Mr TE writes: “A year ago my wife and I sold our house and moved in with my 60 year old widowed mother. We used our own money to create a granny flat for her. She has agreed to sell us the house, worth €400,000 and to accept €250,000. Will we have to pay gift tax on the €150,000? Is there a more tax-efficient way to buy it? What about the dwelling house exemption clause?”
Jill Kerby (JK): The Revenue requires that when a property is sold the price reflects its market price. Your mother has agreed to sell you her €400,000 property for just €250,000 which leaves a market value ‘shortfall’ of €150,000.
But she can gift you that value, free of capital acquisition tax, as the €150,000 amount falls well within the €280,000 tax-free CAT threshold between a parent and child that will apply from next January. (It is currently €225,000.)
The CAT Dwelling House Exemption is not relevant in this case. Not only is your mother not gifting you her entire property, which is one of the requirements of the exemption, but the fact that you are sharing it with her (and only for the past year) disqualifies you.
Under the Exemption rules, only a property that is not the disponer’s principal private residence can be gifted to the person who has lived in that other property continuously for the three previous years. The other conditions are that the beneficiary does not own a property of their own and agrees not to dispose of the one gifted to them for at least another six years.
Where a person does share the owner’s principal private property for the three years, has no property of their own, and agrees not to dispose of it for six years, that property can be inherited, CAT-free, when the owner dies.
Mr MD writes: “I invested €70,000 in a single premium investment fund portfolio with a well-known life assurance company in 2013. My broker, who is now an ‘independent’ broker, is now recommending that I sell it and buy a new one with another provider even though the existing fund has done very well. This will cost me €2,500 in early exit penalties. He says it is not just for potentially better future fund performance but because the other company offers better access and lower charges. Do you think this is good advice?”
JK: What you describe sounds like a classic case of churning – that is, recommending a switch in order that the broker receives a new set of lucrative commissions.
Investment funds like the ones you describe (company names provided) are designed as long term, not short term investments, partly to recoup initial set-up charges but also to allow the compounding of positive returns over time. The charging structure of both companies is very similar.
I wonder how ‘independent’ your broker really is. It sounds like he may have been a tied agent of the first company but has now become an ‘independent’ broker by securing the minimum insurance agencies necessary. As I’ve argued many times before, truly independent, impartial financial advisers offer the widest range of investment advice and ideally are fee-based, declining to accept sales commission from the product providers.
Before you do anything, ask your broker to put down in writing why he is recommending the switch, including what he believes are the specific shortcomings of the existing fund compared to the new one.
Ask him to also compare all the costs, fees, charges and commissions and exit penalties. Also, since he can’t guarantee superior performance from the new fund, is he willing to pay the €2,500 early exit penalty for you? I doubt it. Then find a new, impartial adviser.
Ms JF writes: My brother Michael has just left Ireland to return to the UK permanently. He arrived in Ireland in late 2002 and was continually employed here for nearly all of that time. Is he entitled to a tax rebate from the Revenue and if so what are his entitlements?
JK: Your brother may be entitled to a small tax rebate for this year, but he might also be able to claim tax refunds for any unclaimed tax credits over the previous four years such as medical and dental expenses, rent relief if he had been a renter as of December 2010, pension contribution relief, etc. He should consult a good tax adviser or accountant.
Do you have a personal finance question for Jill? Please write to her at The Munster Express, 37, The Quay, Waterford X91`DC83 or by email