One of the biggest issues for any person currently attempting to build a new house is acquiring the actual land or site upon which the house will be built. We have seen the price of sites increase significantly in certain areas over the past number of years. This is why in most cases people in rural Ireland will try to build on the “family land”.
In theory, transferring a site from a parent to a child should be a simple process. However, there are a number of issues that both the parent and the child need to be aware of. We have attempted to highlight some of these issues in this article.
The vast majority of site transfers between a parent and a child will be voluntary transfers. This means that the parent will not look for any money for the site and will give it to their child as a gift to assist them in building their future home. The child will then construct their house on the property. However, the following are the main issues and items that both the parent and the child should examine prior to formalising the transfer:
1. PLANNING AND ENGINEERING ISSUES – The child will need to have their engineer examine the proposed site to make sure that it has access to the road, utilities and will be a suitable area to construct a house. Their engineer will also take them through the planning process and it may be worth postponing the formal legal transfer of the site until the child’s planning permission has been approved as there will be no point transferring the site if the planning is rejected.
2. MAPPING – The child’s engineer will need to carefully examine the boundaries of the site and prepare a detailed land registry compliant map outlining the site that is to be transferred. This map will be very important as it will highlight the exact boundary of the site that is being transferred to the child.
3. TAXATION – Benjamin Franklin famously stated that “In this world nothing can be said to be certain, except death and taxes”. Unfortunately, this is very true and tax also plays a significant part in voluntary transfers. Tax is probably one of the biggest items that both parties need to be aware of when entering into a voluntary transfer of a site. There are three main taxes to be aware of:
A. STAMP DUTY – Under the tax acts a site is defined as a non-residential property. Accordingly, the child will have to pay Stamp Duty to Revenue at 7.5% of the open market value of the site. As the transfer will be a voluntary one between the parent and the child the child will need to get an auctioneer to prepare a certificate stating what the open market value of the site is. The Stamp Duty payable will be 7.5% of this valuation.
B. CAPITAL ACQUISITIONS TAX (CAT) – A child receiving a gift or inheritance from their parent will have to pay CAT at 33% of the value of the transfer. However, each child has a CAT allowance and can receive a gift/inheritance of up to €335,000.00 from the parent. Accordingly, in most cases a child should not have to pay any CAT on the voluntary transfer of a site.
C. CAPITAL GAINS TAX (CGT) – This is a charge that could potentially impact on the parent. CGT is a tax charged on the “gain” or “profit” that is made on the disposal of an asset. However, no CGT is payable by the parent provided the following criteria are met:
I. The child constructs their principal private residence on the site.
II. The open market value of the site does not exceed €500,000.
III. The overall area of the site cannot exceed 1 acre.
Once all of the above matters are dealt with the parent and the child can then arrange to have the legal documentation executed with their solicitor. As the Law Society of Ireland prohibit the same solicitor from acting for both the parent and the child, each party will need to retain separate solicitors. There are a number of documents that the parent will need to execute to ensure that the transfer is completed. Their solicitor will be able to take them through these documents and explain any questions they have.
Once all of the transfer documentation is executed by the parent, their solicitor will then send all of these documents to the child’s solicitor. The child’s solicitor will then stamp the deed of transfer with Revenue and apply to the Land Registry to have the transfer registered and a new folio opened. This new folio will be the child’s legal “deed” to the property and will be required by the child’s bank if they are getting a mortgage.
Connellan Solicitors LLP have significant experience in dealing with these types of transfers and can assist you with all aspects of the process. If you have any queries regarding this or any other property related matter, please do not hesitate to contact us.
• Please note that this article is prepared for general information purposes only. It is not legal advice and should not be taken as such.