My wife wants to gift our interest in a house to her brother. What are the financial obligations?

April 2014

Question

In 1989 my wife and I, who have always been residents in the Republic of Ireland, bought a holiday home here in our joint names.

Having allowed for the change in currency from punts to euro in the intervening years and the indexation which was abolished some years ago, the purchase price of the property for the purposes of assessing Capital Gains Tax in the event of sale would be in the region of €75,000. The property is currently valued at €200,000 and is mortgage free.

My wife wishes to remove her name from the title and gift her interest to her brother. Under this proposal, with which I am in full agreement, the property would be held in the joint names of myself and my wife’s brother.

I would greatly welcome any information in relation to the financial implications of this proposal.

Answer

You should always obtain specialist tax advice but in brief, there are two capital taxation issues in your question. Your wife will have capital gains tax exposure and your brother-in-law will have capital acquisitions tax exposure.

Capital Gains Tax (CGT) is charged on the capital gain (profit) made on the disposal of any asset. It is payable by the person making the disposal.

The profit (the difference between the price you paid for the asset and the price you sold it for) is considered taxable income. Because the property is a holiday home, your wife cannot avail of principal private residence relief. The gifting of a property is treated, for tax purposes, as a sale at market value by the disponer (person giving the gift). The standard rate of Capital Gains Tax is 33 per cent for disposals made on or after December 5th, 2012. Revenue.ie provides good examples of CGT computation.

Your brother-in-law will have to pay Gift Tax. The first €3,000 received from an individual is tax exempt. Gifts and inheritances can be received tax-free up to a certain amount. The tax-free amount, or threshold, varies depending on your relationship to the person giving the benefit. As a sibling of the disponer, he is in the Revenue’s Group B Category. This means he can receive tax-free gifts up to the value of €30,150. The tax rate is 33 per cent.

In summary, your wife gifting her half of the property to her brother may well be a tax inefficient proposal. Your accountant or tax adviser might suggest other options.

Simon Stokes is chair of the residential property professional group of the Society of Chartered Surveyors Ireland , scsi.ie