Potential house deposit

proteuspal

Hello guys, I know there has been a lot of information posted on this stuff recently, but it really is not clear to me at all.

I have been living abroad for 10+ years so am not resident in Ireland. I am looking to move home. My old Irish bank are wanting an astronomical deposit. I am desperate to get home, so family are willing to help out.

If a proposed purchase was to go ahead, it would involve my mother contributing 30K and 2 brothers contributing 9k each.

Now I would want this money to be classed as a 'loan' as I fully intend to repay, but the bank are forcing me to put it as a 'gift'.

Can someone tell me where I would stand in terms of tax liability? Also, can someone tell me where to find further info, such as what would happen if I needed to borrow more money from family, how this would impact etc?

April 73

Google gift tax & revenue. I can't copy the link here for some reason.

Why not just come home & rent first?

Uno my Uno.

Gifts of cash are liable to capital acquisitions tax but there are tax free allowances and for the amounts mentioned you will be within the allowances unless you have revived significant gifts from your family in the past.

The bank will insist these are classed as gifts rather than loans because they want to ensure that your family have no interest in the property and their mortgage to you is the only loan that can be enforced on the property.

proteuspal

Hey guys, thanks to you both.

OK, so I have checked the capital acquisitions tax you mentioned. At current levels of gift, yes I am safe. I fear I may need to borrow more from them.

In the event that I borrow more, it would certainly push more over the threshold.

I take your point that the bank will insist they are gifts, so that no one else can ever claim an interest in the property. They will be making me sign a waiver to confirm this. However, this leaves me in an awkward position in that I clearly intend to pay them back and I myself do not see this as a gift (nor do my family, they want to be paid back!). Now, clearly I am going to have to get family to sign documents to say that they have no interest in the property.

My query is-does anyone know if I can draw up an agreement, perhaps through a solicitor or accountant to prove that the funds are to be treated as a 'loan' (with zero interest as my family do not wish to profit) rather than a gift? In order to get the mortgage, I have to tick the box 'gift' for the source of some of my funds, even though I originally ticked 'loan' but the bank rejected this and said they will not provide my mortgage in this case. But clearly it is not a gift, so I want to know how to protect myself against a tax bill for a gift which was never intended as a gift.

Obviously, I intend to take further legal advice on the matter, but on a Saturday afternoon I just want to see what other people's thoughts/experiences are.

Thanks

dori_dormer

If your family know it's a loan and you yourself fully intend to pay them back there is no need to draw up official documents. The other thing you could do is dictate in your will that they are to be given certain amounts from your assets if you die within x timeframe.

The reason you need so much deposit is because anyone buying from outside ireland is considered to be an investor and property is a buy to let. Therefore 40% is needed. If you just came home and waited a few months you'd only need 20 or even10 percent deposit and save your family and yourself all this hassle.

proteuspal

Thanks for response. I know I probably could do things a little easier on myself and family, just my circumstances I'm afraid!

I take your point that no official documentation would be needed-just to fully cover myself-does anyone out there have any links to official sites to confirm this info? I don't want to simply assume and end of making a big mistake!

superman28

Money from your family regardless of if you intend on paying them back is considered a gift. The reason for this is simple, everyone would be using the ''loan" idea to avoid paying inheritance tax or CAT.

The bank will insist on your family members signing a deed of confirmation confirming they are not taking an interest in the property. They each need independent legal advice for this, or your solicitor may be able to draw it up as it is a lowish amount of money.

As far as I know you're family will have to rely on good faith if you actually pay them back or not. Either way this money will count as part of your inheritance if any is awarded at a later time, and once it passes the thresholds the government will take 33% of each cent. Ireland has one of the highest rates of inheritance tax in the world..

Smiley11

Will be "gifting" money to a relative myself soon for a house purchase but its a full cash transaction so no bank involvement. From what I know, & I apologise if I'm wrong in any way, I'll have to draw up an agreement with her that its a loan & she'll repay me the money. My partner will be doing this for me as he says its not necessary to employ a solicitor & he deals with these situations regularly being a tax accountant. I asked him about your situation & think he said the amounts involved are below thresholds (I wasn't listening to figures & threshold types..sorry!) & shouldn't be a concern.

He said the bank will look for it in writing that your relations will stake no claim in your property & that the bank will only consider the application in a gift situation, which you already know. Revenue would be able to get access to the records & see you stated it was a gift but its unlikely they'd go to the trouble when its not a massive amount. You will need to draw up the agreement in advance with your relations though so that you can produce that "loan" document to revenue should they look for it. Basically, the money needs to be a "gift" for mortgage purposes & a "loan" for the tax man.

Arbiter of Good Taste

Smiley11 wrote: »

Will be "gifting" money to a relative myself soon for a house purchase but its a full cash transaction so no bank involvement. From what I know, & I apologise if I'm wrong in any way, I'll have to draw up an agreement with her that its a loan & she'll repay me the money. My partner will be doing this for me as he says its not necessary to employ a solicitor & he deals with these situations regularly being a tax accountant. I asked him about your situation & think he said the amounts involved are below thresholds (I wasn't listening to figures & threshold types..sorry!) & shouldn't be a concern.

He said the bank will look for it in writing that your relations will stake no claim in your property & that the bank will only consider the application in a gift situation, which you already know. Revenue would be able to get access to the records & see you stated it was a gift but its unlikely they'd go to the trouble when its not a massive amount. You will need to draw up the agreement in advance with your relations though so that you can produce that "loan" document to revenue should they look for it. Basically, the money needs to be a "gift" for mortgage purposes & a "loan" for the tax man.

Presumably for this to work from a tax perspective, the loan will have to charge arms length interest?

Smiley11

I didn't even ask to be honest but I'd imagine so in theory. I wouldn't like to give incorrect information so I'll have to clarify that. We won't be doing it for a few months so have just started looking into the various options. I know that in my personal situation, the arrangement will benefit us both in the long run but its a different situation to the OP's in that we only need to satisfy Revenue fortunately.

Millem

We bought our house last summer, we ended up needed to get extra money from our parents. We told the bank it was a gift but we paid our parents back.

davo10

Op, borrowing money from family members is frought with dangers. If interest rates go up and your first obligation is to the bank, you may not be able to repay your family and this will cause tension. Also, every time you take a holiday/buy a car, they may say "well he should be paying me back before he goes treating himself". Also consider, if you have to rely on gifts from your family, should you be buying at all? It might be wise to rent here for a while, take your time, build up a relationship with your bank and wait until you have the money to buy without relying on family.

Arbiter of Good Taste

Arbiter of Good Taste wrote: »

Presumably for this to work from a tax perspective, the loan will have to charge arms length interest?

If you don't charge interest the lack of interest is considered a gift however keeping in mind you can receive a gift of 3k tax free from a person this should cover most/all of the interest depending on the amount loaned of course.

proteuspal

Thanks to all of you the posters so far. I am aware of the difficulties dealing with family, trust me, if I could avoid this I would. Its just my particular set of circumstances and needs must I'm afraid!

I was anxious when reading dori_dormer reply, where any money given is classed as a gift, regardless of your intention to repay. But surely this cannot be correct. By definition a gift will never be repayed. Why can someone not loan to a family member, surely that is one of the most common type of loans?

Smiley11, it is lucky that you have this situation coming up. Does it sound like if I get our accountant to draw up a loan document, that my family could charge a very low interest rate (they are not interested in making lots of money from me!) and hence make this an official loan? Obviously my family would then need to fill in a self assessment for that tax year and disclose the amounts of interest they earned?

dori_dormer-I just wanted to ask where you obtained your info from? I'm not just trying to slam your info at all, I simply want to check if I'm on the right path. I ask because I have just found this: http://www.revenue.ie/en/tax/cat/guide/free-property-loans.html

Smiley11 if your other half has any further facts to make me feel me confident, feel free to pass them on!

dori_dormer

proteuspal wrote: »

Thanks to all of you the posters so far. I am aware of the difficulties dealing with family, trust me, if I could avoid this I would. Its just my particular set of circumstances and needs must I'm afraid!

I was anxious when reading dori_dormer reply, where any money given is classed as a gift, regardless of your intention to repay. But surely this cannot be correct. By definition a gift will never be repayed. Why can someone not loan to a family member, surely that is one of the most common type of loans?

Smiley11, it is lucky that you have this situation coming up. Does it sound like if I get our accountant to draw up a loan document, that my family could charge a very low interest rate (they are not interested in making lots of money from me!) and hence make this an official loan? Obviously my family would then need to fill in a self assessment for that tax year and disclose the amounts of interest they earned?

dori_dormer-I just wanted to ask where you obtained your info from? I'm not just trying to slam your info at all, I simply want to check if I'm on the right path. I ask because I have just found this: http://www.revenue.ie/en/tax/cat/guide/free-property-loans.html

Smiley11 if your other half has any further facts to make me feel me confident, feel free to pass them on!

I think you are mixing me up with someone else! Only the bank need classification of it being a gift. I don't personally know about the legal /tax issues of classifying it as a loan with regards to family.

proteuspal

apologies dori_dormer! Thanks for your help so far:)

proteuspal

Guys, something else has just dawned on me...being non-resident in Ireland at the moment, will that affect everything we have discussed? i.e. do all these rules even apply to someone who is not tax resident??

davo10

proteuspal wrote: »

Guys, something else has just dawned on me...being non-resident in Ireland at the moment, will that affect everything we have discussed? i.e. do all these rules even apply to someone who is not tax resident??

I'm surprised the bank is even entertaining the idea if giving you a mortgage given that you are not a resident, are not working in the country yet, don't have a history of saving/paying a mortgage and can't afford the deposit. Are we going back to th bad old days where banks are throwing out credit to everybody?

The_Pretender

davo10 wrote: »

I'm surprised the bank is even entertaining the idea if giving you a mortgage given that you are not a resident, are not working in the country yet, don't have a history of saving/paying a mortgage and can't afford the deposit. Are we going back to th bad old days where banks are throwing out credit to everybody?

With a 40% deposit and collateral here in the state I don't see how the bank could lose out unless house prices halved.

davo10

The_Pretender wrote: »

With a 40% deposit and collateral here in the state I don't see how the bank could lose out unless house prices halved.

Then the op should sell the collateral to get the deposit.

Where have we heard statements like your before? Hmmmm the bank can't lose unless the value drops. Also, th big concern for me in this case would be th ability of the op to pay the mortgage/ the family if rates rise or job is lost. He obviously has not enough savings if he is having to borrow €40k from family.

proteuspal

thanks pretender. Davo, trust me, I understand your concern. I obviously don't want to be discussing the full extent of my personal life, but the bank have put me through the full checks, I have put forward a very significant sum of my own hard savings, I have obviously made solid plans for my return to Ireland. I simply needed a dig out from family because the bank required me to put down a greater deposit than normal. I can assure you there has been no case of 'throwing' out credit. I have found the process to be very thorough and exceptionally careful. The bank is definitely trying to ensure not returning to the old days. But I am not over the line yet, so I can probably best answer you in a few weeks! At this point, I am trying to simply gather all the info I will need. It may never work out, but I can hope!

The_Pretender

davo10 wrote: »

Then the op should sell the collateral to get the deposit.

Where have we heard statements like your before? Hmmmm the bank can't lose unless the value drops. Also, th big concern for me in this case would be th ability of the op to pay the mortgage/ the family if rates rise or job is lost. He obviously has not enough savings if he is having to borrow €40k from family.

The old days = 100% motrgages to anyone who could sign their initials.

Nowadays = The OP needs a deposit of 40% before the bank will do business. Thats €72k of a deposit for a 180k house. Also, read how stringent they are regarding where the money comes from, how they want to make sure they are covered and are the only ones with a claim to the property if the OP defaults. Yeah, sounds a lot like the old days

proteuspal

Hey guys, I am obviously in agreement with pretender here. But guys, I am only asking for opinions here on the facts about whether I can make this work, or not. Davo, I do know where you are coming from. I am simply trying to make a safe purchase, without putting myself, or anyone else in any financial strain.
At this point, I don't need the discussion to become about whether the banks are right or wrong etc, I simply want the facts of the situation from a legal/tax perspective. If anyone has an issue with other aspects of the mortgage process system in Ireland, please open a new thread and discuss it there. If you check most banks websites, they entertain non-residents if they have made solid plans to return to Ireland. I don't make the rules, I simply want to ensure I operate within them, hence my original question. Thanks.

A2LUE42

superman28 wrote: »

Money from your family regardless of if you intend on paying them back is considered a gift. The reason for this is simple, everyone would be using the ''loan" idea to avoid paying inheritance tax or CAT.

The bank will insist on your family members signing a deed of confirmation confirming they are not taking an interest in the property. They each need independent legal advice for this, or your solicitor may be able to draw it up as it is a lowish amount of money.

As far as I know you're family will have to rely on good faith if you actually pay them back or not. Either way this money will count as part of your inheritance if any is awarded at a later time, and once it passes the thresholds the government will take 33% of each cent. Ireland has one of the highest rates of inheritance tax in the world..

They will insist on an independent solicitor doing the deed, so the solicitor doing your conveyancing won't be able to do it. Approx €250 per deed is about what is being charged as they have to do a consultation and advise the person signing it.

athtrasna

proteuspal wrote: »

At this point, I don't need the discussion to become about whether the banks are right or wrong etc, I simply want the facts of the situation from a legal/tax perspective. If anyone has an issue with other aspects of the mortgage process system in Ireland, please open a new thread and discuss it there. If you check most banks websites, they entertain non-residents if they have made solid plans to return to Ireland. I don't make the rules, I simply want to ensure I operate within them, hence my original question. Thanks.

Mod note

Please leave the moderating to the mods. Thanks

davo10

The_Pretender wrote: »

The old days = 100% motrgages to anyone who could sign their initials.

Nowadays = The OP needs a deposit of 40% before the bank will do business. Thats €72k of a deposit for a 180k house. Also, read how stringent they are regarding where the money comes from, how they want to make sure they are covered and are the only ones with a claim to the property if the OP defaults. Yeah, sounds a lot like the old days

The bottom line is, providing credit to someone who cannot afford the deposit, never mind repayments on an asset that can depreciate and rates rise. Yip, sounds like the old days.

Op though your concern is about the tax implications around a gift of cash, there are other equally if not more pressing issues to consider. If there is a tax liability, this will come on top of issues with repayments to both bank and family if things do not work out for you. As the 40% requirement may apply due to the fact that you are a non resident and the bank want to lmit their exposure, wouldn't it make more sense to wait until you are a resident and then pay a 20% deposit? Less capital tied up and no worries about family issues going forward. Why not consider renting?

Smiley11

My fountain of knowledge is away today but I'll ask him when he gets back. We've only really discussed it for my situation & from what I can gather, this is a very common practice & the "loan" document is something to have should the tax man come calling. Your accountant should be able to do it for you without engaging a solicitor.

I know that when himself was buying his house, he got a bit of money from his father towards the deposit & again there was no need for a solicitors intervention. The bank just looked for a letter from his father stating that he would not be laying any claim to the property in the future etc. This was with BoI & requirements may have changed since then but that satisfied them at the time.

proteuspal

athtrasna wrote: »

Mod note

Please leave the moderating to the mods. Thanks

Fair enough, but I thought moderators kept us on topic. The sideline discussions are not helping me to answer the original question.

athtrasna

proteuspal wrote: »

Fair enough, but I thought moderators kept us on topic. The sideline discussions are not helping me to answer the original question.

Discussion moderation on thread is a breach of our forum charter. If you have an issue with a post please use the report post function.