Trouble ahead in playing fair for sister on property deal

I have a property and want to sell it to my sister. If I sell it to her in 2020 for the purchase price in 2013, which was €170,000, there is no capital gains tax. Is this, from a taxation purpose, something that will raise suspicion of Revenue or is it my own private business what I sell a property for?

I am Irish and live in the US. A house nearby sold for €270,000 in 2017.

Mr E.H., email

Your final sentence leads me to believe you suspect the answer to this one is not as you would wish.

Will a gift to a child in the Netherlands create a tax headache for us?

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You bought a property in 2013 for €170,000; you want to sell it in 2020 – to your sister as it happens. And, presumably because she is family, you are looking to pass the property on at cost, so to speak.

It’s a nice idea but it holds out the prospect of complications for you both. Would it raise suspicion in the Revenue Commissioners? You’re absolutely right it would. They’d have a fairly clear idea of what has been happening in property markets here over the past seven years. And, as you’re away, if this property has been rented, it would have been turning up on their files anyway.

So where does that leave you?

In the first place, capital gains tax is based on market value rather than price. With a nearby property going for €100,000 in excess of the price you are seeking from your sister three years ago, the likelihood is that you are effectively “gifting” her a €100,000 discount.

Market valuation

Market values would have risen between 2017 and the start of this year, though they might well have come back since then. Either way, the property is worth closer to €270,000 than €170,000 and Revenue will expect you to get a proper market valuation of it. The fact that you will be making no actual profit on the transaction is a personal decision and not one that will worry Revenue.

It will expect you to file a capital gains tax return (and pay the 33 per cent tax on any market gain). So, apart from losing out on the gain in the Irish property’s value, you will face a tax bill of about €31,000 on the transaction.

And that might not be all. Apart from capital gain, there are rules in Ireland about the amount someone can receive as a gift without paying tax. Assuming the property is actually worth €270,000, your sister is getting a €100,000 gift from you.

While children can receive up to €335,000 in gifts and inheritances from a parent over their lifetime, they can only take €32,500 from a sibling.

In this case, your sister could face a tax bill of over €21,000 for this gift – and it also means that she would be taxed in full on any future gift over €3,000 or inheritance from any brother or sister, grandparent, uncle or aunt.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.