Gifting Property: Transferring Home Ownership to a Family Member
Ownership of a property can be transferred to a family member with a Voluntary Deed of Transfer. Lots of families explore this idea, although there is a lot of consider before you sign on the dotted line.
Gifting a property with a Deed of Transfer
A Voluntary Deed of Transfer is when you transfer some or all of your property into someone else’s name. No money exchanges hands. Rather, it is a gift from one family member to another. Often this is a spouse, civil partner or child. But it could just as well be a parent, nephew, niece or other relative. You might transfer the property in its entirety. Or you might transfer part of it. This could be useful if, for example, your loved one wants to build their own residential dwelling on a parcel of your land.
Why is gifting property gaining popularity?
Gifting property is this manner is gaining popularity. Often, individuals reach a certain age and start to consider not just their own futures, but those of the generations to come, too. Property is a significant asset, and for most people, it is their biggest asset. It is only natural that you want to use this asset to benefit your loved ones in some way. Typically, there are four motivating factors at play:
1. To keep assets in the family
2. To help children financially
3. To help ageing relatives
4. To reduce tax liabilities
Let’s explore each of these in turn.
To keep assets in the family
You may feel very strongly about keeping a property in the family. This is particularly common amongst farmers who have strong familial ties with the land and their business. Rather than waiting until after your death, you might prefer to transfer the farm during your lifetime – perhaps because you want to retire, or because your child (or other relative) wants to live in the main dwelling. Alternatively, your loved one might be building their own home on your land. By gifting that parcel of land, you give your family member agency over the property, meaning they have a valuable asset in their own name.
To help children financially
The bank of mum and dad has become a major resource for those wanting to get on the property ladder. It’s harder than ever for young people to buy a property, and you might be keen to help your family member financially. But if you don’t have liquid cash to hand, you might land on the idea of simply transferring your own property into their name. That way, they acquire a major asset, but neither party has had to stump up any fees upfront. Of course, you could gift this property under the terms of your Will. But who knows what life has in store? You might want to act now, allowing your loved one to reap the rewards straightaway.
To help ageing relatives
Alternatively, the onus might be reversed. It could be that a family member’s health is ailing, prompting you (and your other relatives) to consider the best way forward. Children often move into their parents’ property to care for them, particularly if the property is too big for them to manage on their own. In such circumstances, you might wonder whether you should transfer the property into your own name, especially if you are going to inherit it anyway. This would make the management of the property easier, especially if your loved one does not have a Power of Attorney in place and later loses mental capacity.
To reduce tax liabilities
Even if you are not particularly rich, it makes good financial sense to plan your estate to reduce tax liabilities. This includes Capital Gains Tax (CGT) and Capital Acquisition Tax (CAT), also known as inheritance tax. Inheritance tax is charged at 33% in Ireland. A large CAT bill could decimate your estate, leaving your loved ones with much less than you anticipated. The rules around gifting property have changed in recent years, as there were concerns that people were abusing loopholes for tax planning purposes. But with the right advice, lifetime gifts could help you preserve your wealth.
Is gifting a property to a family member the best choice for me?
However, just because one of the above scenarios applies to you, does not necessarily mean that a Voluntary Deed of Transfer is the solution. You need to be sure that in gifting your property, you will actually achieve the desired outcome.
Take the reduction of tax liabilities, for example. Before January 2017, the dwelling house exemption allowed a person to gift ownership of a property without incurring an inheritance tax liability – so long as the recipient lived in the property for three years before the gift and for six years after the gift was made. But in January 2017 these rules were tightened. Now the gift exemption only applies in very specific circumstances. This includes where the recipient is older than 65 years, or where the recipient is permanently incapacitated due to a physical or mental illness.
So, you will not necessarily avoid a CAT bill by transferring your property into someone else’s name. Instead, the inheritance tax liability will depend on a whole host of factors, including your relationship to the recipient and whether that individual has exceeded their tax-free threshold.
In other situations, it may actually be better to take an entirely different course of action, rather than gift a property to a family member. Things can get especially messy if, for instance, an ageing family member gifts a property to their daughter. This arrangement might work well to begin with. But what if you have two children and you want each of them to benefit equally when you die? If you transfer the property into your daughter’s sole name, then your other child will be left without an inheritance. Therefore, an alternative arrangement might be more suitable.
Risks associated with gifting property
As we’ve highlighted above, there can be unforeseen consequences to gifting a property during your lifetime. That is why you must get professional legal and tax advice before you decide anything. We can outline whether a Voluntary Deed of Transfer can actually achieve your desired goal – and whether there are any issues that might arise as a result of the property transfer. It can be very hard to find this information on your own, as the law are complex and constantly changing. Furthermore, it very much depends on your individual circumstances. You need to get advice tailored to you and your family situation.
There are also some other risks associated with gifting a property that should be given due consideration.
You are no longer the legal owner
It seems like an obvious thing to point out, but if you transfer your entire property to someone else, then you are no longer the legal owner. This could be problematic, as you give up all control of the property, meaning you essentially lose all of your rights. Theoretically, the new owner could evict you from your home, start building work against your wishes, or invite other people to live in the property. Family disputes are not unheard of, and you need to think carefully whether this a risk you’re willing to take.
Even if there is no chance of you falling out with your family member, what about if he/she encounters relationship difficulties of their own? If their marriage breaks down, your house could be subject to a divorce settlement. Their ex-husband or ex-wife could be entitled to a share of the property, creating practical and financial issues for your own family. This is particularly concerning for those in the agricultural industry, where a divorce settlement can all but ruin a family business.
Finally, does the intended recipient of your property have any financial issues – whether they are disclosed or undisclosed? If your loved one is financially unstable, then you might want to help them by gifting your property. But in fact, if the recipient is made bankrupt, then the property could be sold to pay off creditors. This would strip you and your family of a valuable asset. So, it is important to have a frank discussion about finances, before you commit to the property transfer.
What are the tax implications of gifting a property?
Then there are the tax implications of gifting a property. Tax law is a specialist area in its own right. If you want to be certain what tax liabilities you will incur following a property transfer, you must get expert advice from a tax specialist – such as a member of our estate tax planning team.
However, it might interest you to know that gifts given to spouses and civil partners are exempt from inheritance tax. Also, there will be no Stamp Duty to pay. These rules do not apply to de facto (‘common law’) partners, or indeed any other family members.
If you are gifting your property to someone other than your spouse/civil partner, then there may or may not be a tax liability. It depends on your relationship to the recipient, the value of the property, and whether this exceeds the inheritance tax threshold. There are also other factors to take into account. For instance, there are certain financial reliefs available. This includes agricultural relief, business relief and favourite niece/nephew relief. If applicable, it would reduce the tax bill of the person receiving the gift.
It may seem strange to talk about inheritance tax when you are gifting the property in your lifetime. Yet this does not necessarily eradicate a Capital Acquisitions Tax liability. Inheritance tax may still be due after your death, even if you gift a property while you are still alive. Capital gains tax and stamp duty may also be payable depending on the circumstances.
How to transfer property with a Deed of Transfer
The above information is not intended to scare you away from gifting your property to a loved one. Yet you should take the time to explore all the possible options – and the consequences of each. This will allow you to make an informed decision about what it best for you and your family.
If you decide that you do want to gift your property, then you can do so with a Voluntary Deed of Transfer. You will need to speak to a solicitor who deals with a change in property ownership (such as the solicitors here at Gibson & Associates). The person receiving the property will also need to get legal advice. You cannot have the same solicitor; you must each get independent legal representation.
As the transferor, your solicitor will draw up the Deed of Transfer. This will state that you are transferring the property of your own free will and you have not been put under any pressure to complete the transaction. You and the transferee should also get advice about the tax implications. If you intend to transfer just part of your property, then your solicitor will help you get an OSI map which is Land Registry compliant. This is used to demarcate the land to be transferred. All the necessary paperwork will then be lodged with the relevant authorities, finalising the transfer of the property ownership.
Once this has been done, a Voluntary Deed of Transfer can only be set aside if you are linked to bankruptcy and fraud.
Contact our property solicitors
Are you thinking about gifting a property to a family member? Then let us help you. We have a team of estate tax planning solicitors. We also have a team of property solicitors. This allows us to deliver a comprehensive service that covers all of your needs. First, we can assist you with estate planning, if required. We’ll explain the pros and cons of gifting a property in your lifetime, including any tax implications. If you want to proceed, we will ask our property solicitors to draw up a Voluntary Deed of Transfer, handling all the legal and administrative work on your behalf.
Don’t delay, please call us now on +353 1 264 5555 to speak to a member of our team.