Will parental handout on home purchase have tax implications when we sell?

In late 2019 I purchased a house from my parents for €450,000. Before purchasing the house, it was officially valued by my mortgage provider for €550,000. My understanding is that the difference between the purchase price and valuation price (€100,000) was considered a gift and, for this reason, the house is fully in my name even though both my wife and I have taken out the mortgage on the property.

We are now looking to sell this house and purchase another larger one as our family is growing. Due to the increase in property prices generally, our house will likely be sold for €650,000.

The following questions are on my mind:

1. Do I have to declare the €100,000 gift? If so how?

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2. What tax implications should I be aware of when selling my current home?

3. When we purchase our new home, can I put my wife as a joint owner without facing a tax bill?

Mr KK, email

Parents giving a helping hand to adult children remains a common feature of Irish family finances. And, where the parents have the financial means to do so without leaving themselves short, there’s nothing wrong in doing so, much as it might seem unequal or unfair to others whose parents lack the means to do the same.

These are assets, or funds, that will ultimately pass down the generations on inheritance and it makes perfect sense to be able to gift it when the intended beneficiary actually needs it even where it is ahead of inheritance.

In this case, your parents sold you your current home at below market value. Your own mortgage provider's valuation of €550,000 in the benchmark and the sale price of €450,000 does, as you rightly understand, involve a gift of €100,000 from your parents to you.

As a child receiving a gift (or inheritance) from a parent, you have a lifetime tax-free threshold of €335,000. Back in 2019, the threshold was €320,000 before it was increased to the current rate in October of that year. The applicable threshold for you depends on when in 2019 you bought the house.

Reporting threshold

Either way, the key thing is that the €100,000 gift is below 80 per cent of the threshold. This is significant because, at or above that 80 per cent threshold, you have an obligation to notify the Revenue Commissioners of the amount you have received even though no tax is due until you actually exceed the threshold.

If you had been in this position, you would have had to complete an IT38 capital acquisitions tax return back in 2019 or 2020 (depending again on when in 2019 you bought the home).

As long as you have not previously received gifts or an inheritance from a parent that, with this 2019 gift of €100,000, brought you above the threshold, you have no requirement to declare it.

However, make sure you keep note of the details as it will be important in assessing your tax position should you receive other gifts or inheritances from your parents in future.

On that note, for tax threshold purposes, the gift in 2019 was actually €97,000 if you have one parent surviving at that time as the first €3,000 would have been exempt under the small gift exemption. If both parents were alive, the gift would be €94,000 as each parent is entitled to give you a gift tax free in any year up to €3,000.

In tax threshold terms, regardless of the small gift exemption or which threshold applied at the time you bought the property, the gift accounted for about 30 per cent of the threshold – well below the reporting requirement.

Selling the home

In terms of selling the home now, you will not have any tax issues to weigh up. This is your family home, your principal private residence in Revenue terms, and therefore benefits from a specific exemption in relation to capital gains tax regardless of any increase in value on the 2019 valuation or the actual price you paid.

That’s an issue that is currently the subject of discussion in tax circles with some questioning whether a government looking to get the exchequer books back in order following the exceptional spending during the Covid pandemic should continue to exempt family homes from capital gains, given that, for most people, this is their main asset.

Personally, I suspect the Government will be slow to change the current rules as, politically, it would lead to a backlash and might also deter people from selling their homes, blocking the path of others to home ownership.

Finally, there is nothing to stop you and your wife being listed as co-owners of your new home and such a move will not trigger any tax liability for either of you.

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