Can you sell a house for less than its worth?

Stevegeraghty

Not sure if this is the right place to post this but here goes

Can I buy a house from a parent for half of its market value or will I end up paying tax on the other half

drunkmonkey

Loads of house are being bought at the moment that are undervalue, can't see how you would be committing any crime. May be a tax implication for the seller though on the profits of sale.

TheDriver

or the bank may not let you as you effectively take away the "security" on the loan you owe

drunkmonkey

TheDriver wrote: »

or the bank may not let you as you effectively take away the "security" on the loan you owe

Where's the Tipping point, not sure if I understand what your getting at but do you mean once let's say the LTV falls under 49% they can't repossess or something to that effect?

Stevegeraghty

I see where your coming from but banks rarely repossess, AIB have never done so

Ken.

What if theirs no mortgage? Say for example I won the Euromillions. Could I buy a house for €300,000 and sell it to my brother for €1.

Boombastic

ken wrote: »

What if theirs no mortgage? Say for example I won the Euromillions. Could I buy a house for €300,000 and sell it to my brother for €1.

Your brother would become liable for all sorts of taxes.

Ken.

Boombastic wrote: »

Your brother would become liable for all sorts of taxes.

Oh Ok.

Stevegeraghty

Boombastic wrote: »

Your brother would become liable for all sorts of taxes.

What sort of taxes? Gift?

Procrastastudy

Trust?

Ken.

Well if i gave him €300k to buy a house i know you'd get screwed on taxes. Could you buy the house and rent it to him for €1 per year or is their some sort of minimum rent.

Victor

You can. If you check the property price register, quite a few transactions are for less than full market value. Essentially the vendor is gifting most of the property to the other party. However, if there is a mortgage on the property, the bank still wants and will ultimately get their money.

The tax implications depend on the relationship between the vendor and buyer. If they are married, no tax is due. If it is from parent to child, there are very large exemptions to the Capital Acquisitions Tax that would be due. Other family transactions are treated much less favourably and transactions between unrelated people only receive modest exemptions.

http://www.revenue.ie/en/tax/cat/thresholds.html

http://www.citizensinformation.ie/en/money_and_tax/tax/capital_taxes/capital_acquisitions_tax.html

ResearchWill

drunkmonkey wrote: »

Loads of house are being bought at the moment that are undervalue, can't see how you would be committing any crime. May be a tax implication for the seller though on the profits of sale.

There is a huge difference between selling a house for half it's current value and selling if for half what it was worth 4 years ago.

A below market transaction could lead to all sorts of tax issues. As an example stamp duty, gift tax, CGT.

Stevegeraghty

Even though its half the market price it's still within stamp duty

drunkmonkey

ResearchWill wrote: »

A below market transaction could lead to all sorts of tax issues. As an example stamp duty, gift tax, CGT.

I get that but were in a falling market, in that scenario can you say what market value is, I think there's an argument to say you can't, if someone pays 50% of the current market value now, there just basing the price on the previous 5 years of downward values.
There are no indicators to say market value is going to rise in the next 10 years only fall.

ResearchWill

drunkmonkey wrote: »

I get that but were in a falling market, in that scenario can you say what market value is, I think there's an argument to say you can't, if someone pays 50% of the current market value now, there just basing the price on the previous 5 years of downward values.
There are no indicators to say market value is going to rise in the next 10 years only fall.

The important bit about the OP "from a parent for half of its market value" now if I see what I think is a bargain on daft, and say god I would think that's worth 200k but they only want 100k and they accept 100k then that is market value. If on the other hand the same house is being sold by my parent to me there may be serious problems, in fact as its not an arms length transaction it is a mine field.

A good definition here http://legal-dictionary.thefreedictionary.com/Fair+Market+Value

"The customary test of fair market value in real estate transactions is the price that a buyer is willing, but is not under any duty, to pay for a particular property to an owner who is willing, but not obligated, to sell."

By involving family it's now difficult to get at a true market value especially in a failing market.

drunkmonkey

Could you do it another way seen as that way looks tricky, how about op gets gifted the house and then gives a cash gift back. What are the rules there, sounds a bit suspect but are you actually breaking any laws if you stay within the thresholds to avoid inheritance tax.
I'm presuming if a parent can give to a child that it can also work the opposite way.

The Dagda

What are you worried about? The market is stagnant, put the house on the market for a week at the price you want to pay. No one will make an offer. You make an offer and buy it!

There's no-one waiting to buy your parents house. Stop being paranoid.

The value is what someone is willing to pay, there's no time limit on a sale ;-)

Victor

drunkmonkey wrote: »

I get that but were in a falling market, in that scenario can you say what market value is, I think there's an argument to say you can't, if someone pays 50% of the current market value now, there just basing the price on the previous 5 years of downward values.
There are no indicators to say market value is going to rise in the next 10 years only fall.

Getting a reasonable valuation from an estate agent or two and that being in line with similar transactions would go a fair distance to convincing Revenue.

68Murph68

Any sale of property between family members is automatically going to be looked at to ensure that a reasonably fair market value was used.

One possibility of proving the value used is to have three solicitors value the house and take an average of what they estimate.

Even still the Revenue can dispute the value of the transaction - and given the Property Tax I'd imagine that they will have quite a lot of experience in arguing their side of things very soon.

Also if the Revenue Commissioners think you are trying to avoid paying tax, there's a very good chance they will have a look at all the tax affairs of all the parties involved in the transaction. If this caught there attention there's a very good chance they will end up conducting a full tax audit on all the parties involved which at the very least can be a headache and could potentially turn up some issue.

TD; DR - its not a very smart move to try and pull a fast one with the Revenue on this. Paying Inheritance/CAT is a pain. For these type of issues you should talk to a solicitor/accountant to get the best advice as depending on the circumstances things can vary considerably.

Victor

68Murph68 wrote: »

One possibility of proving the value used is to have three solicitors value the house and take an average of what they estimate.

Solicitors are ill equipped to value houses. It would need to be an estate agent or property valuer.

Carawaystick

Victor wrote: »

Solicitors are ill equipped to value houses. It would need to be an estate agent or property valuer.

Because those professions served the country so well during the last two decades

Almost but not quiet as well as Fianna Fáil or Rating Agencies


Seriously, what are the implications to renting well below market value?
What determines a leasehold and how does historical peppercorn rent differ from renting a house(freehold) bought yesterday for a pound a year?

ezra_pound

The Dagda wrote: »

What are you worried about? The market is stagnant, put the house on the market for a week at the price you want to pay. No one will make an offer. You make an offer and buy it!

There's no-one waiting to buy your parents house. Stop being paranoid.

The value is what someone is willing to pay, there's no time limit on a sale ;-)

Why?

Victor

Carawaystick wrote: »

Because those professions served the country so well during the last two decades

Almost but not quiet as well as Fianna Fáil or Rating Agencies

Can we stick to the topic?

Seriously, what are the implications to renting well below market value?

Revenue may assess it as income if they perceive it as evasion / contrived avoidance.

What determines a leasehold and how does historical peppercorn rent differ from renting a house(freehold) bought yesterday for a pound a year?

The contract and the market rate.

Del2005

The Dagda wrote: »

What are you worried about? The market is stagnant, put the house on the market for a week at the price you want to pay. No one will make an offer. You make an offer and buy it!

There's no-one waiting to buy your parents house. Stop being paranoid.

The value is what someone is willing to pay, there's no time limit on a sale ;-)

My Father recently inherited the old family home and farm from his brother. The amount the house was valued at was crazily high, the house is effectively worthless because of it's location and condition. He queried this and the person doing the valuation said if he put a lower value on it then the revenue would do a complete audit.

I'd say they'd jump all over a family selling low.

The Dagda

Del2005 wrote: »

My Father recently inherited the old family home and farm from his brother. The amount the house was valued at was crazily high, the house is effectively worthless because of it's location and condition. He queried this and the person doing the valuation said if he put a lower value on it then the revenue would do a complete audit.

I'd say they'd jump all over a family selling low.

That's an inheritance, this is a purchase.

The value of a house is determined by the market, as long as the house is on the open market, whatever it sells for is the value.

The current market is the perfect time to get a bargain

valleyoftheunos

If a Son were to purchase a house from his Father at an under value, the transaction counts as a gift for Tax Purposes. The Son will be liable to pay Capital Acquisitions Tax at 33% of the difference between the market value of the house and what he actually paid.

There are tax free allowances for gifts between parent and Child, currently it stands at €225,000 from both parents in your lifetime.

lostsoul01

What would happen if a parent decided to sell to child for half of the valued price. Who would be liable for tax implicaitons? The buyer has been renting the proprty from their parent for 4 years. They are a first time buyer.

Pat Mustard

lostsoul01 wrote: »

What would happen if a parent decided to sell to child for half of the valued price. Who would be liable for tax implicaitons? The buyer has been renting the proprty from their parent for 4 years. They are a first time buyer.

It depends.

If a parent disposed of a house worth €400k to a child in consideration of €200k,

If it was the parent's principal private residence (PPR) for the relevant periods of ownership, the parent would not pay Capital Gains Tax (CGT).

If it was not the parent's PPR, then the parent would have to crunch the numbers in relation to a deemed disposal at a market value of €400k.

If the house was acquired by the parent before 2003, there could be indexation relief. Acquisition and disposal costs would also serve to reduce the overall taxable gain.

As the child is buying at an undervalue of €200k, there appears to be a deemed gift of €200k to the child. The current CAT threshold is €310k, so depending on previous gifts made between parents and children (CAT Group A), this gift might be under the threshold and there might not be anything payable by the child.

But it depends on all of the relevant circumstances.

Real life scenarios can't be posted here with requests for legal advice, per forum charter

endacl

Conspectus wrote: »

Well if i gave him €300k to buy a house i know you'd get screwed on taxes. Could you buy the house and rent it to him for €1 per year or is their some sort of minimum rent.

Perhaps you could buy it and leave it vacant. If he just moved in and squatted he might apply for adverse possession after a period of time had elapsed.

Victor

endacl wrote: »

Perhaps you could buy it and leave it vacant. If he just moved in and squatted he might apply for adverse possession after a period of time had elapsed.

Who'll be paying the LPT?

Pat Mustard

In respect of 2018 LPT, the legislation states that the liable person will be the owner as of 1/11/2017, (and so forth) iirc.

sword1

endacl wrote: »

Perhaps you could buy it and leave it vacant. If he just moved in and squatted he might apply for adverse possession after a period of time had elapsed.

If he ever wanted to sell it I presume he would be hit with big capital gains

Really Interested

Conspectus wrote: »

What if theirs no mortgage? Say for example I won the Euromillions. Could I buy a house for €300,000 and sell it to my brother for €1.

Then your brother has a gift tax liability on 299,000 less any threshold allowance.

Really Interested

endacl wrote: »

Perhaps you could buy it and leave it vacant. If he just moved in and squatted he might apply for adverse possession after a period of time had elapsed.

How can he claim adverse possession if the owner just lets him move in.

Akrasia

sword1 wrote: »

If he ever wanted to sell it I presume he would be hit with big capital gains

What about if the parents gave their child a loan to buy the house, say the loan had to be paid back over 20 years at 12 grand a year, but the parents give the son or daughter a cash gift of 6k every year which is tax free (3k per parent) then the son or daughter could pay the loan off using the gift and 6k of their own money effectively getting half the money from the parents tax free?

Victor

Pat Mustard wrote: »

In respect of 2018 LPT, the legislation states that the liable person will be the owner as of 1/11/2017, (and so forth) iirc.

Oh sure, but a change of LPT registration will likely trigger an alert for Revenue as to why no stamp duty was paid.

Fred Swanson

This post has been deleted.

judeboy101

sell a one million house to a friend for a euro, who then sells it on for one cent, who sells it back to you for bitcoin, let revenue sort that one out.

ohnonotgmail

judeboy101 wrote: »

sell a one million house to a friend for a euro, who then sells it on for one cent, who sells it back to you for bitcoin, let revenue sort that one out.

The revenue would love that. Massive CAT due on every transaction.

judeboy101

ohnonotgmail wrote: »

The revenue would love that. Massive CAT due on every transaction.

Cat on financial transactions? I thought it was only on gifts or inheritance?

Victor

judeboy101 wrote: »

Cat on financial transactions? I thought it was only on gifts or inheritance?

Revenue will take the position that it is a contrived, non-arms length transaction and that you aren't "sell a one million house to a friend for a euro", but gifting someone €999,999.

Fred Swanson

This post has been deleted.

judeboy101

Victor wrote: »

Revenue will take the position that it is a contrived, non-arms length transaction and that you aren't "sell a one million house to a friend for a euro", but gifting someone €999,999.

But doesn't that bring us to the crux of this argument, houses selling for less that its worth. Be it a 1 million quid house selling for a euro or a 250, 000 house selling for 249,999. Both would have to be "interpreted" as gifts by revenue, if they apply the same logic?

Victor

judeboy101 wrote: »

250, 000 house selling for 249,999.

There is no material difference in these prices. House prices are not a perfect science. Certainly there would be leeway of a few percent.

judeboy101

Victor wrote: »

There is no material difference in these prices. House prices are not a perfect science. Certainly there would be leeway of a few percent.

Hmmm, leeway is no way to run a tax collecting dept, any leeway imho would surely set a precedent. Try going into Tesco and trying to an 1euro loaf of bread for a penny, something tells me the "no material difference" defence wont work, lol

jamesthepeach

Conspectus wrote: »

What if theirs no mortgage? Say for example I won the Euromillions. Could I buy a house for €300,000 and sell it to my brother for €1.

Best thing is you buy the house and you pay your brother a nominal fee to move into it to mind it for you. Then let him mind it forever.

davindub

jamesthepeach wrote: »

Best thing is you buy the house and you pay your brother a nominal fee to move into it to mind it for you. Then let him mind it forever.

= gift to the brother of the market rent per annum. CAT Tax @ 33%.

jamesthepeach

davindub wrote: »

= gift to the brother of the market rent per annum. CAT Tax @ 33%.

No it doesn't. I've seen it done. It's paying the brother to mind and maintain your house until you are ready to move into it at some stage.

davindub

jamesthepeach wrote: »

No it doesn't. I've seen it done. It's paying the brother to mind and maintain your house until you are ready to move into it at some stage.

Seen it done as in revenue have accepted it? It more than likely has been done before, but there are Revenue rules on it. You can pay someone to maintain your house, but if they also live there, there is something of value being given.

There are two specific rules that catch free/ below market rate (subsidised) accommodation for individuals. The first is the CAT rule for blood relatives (CAT non arms length transactions), the other is the BIK rules (income tax).

Yes there is an bik exception for caretakers, but revenue will not accept this on a domestic dwelling.

Pat Mustard

Victor wrote: »

Oh sure, but a change of LPT registration will likely trigger an alert for Revenue as to why no stamp duty was paid.

Yes but LPT is usually dealt with at the time of disposal. The vendor pays LPT up to date and tends to take a portion of that cost from the purchaser, pro rata.