahead of their receiving the property.
Importantly, the provision applies only if the beneficiary does not own or have what is called a “beneficial interest” in any other property or be entitled to such an interest.
As you say, they must continue to reside in the property for six years after receiving the gift or inheritance. A couple of provisos apply, notably that the six-year rule does not apply if your child is aged 55 or over at the time they receive the property, or should they die – not that this is something you would consciously factor in.
Also, if they are not resident either because they are employed abroad, or required to move abroad by an employer, or because they are receiving long-term residential medical care, they will not be penalised.
And yes, your reference to the six-year residency period being amended to six of seven years in the case where the home is sold and the proceeds invested in a new property is also accurate.
However, it is worth noting that if only part of the proceeds are reinvested in the new home, Revenue will come looking to clawback the relief granted on that part of the sale proceeds not reinvested in the new family home.
As far as inheritance goes, you’re spot on. But when it comes to family homes passed as a gift, the rules are slightly different – but crucially so.
The critical difference relates to the three-year period of residence by the beneficiary immediately before the transfer of the property. In the case of a gift, living in the family home will not be considered as a qualifying period of residence under the act unless the person(s) making the gift were “compelled by reason of old age or infirmity to depend on the services of the beneficiary for that period”, according to the guidance notes for the legislation.
Helpfully, Revenue informs us that “old age” in this context is over the age of 65.
Essentially, the gift provision is shaped to benefit family carers. This might well have a bearing on your decision.
In relation to your position as the parents making the transfer, not only do you not have to vacate the home in the years prior to the transfer of ownership, any decision to do so will effectively nullify any potential transfer. As the beneficiary must be in the home to care for you, it is important that you are there – and that you are the formal owners of the property.
The legislation is silent on the issue of whether the “disponer” – ie the parent or other family member making the gift – can continue to live in the property after the transfer. On that basis, I don’t see how it can be precluded.
Do we still own shares in Vodafone? Regarding the Vodafone/Verizon deal. We received the cash payment in March. Do we still own any Vodafone and/or Verizon shares? We elected to sell the Verizon shares on the return forms.
Mr J G, email
Yes, you do. More accurately, you still own some Vodafone shares. Having elected to sell the Verizon shares you “acquired” during Vodafone’s return of value, they are clearly gone.
However, the handover of those shares alongside the cash “windfall” did not affect your underlying Vodafone shares. They always remained in your ownership under the transaction.
But it is true that once it was completed, Vodafone then implemented a restructuring, designed essentially to ensure that the price per quoted share in the stock market was as close to unchanged as possible – a not uncommon tactic in these situations.
To do this, the company determined that for every 11 Vodafone shares you owned before the whole convoluted deal, you now own six.
The reason you might not fully realise this is that the default option was that these “new Vodafone shares” will be held electronically by the company’s share registrar, Computershare. Thus, any share certificate you hold dating to before the restructuring is now void.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.
