House purchase without typical mortgage arrangement

ASBO

There are 2 siblings (A and . A is very wealthy and could afford to cash buy a property for say 300k. Can B live in this residence rent free, setting aside 2k a month into a separate fund. In approx 13 years that fund could mature to 300k. B purchase the property from A at that point for 300k.

While this approach would be very beneficial for B are there any negative implications for A?

Is this approach common? Are there any tax implications for A and B?

cruizer101

If A is living rent free they are in effect being gifted the value of the rent from B. There is tax liability then.

If B sells to A in the future for significantly under the market rate that is a gift and also liabile for tax.

wowy

A should loan B the €300k now to buy the property, with the €2K/mth being the repayment. There may have to be an interest rate* charged to get around the possibility of any foregone interest being treated as a gift.

I think that approach may be more cash-efficient and tax-efficient than B having to pay CAT on the value of the rent not charged by A every year, and also removes the possibility of any CGT/CAT issues at the end of your proposal when B buys the property from A.

*My recollection is that the interest rate wouldn't need to be similar to the market mortgage rates, but rather it only needs to be in line with the rate that A could reasonably expect to earn if he put his €300K on deposit (as that's what A is foregoing by loaning B the money).

wowy

wowy wrote: »

A should loan B the €300k now to buy the property, with the €2K/mth being the repayment. There may have to be an interest rate* charged to get around the possibility of any foregone interest being treated as a gift.

I think that approach may be more cash-efficient and tax-efficient than B having to pay CAT on the value of the rent not charged by A every year, and also removes the possibility of any CGT/CAT issues at the end of your proposal when B buys the property from A.

*My recollection is that the interest rate wouldn't need to be similar to the market mortgage rates, but rather it only needs to be in line with the rate that A could reasonably expect to earn if he put his €300K on deposit (as that's what A is foregoing by loaning B the money).

Just remembered that if using A's foregone deposit interest as the interest rate, you're talking max 1% so A could set the interest rate but not charge it. The foregone interest not collected each year would be below the annual €3K small gift exemption so A wouldn't have to declare any interest income earned and there would be no annual CAT impact for B.

judeboy101

A buys house, puts it up as a wager against one night of passion with B's wife, loses bet turns over house. No tax on winnings .

nompere

judeboy101 wrote: »

A buys house, puts it up as a wager against one night of passion with B's wife, loses bet turns over house. No tax on winnings .

I think you'll find that the Revenue Commissioners also believe that the moon is made of green cheese and that pigs are terrific aviators.