Revenue vs Bank

DataDude

Currently have mortgage approval with a bank, have my deposit read to go. My father however has come into some cash from selling a second property which he is likely to leave on deposit at 0 or negative rates. He is happy to lend to me at close to 0%. I'm not looking to increase the total cost of my mortgage, simply replace part of the mortgage I would have taken from the bank and take from him instead at a lower interest rate.

Understand the bank will ask him to sign a letter stating it to be a "gift" and thus he has no recourse to the house nor do I have to repay. He's happy to do so. However, I will be paying back the "loan"/"gift" over 5 to 10 years.

Anyone know what the implications are from a CAT perspective with Revenue in terms of my lifetime inheritance limit if I pay it back? In essence can I get away with two different stories - telling the bank its a gift but the revenue it was a loan (if they ever follow it up)?

I'd be able to show clear evidence to the revenue of repayment and not even sure if they'd be able to contact the bank to ever see it was called a gift?

Thanks.

Manion

Hard to follow but if you repay a gift it's fine it shouldn't factor in. If you where to make a gift to your farther if the same amount he gifted you then its a wash, and the letter you signed for the bank won't stop that.

As a suggestion, consider repaying the into a joint bank account shared with your farther. Also if you don't need the money and you're concerned about signing pieces of paper, consider drawing down the mortgage and then early on paying off a large chunk of cash( assuming variable rate). You'll be asked where the money came from and you can state a gift but you won't need to get your farther to sign for it.

hometruths

Complete guess but my gut would be as long as there is evidence of repayment, Revenue would be ok with this, and see it for what it is. They are realists and I suspect they have seen this scenario before. They are unlikely to waste a lot of time digging and verifying if everything else is in order.

And I’m pretty sure if you have repaid the loan by the time you are getting into cat calculations, there is no need to declare it to revenue.

DataDude

schmittel wrote: »

Complete guess but my gut would be as long as there is evidence of repayment, Revenue would be ok with this, and see it for what it is. They are realists and I suspect they have seen this scenario before. They are unlikely to waste a lot of time digging and verifying if everything else is in order.

And I’m pretty sure if you have repaid the loan by the time you are getting into cat calculations, there is no need to declare it to revenue.

Cheers. I think you’re right and I’m overthinking this. Inheritance (hopefully) many years away. Hard to imagine revenue going searching for some letter provided to the bank 25+ years ago on a mortgage that’ll be long paid off!

Manion

Having been through the probate process in Ireland twice, it's best to avoid leaving anomalies behind you. Ultimately what you're doing, taken at face value, is perfectly fine. A parent can gift you money to help buy a house (or anything really), and you, in turn, can gift back money. Proving that's what happened 10 or 15 years later can be a hassle that holds up your probate process and the release of funds in an estate. Your worry isn't really revenue doing an audit of repayments. It will be your obligation to provide evidence that the gift was repaid. If you're missing evidence of repayment, that could be a problem for the executor or the probate solicitor to sign off in the first place. Now maybe you're the executor so that you can vouch for yourself, but still, the solicitor might insist on evidence before they sign off. An executor's obligations regarding tax compliance of recipients changed last year to become more onerous.

I want to emphasise your plan sounds fine; most likely, you'll have no issue what so ever. But settling a loved one's estate is extremely stressful and emotional and a bad time to have to start doing forensic accounting. If it's not the case that your need to deposit to draw down the loan, I'd be looking at other ways your father can help you out that don't involve a third party.

DataDude

Manion wrote: »

Having been through the probate process in Ireland twice, it's best to avoid leaving anomalies behind you. Ultimately what you're doing, taken at face value, is perfectly fine. A parent can gift you money to help buy a house (or anything really), and you, in turn, can gift back money. Proving that's what happened 10 or 15 years later can be a hassle that holds up your probate process and the release of funds in an estate. Your worry isn't really revenue doing an audit of repayments. It will be your obligation to provide evidence that the gift was repaid. If you're missing evidence of repayment, that could be a problem for the executor or the probate solicitor to sign off in the first place. Now maybe you're the executor so that you can vouch for yourself, but still, the solicitor might insist on evidence before they sign off. An executor's obligations regarding tax compliance of recipients changed last year to become more onerous.

I want to emphasise your plan sounds fine; most likely, you'll have no issue what so ever. But settling a loved one's estate is extremely stressful and emotional and a bad time to have to start doing forensic accounting. If it's not the case that your need to deposit to draw down the loan, I'd be looking at other ways your father can help you out that don't involve a third party.

Thanks for that, very helpful and take the point that probate is likely to be stressful enough as is. Much to think about.

Question on your first point about "gifting" money, and then the same person "gifting" it back. I would have CAT was not based on the net position of gifts? So if I gift someone X today and they gift me X back 20 years later - my understanding is we would both have to pay gift tax on the amount X? It's not like we can net off the two gifts and say no tax is due? It's for that reason I'd be very keen to have separate documentation clearly showing it was a loan rather than a gift if this transaction was to proceed.

Manion

It's my understanding for CAT purposes you can return a gift. However revenue.ie is not super clear.

OnlyArchie

It would be worth getting proper advice on this. My understanding is that if you receive an interest free loan, Revenue view the interest that could be earned if the loan amount was placed on deposit as a gift to you each year, and you could be liable for tax on that amount or it can reduce your lifetime allowance. The rate of return on deposits at the moment is zero, so the amount 'gifted' each year may be low (or zero), but that might change over the life of the loan. You/your father should also be careful signing something that says the loan is a gift, if it actually is not.

Search Revenue - Preferential Loans (I can't post a link)

JDD

We did this. My Dad gave us 25k, which formed part of our deposit, and we signed a one page letter stating that it was a loan, and would be repaid over the period of five years with an interest payable of 1 euro a year. So we've repaid the entirety of the loan to him.

The reason the bank look for the "gift" letter is to ensure that, should the bank have to sell the house, your father isn't going to come and say "well actually, 10% of that house is mine, that's what I gave the 25k for". The bank don't care about whether you are paying your father back or not, they just care that they own the whole house if they need to sell it.

Revenue also don't care what you spent the 25k on, or what you told the bank the money was. The bank don't share this information with revenue, just in case you thought they might. They just care about whether it was a gift in reality or whether you actually paid it back.

Keep a little envelope with your signed letter, and an end of year bank statement showing your repayment to your dad, and you're sorted for both the bank and revenue.

PS: I'm not a financial advisor. As regards the poster above, we may well have some liability for the difference between what we might have earned if we had put the 25k on deposit, and what we had to pay back to my Dad. Since deposit rates are virtually nil at the moment anyway, I can't see us ending up liable for much.

DataDude

Manion wrote: »

It's my understanding for CAT purposes you can return a gift. However revenue.ie is not super clear.

Interesting, I will follow this up with revenue on this particular. Don't need to tell them any specifics and is a fairly innocuous question. If your understanding is correct, it makes the whole thing very straightforward.

OnlyArchie wrote: »

It would be worth getting proper advice on this. My understanding is that if you receive an interest free loan, Revenue view the interest that could be earned if the loan amount was placed on deposit as a gift to you each year, and you could be liable for tax on that amount or it can reduce your lifetime allowance. The rate of return on deposits at the moment is zero, so the amount 'gifted' each year may be low (or zero), but that might change over the life of the loan. You/your father should also be careful signing something that says the loan is a gift, if it actually is not.

Search Revenue - Preferential Loans (I can't post a link)

I have explored this alright on preferential loans. I will actually pay my dad interest equivalent to what he could get on a 5 year fixed term deposit (c. 0.5%) so no issue in terms of the ongoing interest "gift" each year. Although with rates so low, even if it was interest free, the size of the gift would fall under the annual amount 2 parents can give 2 people (me and my partner) without any CAT impact (€12k) unless it was a massive loan.

Difficult to know who to get advice from as it kinda spans multiple areas and I guess it's in the "grey space" too so doubt any professional/bank/revenue would give us a firm thumbs on it.

JDD wrote: »

We did this. My Dad gave us 25k, which formed part of our deposit, and we signed a one page letter stating that it was a loan, and would be repaid over the period of five years with an interest payable of 1 euro a year. So we've repaid the entirety of the loan to him.

The reason the bank look for the "gift" letter is to ensure that, should the bank have to sell the house, your father isn't going to come and say "well actually, 10% of that house is mine, that's what I gave the 25k for". The bank don't care about whether you are paying your father back or not, they just care that they own the whole house if they need to sell it.

Revenue also don't care what you spent the 25k on, or what you told the bank the money was. The bank don't share this information with revenue, just in case you thought they might. They just care about whether it was a gift in reality or whether you actually paid it back.

Keep a little envelope with your signed letter, and an end of year bank statement showing your repayment to your dad, and you're sorted for both the bank and revenue.

PS: I'm not a financial advisor. As regards the poster above, we may well have some liability for the difference between what we might have earned if we had put the 25k on deposit, and what we had to pay back to my Dad. Since deposit rates are virtually nil at the moment anyway, I can't see us ending up liable for much.

Thanks for sharing - sounds exactly like what we want to do alright!

I did think that the Bank don't really have any business talking to revenue and as you say, all they want is free pass to the house if I default, which they will have.

Can be a fairly mutual beneficial agreement for all involved and just keeps the banks out of it - so well worth exploring further!