Adding third name to final contract before buying

Moyglish

A couple I know recently bought a house at auction and on the day signed some paperwork in both their names and paid the deposit on the day.

Now that closing is coming to an end, they have decided that they want to include their eldest child as a joint owner on the property and advised their solicitor of sale who said "no problem". The solicitor has since come bank saying that the vendors (a bank) will not allow this and will not allow a third person to sign the final contract.

No contracts have been signed other than the initial deposit the day the house went sale agreed.

Is it really such a big deal to draw up the paperwork to include a space for a third person to sign on the dotted line or is there more to this than it first appears?

I'm tempted to tell them to inform the vendors that they'll be pulling out of the sale if they can't acquiesce to having a third person sign the contract.

Is it really too late, or perhaps I'm over simplifying things?

Would appreciate any thoughts or views on the matter.

Thanks.

awec

If they bought at auction then I am pretty sure they cannot pull out. They have committed to buy.

Creamy Goodness

If you're getting a mortgage to purchase the property the bank has a vested interest in that house. Adding a third person in that mix isn't in their interests

Moyglish

awec wrote: »

If they bought at auction then I am pretty sure they cannot pull out. They have committed to buy.

I don't know all the ins and outs, but I'm pretty sure even if you buy at auction, you can always pull out, only you'd be forfeiting your deposit which is fair enough.

I don't see how they could enforce a sale say if circumstances changed in the meantime as an example?

I could be wrong however.

Dav010

Buying at auction is not the same as buying a property in the standard way, the contract is formed at the time when the bid is accepted at auction. Your friend needs to research the difference between buying at auction and standard house purchase.

If you pull out of an auction purchase, you lose your deposit and that is usually a considerable amount.

Moyglish

Creamy Goodness wrote: »

If you're getting a mortgage to purchase the property the bank has a vested interest in that house. Adding a third person in that mix isn't in their interests

No, as far as I know there's no mortgage involved. The couple are retired and in their 70s so there's no chance they'd get a mortgage, plus they already said it was a cash sale, so no loans involved.

Moyglish

Dav010 wrote: »

Buying at auction is not the same as buying a property in the standard way, the contract is formed at the time when the bid is accepted at auction. Your friend needs to research the difference between buying at auction and standard house purchase.

Ah, OK, that's interesting to note. Can't say I've ever bought at an auction before, so that's good to know for future reference.

I'll pass the word on so. Thanks.

Dav010

Moyglish wrote: »

Ah, OK, that's interesting to note. Can't say I've ever bought at an auction before, so that's good to know for future reference.

I'll pass the word on so. Thanks.

At auction, once the hammer drops, the property is yours, warts and all, you can’t renege without forfeiting your deposit unless you were mislead about the condition of the property.

Creamy Goodness

Moyglish wrote: »

No, as far as I know there's no mortgage involved. The couple are retired and in their 70s so there's no chance they'd get a mortgage, plus they already said it was a cash sale, so no loans involved.

If that's the case I can't see why it can't be left to him in a will.

Bigmac1euro

Possibly avoiding future inheritance tax and maybe the bank are aware of this.

Tiddlypeeps

If their child is an adult, which I assume they are given the ages involved, then wouldn't the child have to pay gift tax as they are essentially being gifted 1/3rd of a house. This doesn't seem like a particularly savvy way of avoiding inheritance tax.

Dav010

Op, this is a good summary of process for buying at auction in Ireland.

Note, contract for sale is formed on the day of the auction when accepted bidder signs agreement and pays deposit..

https://www.bmsolicitors.ie/property/step-1/

BrokenArrows

Very strange.

Why would the vender care who owns the property after purchase. 1,2 or 10 owners, what does it matter to them.

I suggest the solicitor do his job and find a way around this because it doesnt make sense.

Dav010

BrokenArrows wrote: »

Very strange.

Why would the vender care who owns the property after purchase. 1,2 or 10 owners, what does it matter to them.

I suggest the solicitor do his job and find a way around this because it doesnt make sense.

They don’t care, they are selling it to whoever bought it at auction. That is where the binding contract was signed by the buyers. Also, the bidders on the day must produce two forms of valid photo ID with proof of your current address (passport, utility bill or driving license), so as the child was not there, did not produce ID and was not a signatory on the contract, it is understandable that the bank will not amend the auction sale contract.

Bigmac1euro

Bigmac1euro wrote: »

Possibly avoiding future inheritance tax and maybe the bank are aware of this.

Why would the bank care about any inheritance planning of the person buying form them. Absolutely nothing to do with them.

I can’t see any reason why they won’t allow a third name, I’d put my foot down and force the issue.

Bigmac1euro

Tiddlypeeps wrote: »

If their child is an adult, which I assume they are given the ages involved, then wouldn't the child have to pay gift tax as they are essentially being gifted 1/3rd of a house. This doesn't seem like a particularly savvy way of avoiding inheritance tax.

My idea would be to avoid paying gift tax, if his name is on the property it’s not a gift he is part owner so when they do eventually pass on the house is left with him as the surviving owner.
This is total guesswork by the way I’m more than likely wrong. But I can’t think of any reason why they wouldn’t let him put his name on it. I’m sure it’s some legal boring crap.

Bigmac1euro

Brenden Some Refund wrote: »

Why would the bank care about any inheritance planning of the person buying form them. Absolutely nothing to do with them.

I can’t see any reason why they won’t allow a third name, I’d put my foot down and force the issue.

Pure guesswork by me tbh. And I agree they should put their foot down this sounds like pure bollox!

antix80

Moyglish wrote: »

A couple I know recently bought a house at auction and on the day signed some paperwork in both their names and paid the deposit on the day.

The agreement is with the seller and the couple.

The third party is none of the seller's concern.

Even if they decide to forfeit their deposit the seller has a right to make them complete the sale as agreed. Unlikely to be enforced in this market.

ted1

BrokenArrows wrote: »

Very strange.

Why would the vender care who owns the property after purchase. 1,2 or 10 owners, what does it matter to them.

I suggest the solicitor do his job and find a way around this because it doesnt make sense.

It’s illegal l to knowingly be part of tax evasion.
Also adding a third party , breaks with the initial contract and under their corporate governance they may have to go back to the market.

ted1

ted1 wrote: »

It’s illegal l to knowingly be part of tax evasion.
Also adding a third party , breaks with the initial contract and under their corporate governance they may have to go back to the market.

What tax evasion? It’s tax avoidance and completely legal, if that’s what they are attempting.

That being said I’m not seeing a massive advantage for tax purposes. Assuming the parents have paid for his share he would get 6k small gift exemption but other than that he would be eating into his life time threashold and when left the house he would still be considered to have inherited the other 2/3 of the house for tax purposes.

PhoenixParker

Surely the couple can buy the house themselves then sell their child one third via contract & paperwork organized by their solicitor. It will cost them but not a huge amount.

tricky D

Bigmac1euro wrote: »

My idea would be to avoid paying gift tax, if his name is on the property it’s not a gift he is part owner so when they do eventually pass on the house is left with him as the surviving owner.
This is total guesswork by the way I’m more than likely wrong. But I can’t think of any reason why they wouldn’t let him put his name on it. I’m sure it’s some legal boring crap.

No, that is still a gift. Revenue are far too savvy for any 'scheme'.



The only way I am aware of for avoiding Inheritance Tax is for the child is for them to be living in the property for 6 or 7 years as their primary residence with no other property interests. Can't remember whether 6 or 7 years.

Dolbhad

It’s too late to join the child to the contract. The contract was formed the moment they were successful at the auction. That’s the difference between auction and going the traditional route of private sale. Therefore the terms are binding unless both parties agreed. Auction contracts tend to be very onerous on the purchaser and unfair. Vendor won’t want to budge on this and then purchasers solicitor has an issue with another term and wants a change.

The fact is they told them two of them were buying the house and it’s accepted on that basis. The vendor can decline to add a third person to contract.

They will lose their deposit ifthey pull out and can still be sued for breach of contract and can be brought to court to enforce the contract or if they pull out and vendor sells to the next person for less, they can be sued for the difference.

Moyglish

Thanks everyone for all of the replies, very insightful and helpful, I'm learning a lot thanks to you knowledgeable folk.

Yes, the reason they wanted to add the adult child to the contract is a simple case of trying to avoid inheritance tax.

The eldest is physically disabled and will never be able to work so they were trying to minimise any potential large tax bill he might receive when he is older as he won't have that can't of money laying around.

Adult son will indeed be living in the house with them for the next 6/7 years and indeed, indefinitely with them.

He is not likely to ever work or marry.

They'll be disappointed when I report back that it is seemingly too late to add him on as a joint owner as they won't be the most tax savvy to begin with.

In fact son was with them the day of the auction and they did indeed have a brief conflab as to whether or not to have him sign on the day, but they thought they couldn't add him in at a later date before the final contracts were drawn up. Looks like however that this is not the case, unfortunately.

Thanks all for your many interesting points and viewpoints, it made for an interesting read and I've learnt a lot myself too. It seems auctions are a different beast altogether.

Thanks for weighing in, everyone.

James Bond Junior

If he is living in the house for the next 7 years i think it can passed to him without any tax implications. Someone else will probably be able to clarify better.

daheff

is the child a person with special needs? if so, it may be that they do not have the capacity to enter into a contract?

Moyglish

daheff wrote: »

is the child a person with special needs? if so, it may be that they do not have the capacity to enter into a contract?

Good question, but no. Whilst they are disabled and need care, they are in fact fully compos mentis, but at present they do require special needs, but they are well able to make informed financial decisions, enter into contracts etc... There is nothing wrong with their mind or intellectually whatsoever.

antix80

Op, required reading..
https://www.irishtimes.com/business/income-for-disabled-child-can-be-secured-1.231169

The point is parents of disabled children need to get proper legal advice and have proper mechanisms in place so their children are not at the mercy of government departments.

I've no idea if their solicitor recommended the 3rd signature. If not it sounds a bit harebrained.

vintagecosmos

Moyglish wrote: »

Thanks everyone for all of the replies, very insightful and helpful, I'm learning a lot thanks to you knowledgeable folk.

Yes, the reason they wanted to add the adult child to the contract is a simple case of trying to avoid inheritance tax.

The eldest is physically disabled and will never be able to work so they were trying to minimise any potential large tax bill he might receive when he is older as he won't have that can't of money laying around.

Adult son will indeed be living in the house with them for the next 6/7 years and indeed, indefinitely with them.

He is not likely to ever work or marry.

They'll be disappointed when I report back that it is seemingly too late to add him on as a joint owner as they won't be the most tax savvy to begin with.

In fact son was with them the day of the auction and they did indeed have a brief conflab as to whether or not to have him sign on the day, but they thought they couldn't add him in at a later date before the final contracts were drawn up. Looks like however that this is not the case, unfortunately.

Thanks all for your many interesting points and viewpoints, it made for an interesting read and I've learnt a lot myself too. It seems auctions are a different beast altogether.

Thanks for weighing in, everyone.

If son is living with them then check out dwelling house relief. But they should really get a professional involved.

Mitch Connor

tricky D wrote: »

No, that is still a gift. Revenue are far too savvy for any 'scheme'.



The only way I am aware of for avoiding Inheritance Tax is for the child is for them to be living in the property for 6 or 7 years as their primary residence with no other property interests. Can't remember whether 6 or 7 years.

You don't pay inheritance or capital gains on the sale of a PPR of a dependent relative.

tricky D

Which is what I said.