What do property and philanthropy have in common? They both start with a ‘p’ and end in a ‘y’, but there’s more. It’s been said that Irish people have a love of property. Philanthropy is defined as a love of mankind. Perhaps the two can merge so that property becomes a major driver of philanthropy in Ireland in the years ahead.
We know from numerous property and wealth reports that a significant proportion of Ireland’s wealth is in property. 17 properties a week worth €1 million or more are sold every week in Ireland, according to the December 2018 Wealth Report from Daft.ie. The report also claimed that the number of homeowners in Ireland whose property is worth €1 million or more – making them “property millionaires” – stands at just over 5,300. Between June and December 2018 alone there was an increase of 452 “property millionaires”. Based on the 1.7 million occupied dwellings in Ireland, the combined total residential property value in the country was worth just under €450 billion in December 2018. Between June and December 2018 there was a daily increase of €150 million in values!
These are staggering figures. While some homeless charities have been loaned properties by people to help address the current housing crisis – in Dublin in particular – very few Irish charities receive outright gifts of property – either during a person’s lifetime or in their will. Legislation however provides incentives to do so.
Gifts and bequests may be made to charities either in cash form or in the form of a transfer of property to the charity. No capital gains tax arises on a bequest, or on a transfer of cash, but an individual or a company making a gift of property (as opposed to cash) needs to bear any capital gains tax implications in mind. Capital gains tax arises where an asset (e.g. an investment property) has increased in value since it was acquired by the donor and the asset is either sold or given away. It does not generally feature where there has been no increase in value. There is a special relief from capital gains tax where a donor transfers an asset to a charity for less than its market value. The normal rule requiring the disposal to be treated for tax purposes as made at market value does not apply and the disposal is deemed to be for a consideration which would ensure that neither a gain nor a loss accrues on the disposal, so the individual or company making the gift is not subject to capital gains tax.
The following example is from the 2017 PwC Charitable Giving Guide:
John Jordan bought a house in May 1992 for €150,000. In January 2014 he made a gift of the house to a charity supporting the homeless so that they could convert it into a shelter. At that time the house was valued at €400,000 and had not been his principal private residence.
- The making of the gift is treated as a disposal for capital gains tax purposes and John is treated as disposing of the house to the charity.
- John is deemed to have disposed of the property to the charity for €150,000 (plus any costs of acquisition or disposal of the property), giving no gain/no loss for tax purposes.
Looking strategically, people could use the gift of property to establish a Donor Advised Fund at The Community Foundation for Ireland. This is a simple charitable giving vehicle administered by the foundation to manage charitable donations on behalf of families, individuals or organisations. This can be done in one’s lifetime or as a gift in a will. A lump-sum is an ideal way to establish such a fund, hence the suitability of a property transfer for doing so. The Community Foundation for Ireland currently manages about 70 Donor Advised Funds.
Author: Niall O’Sullivan, Fund Development Associate at The Community Foundation for Ireland www.communityfoundation.ie