The tax minefield of giving a property to my daughter
QUESTION: A few years ago, my wife and I bought an apartment in Belfast for my daughter to live in. As she was only just starting work we bought it in our names. We would now like to transfer it into her name when the five-year fixed period for the mortgage completes, so that she can take it on in her own name. Will there be tax implications (eg stamp duty land tax, capital gains tax) when we transfer it into her name? She has lived in the property as her main residence during the entire period of ownership.
ANSWER: Unless you can establish that your daughter had beneficial ownership of the apartment until now, if you transfer it to your daughter now, there will be capital gains tax consequences for you, and stamp duty land tax consequences for your daughter. The fact that she has lived in the apartment as her main residence during the entire period of ownership may help you in establishing that she had beneficial ownership until now.
Capital gains tax is payable when you sell an asset that has increased in value since you bought it. The rate varies based on a number of factors, such as your income and size of gain. For residential property it may be 18 per cent or 28 per cent of the gain (not the total sale price).
All taxpayers have an annual CGT allowance, meaning they can earn a certain amount tax-free. In 2018-19, you can make tax-free capital gains of up to to £11,700. Couples who jointly own assets can combine this allowance, potentially allowing a gain of £23,400. You're not allowed to carry this forward, so if you don't use it, you'll lose it.
Therefore, capital gains tax will be payable on the gain by you and your wife on any gain above £23,400.
Your daughter may also have stamp duty land tax to pay on the current market value of the apartment.
However, you may have no tax to pay if you can prove that your daughter always had beneficial ownership of the property. When a piece of land is conveyed from one person to another, the names shown on the conveyance will be those of the legal owners before and after the transfer.
However, they will not necessarily be the holders of the beneficial interest in the land and it is this interest which is normally relevant for capital gains tax purposes.
Establishing the true owner or owners of the beneficial interest in land can be a difficult matter. There is no single factor which determines beneficial ownership. Each case must be considered in the light of its own particular facts, but the following are indicators that a person has beneficial ownership of land:
• They hold legal title (in the absence of any contrary evidence the legal owner will normally also be the beneficial owner);
• They occupy the land;
• They receive any rental income from the land;
• They provided the funds used to purchase the land;
• They received the sale proceeds from a disposal of the land.
The second bullet point may be helpful in proving that the beneficial ownership of the property was always your daughter's. Other evidence may also be required to demonstrate beneficial ownership.
The tax implications are complex on the sale/transfer of properties between family members and specialist advice should be taken in all cases.
:: Malachy McLernon (email@example.com) is a director of PKF-FPM (www.pkffpm. com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.