Parents to Son - Property Transaction

KIRBEC

Hello all,

My parents own a number of investment (rental) properties and are considering transferring ownership of one over to me to help with my financial situation.:o

I’d like to take a year out to go do some aid work in Africa but my monthly repayment commitments to service my personal debt are too large to make it feasible if I give up my current level of income.

I have personal debt amounting to about €50k spread over Personal Loans, Credit Cards and other short-term Finance/HP.

My parents have offered to help by allowing me use the equity value in one of their properties. The idea was they would transfer ownership of a property valued at €150k to me and then I would take out a mortgage on it, availing of the lower APR and longer repayment terms to give me a cash injection to pay off the short-term debt.


THE PROBLEM:
It’s come to my attention that this route will leave my parents liable for a substantial Tax payment, as the Revenue will consider this a Gift and although it’s value is under the family gift limit so I won’t have to pay CAT, however, they will have to pay CGT of 20% on the difference between the purchase/development cost of €50k (10 years ago) and the current market value of €150k.

In other words it will cost them €20k just to help me out here. My folks are helpful and flexible but that’s completely unacceptable.


QUESTION 1

So my first question is does anyone have any ideas of how can advantage be taken of the scenario (family & flexible) to make the transaction as tax efficient and profitable (i.e. least costly) for both parties as possible?


· How about if I but it for €50k?
Wouldn’t this mean they simply break even on their transaction and can take the full €50k without incurring any tax liability? And then I can avail of the extra €100k to refinance my debt…




QUESTION 2
Can someone please help me with the figures regarding the total costs involved in both routes (see chart below)?



QUESTION 3
What mortgage should I go for considering I’m purchasing it as an investment property – i.e. buy-to-let and I’ve heard you should always go for interest only on investment properties? It's a buy-to-let with a monthly rental value of between €500-600, with a current market value of €150k? I have no need for an income from it although I’m considering consolidating (remortgaging) and I plan on getting involved with investment properties upon my return so would like to retain an equity position in it to use as collateral security

Type (Annuity, Endowment, Fixed, Variable, Tracker, Interest Only, Buy-to-Let, FTB, etc …).Over what time period - length (interest only, 20 years, 30 years, etc) Provider (EBS, NIB, Bank of Scotland, other???





CONSIDERATIONS


So I need to do the math and figure out which route is the more sensible and that’s where my posting comes in. Can someone please help me with the figures and considerations?

• · Will I be subject to paying Stamp Duty at 3% (15k) since it’s a second hand property valued over €127k and not my primary principal residence (PPR)? I’ve read direct family relations are entitled to a 50 per cent discount on stamp duty rates when purchasing from each other.
  
• · What about first time buyer relief on stamp duty considering it’s a rental property??? What’s the story with CAT and CGT since it’s not their PPR nor my PPR???
  
• · Does it make sense to make my first purchase a buy-to-let? Won’t I miss out on the FTB grant this way? Should I buy the property and designate it as my PPR then use rent a room scheme to rent a room (limit of €7,620) to help offset costs.
  
• · Will I still be able to get Interest only on PPR as advised for investment properties? What about owner-occupier mortgage interest relief at source --- i.e. investment mortgage?
  
• · How long will it take to transfer ownership if it’s a gift? How soon could I take out a mortgage on it?
  
• · Can anyone recommend a Professional to consult with? (that’s good with email communications?)
  
• · Any other considerations???

I need to present my figures to my folks and I’ve become very confused with it all I guess since I’m sitting on both sides of the fence here and a little “too close to the forest to see the trees” so apologies if I’ve laboured the point a bit and let me assure all that I will appreciate greatly a fresh pair of eyes and perspective on it…

Thanks in advance,
Jim

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THE FACTS & FIGURES

My Status: First Time Buyer
Property Valued at: €150k
Cost to build: €50k (not allowing for CPI indexation)
Property Age: 10 years old
Rental income: €500 per month

Sale Price (to me): A) Gift (free), B €50k,
My Personal Debt: €50k in personal loans, credit cards, finance, etc

Considerations: Gift to me, CGT, CAT, Stamp Duty, Mortgage, etc

---

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OPTION A – DIRECT PURCHASE FOR €50K

---

My Costs:

CGT €_______, CAT €_______, Stamp Duty €______,
Solicitor €_______, Other Legal Costs €_______,
Structural Survey €_______, Valuation €________,
Land Registry €_______, Other €_______,
Mortgage € _______________


My Parents Costs:

CGT €________, Solicitor €________, Other €________,



Total Costs for OPTION A: ____________

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OPTION B – GIFTING ROUTE

---

My Costs:

CGT €_______, CAT €_______, Stamp Duty €______,
Solicitor €_______, Other Legal Costs €_______,
Structural Survey €_______, Valuation €________,
Land Registry €_______, Other €_______,
Mortgage € _______________



My Parents Costs:

CGT €________, Solicitor €________, Other €________,



Total Costs for OPTION B: ____________

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KIRBEC

Edit for Keywords in title

Bluetonic

I'd say you'd get better advice over on www.askaboutmoney.com

KIRBEC

Thank Bluetonic,

I agree AAB is a geat site for my question and I've posted there also...

ionapaul

One thing I do know is even if you 'buy' it for €50k, your parents will still be liable for CGT of 20% on the €100k. The revenue will use current market value, not what you actually pay (rightfully so!)

MorningStar

If you do figure a way out to do this let us know.

My family were trying to do similar and never found a way.

What you need to do is talk to a tax accountant whom specialises in property.

To be honest it seems fair your parents pay tax on the profit made on the property it really doesn't matter if you are the person benifiting. If they had earned €100k they would have paid tax on it.

As mentioned it doesn't matter what you actually pay the market value will be used and they do look closer at family transaction for this very reason.

You would be better doing something like getting a loan of your parents.

Either way I would be very gratefull your parents are even entertaining helping you out.

Sponge Bob

MorningStar wrote:

What you need to do is talk to a tax accountant whom specialises in property.

Thats the answer, be €300 - €500 worth of advice but well worth it.

Before you get that accountant get a set of books ready showing all transactions to do with that house for years back since it was bought and your parents tax returns for those years with

cost price and year
rental
expenditure
repairs
mortgage payments
interest

and make sure it is all tabulated accurately .....to save time and money later on.

You are liable (as I see it) for Gift Tax and they for CGT when they transfer it to you .

You may have purchased an option from them <cough> at a much lower price many years ago . ????

HTH

techguy

Why cant your parents just help you pay off your debts without giving you the property..?

Victor

Fudging the CGT won't work, seeing as you will then have to pay the CGT on a larger base when you eventually sell on. At with the current rate at 20%, I can only see it going up.