Providing a private "mortgage"

seamus

Total hypothetical here (I wish I was in this position )

Mulling over the "what would I do if I won the lotto" question, I was considering more what I would do if I won an amount large enough to change my life but not large enough to let me quit work, say €500k. So pay off my own mortgage, maybe take a couple of years off to go do some courses, etc.
I have a relative who has a sizeable mortgage but works in the charity sector so isn't well paid and constantly struggles with money.

I would like to clear their mortgage, but €500k not being an enormous amount, I was thinking I could loan them the balance of their mortgage (e.g. €100k), at zero interest and for (say) 30 years. Effectively meaning that they would pay me €300/month "rent" and after 30 years they would own their house.

Is this something which can be done as a mortgage scenario - i.e. my name on the deeds as an interested party, and their life assurance covering the debt, or would it be strictly a private contract matter where the property belongs to them in full and the debt to me is a private unsecured loan?

Are there any tax implications on them or me for providing such a facility?

Marcusm

seamus wrote: »

Total hypothetical here (I wish I was in this position )

Mulling over the "what would I do if I won the lotto" question, I was considering more what I would do if I won an amount large enough to change my life but not large enough to let me quit work, say €500k. So pay off my own mortgage, maybe take a couple of years off to go do some courses, etc.
I have a relative who has a sizeable mortgage but works in the charity sector so isn't well paid and constantly struggles with money.

I would like to clear their mortgage, but €500k not being an enormous amount, I was thinking I could loan them the balance of their mortgage (e.g. €100k), at zero interest and for (say) 30 years. Effectively meaning that they would pay me €300/month "rent" and after 30 years they would own their house.

Is this something which can be done as a mortgage scenario - i.e. my name on the deeds as an interested party, and their life assurance covering the debt, or would it be strictly a private contract matter where the property belongs to them in full and the debt to me is a private unsecured loan?

Are there any tax implications on them or me for providing such a facility?

You can't get legal or tax advice here.

There is nothing special about a bank or finance company taking a charge (such as a mortgage) on a property and they can be registered by private individuals. A solicitor should be used to draw up a loan agreement and mortgage deed (plus ancillary registration documents).

Capital acquisitions tax includes a tax on "gifts" in certain circumstances. The absence of interest MIGHT be regarded as a gift and will depend on a number of circumstances.

FreudianSlippers

I think it's pretty obvious he's not seeking legal or tax advice. We have a report post button as well as infractions for back seat modding. Just sayin'

CIARAN_BOYLE

Marcusm wrote: »

Capital acquisitions tax includes a tax on "gifts" in certain circumstances. The absence of interest MIGHT be regarded as a gift and will depend on a number of circumstances.

This true, the degree of relationship may reduce any tax exposure as would a nominal rate of interest such as 0.1%.

ButtimersLaw

seamus wrote: »

Total hypothetical here (I wish I was in this position )

Mulling over the "what would I do if I won the lotto" question, I was considering more what I would do if I won an amount large enough to change my life but not large enough to let me quit work, say €500k. So pay off my own mortgage, maybe take a couple of years off to go do some courses, etc.
I have a relative who has a sizeable mortgage but works in the charity sector so isn't well paid and constantly struggles with money.

I would like to clear their mortgage, but €500k not being an enormous amount, I was thinking I could loan them the balance of their mortgage (e.g. €100k), at zero interest and for (say) 30 years. Effectively meaning that they would pay me €300/month "rent" and after 30 years they would own their house.

Is this something which can be done as a mortgage scenario - i.e. my name on the deeds as an interested party, and their life assurance covering the debt, or would it be strictly a private contract matter where the property belongs to them in full and the debt to me is a private unsecured loan?

Are there any tax implications on them or me for providing such a facility?

I've been involved in a number of cases where two family members are involved in a financial transaction similar in nature to the one you outline, where one member loans money to another.

The first thing to note is that the road to hell is paved with good intentions, and the chances are that, if the loan is not set up properly and if things go wrong, it will cause family problems and not necessarily just between the two parties.

My advice has always been to have a loan document drawn up in which all eventualities are covered which might include things such as death, default, illness, insurance cover, divorce and or separation, and a dispute resolution mechanism, and if done properly it will greatly lessen the chances of strife over the life of the loan.

Capt'n Midnight

if they are a close relative have a look at deed of covenant for tax avoidance on payments


instead of it being a gift you could rent a room in their house
isn't it up to €10K tax free ?

there was something about having to spend one night a year there , or was that a different tax avoidance scheme where you'd own a room and thus be entitled to inherit the house


you could also check out what their tax allowance limit are as another way of passing them income for casual labour like spell checking any Christmas cards you send them

what's the story on gambling debts and income - could you bet them €5K a time on a coin toss ?


alternatives would be to subsidise other expenses they have

Ken.

If you had the cash to provide a mortgage would it not be easier buy the house yourself and rent it to them for 20/30 years. Take the cost of the mortgage lets say €300k,divide it up to what it works out at a week/month and the relative pays that amount into your account every week/month till its paid off.

ynotonavillus

ken wrote: »

If you had the cash to provide a mortgage would it not be easier buy the house yourself and rent it to them for 20/30 years. Take the cost of the mortgage lets say €300k,divide it up to what it works out at a week/month and the relative pays that amount into your account every week/month till its paid off.

And then you get to pay tax on the rent that you receive....:D A good deed never goes unpunished,,,,

seamus

ynotonavillus wrote: »

And then you get to pay tax on the rent that you receive....:D A good deed never goes unpunished,,,,

Indeed, since the aim is that the relative would own the property at the end, they would also have to pay stamp duty and gift tax when the property is transferred back to them.

So it seems like the only real implication would be possibly that a zero interest loan would be seen as a form of taxable gift - possibly the "gift" being the amount of interest they would save on the original mortgage.

I also agree with what Buttimers says - that as well-intentioned as this sounds, I think the decision to go down this route would need a lot of talking on all sides to avoid animosity or problems later on.

Now...all I have to do is win the lotto

Ken.

ynotonavillus wrote: »

And then you get to pay tax on the rent that you receive....:D A good deed never goes unpunished,,,,

€300000/30/12=€833.33 per month or €10000 per year. I remember reading somewhere(though can't find it with a search) that your allowed collect €10000 in rent before being taxed on it.

johnnyskeleton

seamus wrote: »

Total hypothetical here (I wish I was in this position )

Mulling over the "what would I do if I won the lotto" question, I was considering more what I would do if I won an amount large enough to change my life but not large enough to let me quit work, say €500k. So pay off my own mortgage, maybe take a couple of years off to go do some courses, etc.
I have a relative who has a sizeable mortgage but works in the charity sector so isn't well paid and constantly struggles with money.

I would like to clear their mortgage, but €500k not being an enormous amount, I was thinking I could loan them the balance of their mortgage (e.g. €100k), at zero interest and for (say) 30 years. Effectively meaning that they would pay me €300/month "rent" and after 30 years they would own their house.

Is this something which can be done as a mortgage scenario - i.e. my name on the deeds as an interested party, and their life assurance covering the debt, or would it be strictly a private contract matter where the property belongs to them in full and the debt to me is a private unsecured loan?

Are there any tax implications on them or me for providing such a facility?

Until the glorious communist revolution you are almost completely free to spend your own money as you wish. And until the liberating blanket of anarchism descends upon us, you will most likely have to pay some kind of tax on whatever you do (especially if it is fun).

A scenario like you describe can be achieved in a number of ways - buy the house and rent it out with an agreement to reconvey at the end of 30 years, keep it in the relatives name but register a charge, or just lend the money, get them to repay it and don't bother with security over the house.

Milk & Honey

ken wrote: »

€300000/30/12=€833.33 per month or €10000 per year. I remember reading somewhere(though can't find it with a search) that your allowed collect €10000 in rent before being taxed on it.

Only under the rent a room scheme.

Ken.

Milk & Honey wrote: »

Only under the rent a room scheme.

Oh, ok. Did not know that.