Building a house is stressful enough without having to go through the jigs and reels of buying a site. Farmers will often gift a site to a son or daughter to allow them to begin the building process. However, this is not as straightforward as you may think. There are a few factors to consider when planning to gift a site. There are legal, financial and, of course, tax aspects.
Is the site suitable?
The part a lot of people can forget is that the site needs to be suitable to build on before the transfer should happen. Engaging with an engineer should be top priority in order to pick a suitable site that all parties are happy with, and the engineer is happy that planning permission is obtainable.
After a suitable site has been chosen, it is now time to start the planning application process. Planning applications can take anywhere from three to 12 months. There’s percolation tests, sight lines, house design and back and forths with your engineer, so it is important to get the ball rolling on this as soon as possible.
Getting professional advice
Once you have planning permission approved, it is time to consider the legal and tax elements. A good solicitor will be able to advise you on all of the pitfalls involved in transferring a site – such as access to a well, right of ways and stock-proof fencing, to name a few.
It is important to provide your solicitor with as much information as possible about the land so there are no future fallouts due to unforeseen circumstances. It is important to note that the farmer and the person receiving the gift must both have separate solicitors.
It is prohibited for a solicitors’ firm to act for both sides in a transaction of this nature.
Stamp duty
An auctioneer is necessary to independently value the site. This may seem irrelevant when the site is being gifted, however, it is very important when capital acquisitions tax, capital gains tax and stamp duty are being calculated.
Stamp duty is payable at a rate of 7.5% on non-residential transfers regardless of the relationship between the farmer and the person receiving the gift.
However, eleven-fifteenths of this stamp duty can be refunded, provided certain conditions are met. These conditions include:
You must have filed a stamp duty return.A stamp certificate has been issued.You are using the land for residential development.The site must be less than an acre in size.You must commence building work within 30 months of the date of transfer of the site.Building cannot commence without a valid commencement notice being issued.Capital gains tax
Capital Gains Tax (CGT) is a liability that can arise for the farmer transferring the land. A CGT liability will not arise on a gift of site from parent to child provided the site is not larger than one acre and the site value does not exceed €500,000. It is important to note that if the size of the site or the value of the land do not meet the above conditions, the CGT exemption is lost entirely. The child must build a house on the land; if they fail to do so, there will be a clawback on the CGT relief. The child must also use the house as their only or main residence for at least three years to avoid a clawback on the relief.
Capital acquisitions tax
Capital acquisitions tax (CAT) is a liability that can arise for the child receiving the gift of the site. CAT is calculated on the site value at the date of transfer. In most cases, a CAT liability can be avoided.
A parent can transfer gifts to the value of €335,000 to a child in their lifetime. For future tax proofing, it is important to note the value of the site. This is because the parent may want to gift other assets/cash in the future, which could give rise to a large tax liability for the child. In most cases, a lower value site is more beneficial due to the possible future gifts. For example, if a site is transferred at value of €60,000, this will leave a remaining tax-free threshold of €275,000.
When it comes to tax, it is important to get an independent accountant’s advice to allow you to plan for the future and take into account all possible future obstacles. Tax planning is not something to be put on the back burner, so if you are considering transferring a site or think you may receive a gift of a site in the future, speak to an accountant and solicitor as soon as possible to ensure it is done in as tax efficient a way as possible.
Jerry O’Neill is a qualified ACCA accountant based in Bandon, Co Cork. If you have a query for Jerry, email advice@farmersjournal.ie
Building a house is stressful enough without having to go through the jigs and reels of buying a site. Farmers will often gift a site to a son or daughter to allow them to begin the building process. However, this is not as straightforward as you may think. There are a few factors to consider when planning to gift a site. There are legal, financial and, of course, tax aspects.
Is the site suitable?
The part a lot of people can forget is that the site needs to be suitable to build on before the transfer should happen. Engaging with an engineer should be top priority in order to pick a suitable site that all parties are happy with, and the engineer is happy that planning permission is obtainable.
After a suitable site has been chosen, it is now time to start the planning application process. Planning applications can take anywhere from three to 12 months. There’s percolation tests, sight lines, house design and back and forths with your engineer, so it is important to get the ball rolling on this as soon as possible.
Getting professional advice
Once you have planning permission approved, it is time to consider the legal and tax elements. A good solicitor will be able to advise you on all of the pitfalls involved in transferring a site – such as access to a well, right of ways and stock-proof fencing, to name a few.
It is important to provide your solicitor with as much information as possible about the land so there are no future fallouts due to unforeseen circumstances. It is important to note that the farmer and the person receiving the gift must both have separate solicitors.
It is prohibited for a solicitors’ firm to act for both sides in a transaction of this nature.
Stamp duty
An auctioneer is necessary to independently value the site. This may seem irrelevant when the site is being gifted, however, it is very important when capital acquisitions tax, capital gains tax and stamp duty are being calculated.
Stamp duty is payable at a rate of 7.5% on non-residential transfers regardless of the relationship between the farmer and the person receiving the gift.
However, eleven-fifteenths of this stamp duty can be refunded, provided certain conditions are met. These conditions include:
You must have filed a stamp duty return.A stamp certificate has been issued.You are using the land for residential development.The site must be less than an acre in size.You must commence building work within 30 months of the date of transfer of the site.Building cannot commence without a valid commencement notice being issued.Capital gains tax
Capital Gains Tax (CGT) is a liability that can arise for the farmer transferring the land. A CGT liability will not arise on a gift of site from parent to child provided the site is not larger than one acre and the site value does not exceed €500,000. It is important to note that if the size of the site or the value of the land do not meet the above conditions, the CGT exemption is lost entirely. The child must build a house on the land; if they fail to do so, there will be a clawback on the CGT relief. The child must also use the house as their only or main residence for at least three years to avoid a clawback on the relief.
Capital acquisitions tax
Capital acquisitions tax (CAT) is a liability that can arise for the child receiving the gift of the site. CAT is calculated on the site value at the date of transfer. In most cases, a CAT liability can be avoided.
A parent can transfer gifts to the value of €335,000 to a child in their lifetime. For future tax proofing, it is important to note the value of the site. This is because the parent may want to gift other assets/cash in the future, which could give rise to a large tax liability for the child. In most cases, a lower value site is more beneficial due to the possible future gifts. For example, if a site is transferred at value of €60,000, this will leave a remaining tax-free threshold of €275,000.
When it comes to tax, it is important to get an independent accountant’s advice to allow you to plan for the future and take into account all possible future obstacles. Tax planning is not something to be put on the back burner, so if you are considering transferring a site or think you may receive a gift of a site in the future, speak to an accountant and solicitor as soon as possible to ensure it is done in as tax efficient a way as possible.
Jerry O’Neill is a qualified ACCA accountant based in Bandon, Co Cork. If you have a query for Jerry, email advice@farmersjournal.ie
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