Advice on money gift from relative please

justin77

Hi would appreciate any help here. My aunt has recently surprised myself and my partner with the news that she wants to give us money to buy a house. We were obviously over the moon but upon further discussion we have found out that this might throw up several issues. She wants to give us a lump sum via bank transfer and then for us to start viewing houses and eventually buy one that we like.

We confided in a friend and they said that my aunt or us would get landed with a massive tax bill? Would it be better for my aunt to buy the house and then transfer it to our names? What if my aunt was to transfer the money as a gift to my dad ,her brother , and then he could transfer it to us? We don't obviously mind paying any tax owed but we have been told it could end up being a sizeable chunk . Feeling so disappointed now that it might not happen at all now as we don't want to do it incorrectly and break any law or get anyone into trouble . I'm assuming that I need to speak to a solicitor to find out for definite?

GarIT

You, not your aunt, would get landed with a massive tax bill. 33% of the value of the gift.

There is no way around it. You can only give tax free gifts to your children and they cannot exceed around 300k in your lifetime.

If she bought the house and you lived in it you would have to pay her the full going rate for rent. Or pay 33% of the going rate for rent as tax as you are being gifted not paying rent. If you eventually inherited the house you would have to pay 33% of the value of the house at the time of inheritance.

You can be gifted up to 3k per year each without paying tax.

You need a financial advisor not a solicitor.

justin77

GarIT wrote: »

You, not your aunt, would get landed with a massive tax bill. 33% of the value of the gift.

There is no way around it. You can only give tax free gifts to your children and they cannot exceed around 300k in your lifetime.

If she bought the house and you lived in it you would have to pay her the full going rate for rent. Or pay 33% of the going rate for rent as tax as you are being gifted not paying rent. If you eventually inherited the house you would have to pay 33% of the value of the house at the time of inheritance.

You can be gifted up to 3k per year each without paying tax.

You need a financial advisor not a solicitor.

Wow so we are screwed either way . Thanks for the information guess it was too good to be true

Peregrinus

It's not quite as bad as that. You have a lifetime limit of €32,500 for gifts and inheritances that you get from family members in what is called "Group B"; your aunt is in group B, and she is also in Group B for your husband or wife. So if she splits the gift between the two of you, and if neitehr of you have never previously had gifts or inheritances from anyone in Group B, betweenyou you can get up to €65,000 from your aunt before any CAT would become payable.

cobhguy28

justin77 wrote: »

Wow so we are screwed either way . Thanks for the information guess it was too good to be true

Think of it this way, 250,000 on a house, would mean about a mortgage of around 80,000 to pay the tax, so less than 100 euro a week for a house, sounds like a great deal to me.

PhilOssophy

cobhguy28 wrote: »

Think of it this way, 250,000 on a house, would mean about a mortgage of around 80,000 to pay the tax, so less than 100 euro a week for a house, sounds like a great deal to me.

Agree. 2/3 of a large sum is better than 0/3 of a large sum. If the amount is greater than 62,500, just pay the tax and say thanks auntie Mary!

Smee_Again

justin77 wrote: »

Wow so we are screwed either way . Thanks for the information guess it was too good to be true

I feel like you’re looking at this the wrong way.

Depending on the size of the gift tax may be due, but it’ll only be a portion of the gift so whatever way you cut it you’re coming out ahead.

PhilOssophy

Smee_Again wrote: »

I feel like you’re looking at this the wrong way.

Depending on the size of the gift tax may be due, but it’ll only be a portion of the gift so whatever way you cut it you’re coming out ahead.

Same, I'll gladly take a large gift from my aunt and give Revenue their piece!

atticu

GarIT wrote: »

You, not your aunt, would get landed with a massive tax bill. 33% of the value of the gift.


You need a financial advisor not a solicitor.

That is not a massive tax bill.
It is less than a third of the total.
The OP would be left more than two thirds of the gifts, that is the massive part.

GarIT

Peregrinus wrote: »

It's not quite as bad as that. You have a lifetime limit of €32,500 for gifts and inheritances that you get from family members in what is called "Group B"; your aunt is in group B, and she is also in Group B for your husband or wife. So if she splits the gift between the two of you, and if neitehr of you have never previously had gifts or inheritances from anyone in Group B, betweenyou you can get up to €65,000 from your aunt before any CAT would become payable.

Is far as I know you are somewhat right. It's funny revenue doesn't mention it on their calculating CAT page. Citizens information however says that Group B only applied to blood relatives and not through marriage. So the aunt would have to be a sister of OP's mother or father, Grand-aunt doesn't count, aunt through marriage doesn't count and a family friends everyone calls aunt doesn't count. It also doesn't apply to OP's partner so the first 47,500 (32,500 + 16,500) would be tax free rather than the first 66,000.

I was slightly incorrect with 3k earlier, it's 3k in a year after you have exceeded 16k in a lifetime for a non-relative.

There's also this from citizens advice:
If you receive a gift or inheritance of a house that has been your main residence, it may be exempt from tax if you do not own or have an interest in any other house. There are conditions on how long you must be resident in the house before and after receiving the benefit. More information about the Dwelling House Exemption is available on Revenue's website and in Revenue's Operational Manual (pdf).
So you would have to pay tax on rent after the first €50k ish, but might be able to inherit tax free in some circumstances.

GarIT

atticu wrote: »

That is not a massive tax bill.
It is less than a third of the total.
The OP would be left more than two thirds of the gifts, that is the massive part.

Depends on what you call massive in terms of tax, somewhere between 50,000 - 150,000 depending on the price of the house is massive imo. Obviously the OP is better off taking it than not. they can get a whole house for the price of a large car loan.

dubrov

Get a tax advisor.

I doubt you'll end up paying anywhere near 33% on the total amount

Xtrail14

Get the house value devalued and get your aunt to start drawing bags of cash out, get house bought say e.g 100k less than its value on the books and a big bag of cash to the seller. May suit seller also.

Mod
That may be revenue fraud which would attract severe penalties

StevenToast

Some really poor half assed advice here.....i am a tax advisor and my advice is simple, seek professional advice....

Pawwed Rig

Depending on how long your aunt plans to live there are ways to structure this that would minimise tax. Not something I am going to outline here though. Would recomend you approach a tax advisor. The cost will pay for itself many times over.

GarIT

StevenToast wrote: »

Some really poor half assed advice here.....i am a tax advisor and my advice is simple, seek professional advice....

That's a bit harsh for people doing their best to give free advice, I advised them to see a financial advisor in the first post. Care to share some tips?

I worked fixing phones and laptops for 10 years and gave advice on fixing them here that whole time.

Peregrinus

GarIT wrote: »

Is far as I know you are somewhat right. It's funny revenue doesn't mention it on their calculating CAT page. Citizens information however says that Group B only applied to blood relatives and not through marriage. So the aunt would have to be a sister of OP's mother or father, Grand-aunt doesn't count, aunt through marriage doesn't count and a family friends everyone calls aunt doesn't count. It also doesn't apply to OP's partner so the first 35,500 (32,500 + 3,000) would be tax free rather than the first 65,000.

Damn, you're right about an aunt by marriage not being in group B.

The aunt would be in Group C, though, for the partner of a nephew or neice. So (assuming no other gifts or inheritances) the total amount they could get before CAT would start to kick in would be 32,500 + 16,250 + 3,000 + 3,000 = 54,750.

The other factor that the OP and his or her aunt might like to consider is that, unless the aunts spends it all on dancing, champagne and general high living, if she doesn't gift the money CAT will be payable anyway when she eventually bequeaths it to someone. If she doesn't give this money to her nephew/neice and partner now, what's plan B? Who will get the money eventually? The choice here is not between a big wodge of tax now or no tax at all; it's between a big wodge of tax now and whatever amount of tax will arise later under plan B. If she thinks, e.g., that she would likely leave the money to her nephew/neice and partner in her will anyway, exactly the same CAT treatment will apply. Obviously it will be put off for some time, but so will the benefit of receiving the money.

GarIT

Peregrinus wrote: »

Damn, you're right about an aunt by marriage not being in group B.

The aunt would be in Group C, though, for the partner of a nephew or neice. So (assuming no other gifts or inheritances) the total amount they could get before CAT would start to kick in would be 32,500 + 16,250 + 3,000 + 3,000 = 54,750.

The other factor that the OP and his or her aunt might like to consider is that, unless the aunts spends it all on dancing, champagne and general high living, if she doesn't gift the money CAT will be payable anyway when she eventually bequeaths it to someone. If she doesn't give this money to her nephew/neice and partner now, what's plan B? Who will get the money eventually? The choice here is not between a big wodge of tax now or no tax at all; it's between a big wodge of tax now and whatever amount of tax will arise later under plan B. If she thinks, e.g., that she would likely leave the money to her nephew/neice and partner in her will anyway, exactly the same CAT treatment will apply. Obviously it will be put off for some time, but so will the benefit of receiving the money.

Yeah, I corrected that after I said it.

Donald Trump

There is a thing called favourite niece/nephew relief but it might take you a few years to set that up to qualify - that's even if that is practical for you ... which it probably isn't.



Under that you would be treated in the same band as a child

cruizer101

Xtrail14 wrote: »

Get the house value devalued and get your aunt to start drawing bags of cash out, get house bought say e.g 100k less than its value on the books and a big bag of cash to the seller. May suit seller also.

Or you could not break the law by committing fraud and just pay the tax due.

Donald Trump wrote: »

There is a thing called favourite niece/nephew relief but it might take you a few years to set that up to qualify - that's even if that is practical for you ... which it probably isn't.

Under that you would be treated in the same band as a child

I was under the impression that was only for business assets most commonly farms. i.e. you have a family business but no kids (or at least none interested in taking it over) so you can pass it on to a niece/nephew without tax implications. I don't think it could be used for a residential house

gaz wac

GarIT wrote: »

If she bought the house and you lived in it you would have to pay her the full going rate for rent.

Hey, can I just ask why this would be? If the aunt owns the house, why would Revenue need to confirm that she is collecting rent and that it is the full going rate? just curious

3DataModem

gaz wac wrote: »

Hey, can I just ask why this would be? If the aunt owns the house, why would Revenue need to confirm that she is collecting rent and that it is the full going rate? just curious

They wouldn't need to confirm whether she is collecting, strictly speaking. They just need to know the full going rate so that they can apply BIK to the tenant, as they are receiving "free rent" as a gift.

Pawwed Rig

3DataModem wrote: »

They wouldn't need to confirm whether she is collecting, strictly speaking. They just need to know the full going rate so that they can apply BIK to the tenant, as they are receiving "free rent" as a gift.

CAT not BIK. Big difference in rates.

justin77

Thanks everyone I appreciate you all taking the time to reply .My aunt has her own house in a different part of Ireland so wouldn't be living in the new house at all. The amount she was gifting us would be approx 300 thousand . We had suggested that she buy it and we could rent it back from her at a reduced rate and then we would be left it in her will. Not sure if that would be a better way to do it ? I will definitely start uping our saving now to pay for any potential tax bill and will seek professional advice before making any plans .Thanks again everyone

coylemj

justin77 wrote: »

We had suggested that she buy it and we could rent it back from her at a reduced rate and then we would be left it in her will.

Even if that was the better solution from a financial/tax viewpoint, it carries the risk that she could leave the house to someone else.

'A bird in the hand....'

ohnonotgmail

justin77 wrote: »

Thanks everyone I appreciate you all taking the time to reply .My aunt has her own house in a different part of Ireland so wouldn't be living in the new house at all. The amount she was gifting us would be approx 300 thousand . We had suggested that she buy it and we could rent it back from her at a reduced rate and then we would be left it in her will. Not sure if that would be a better way to do it ? I will definitely start uping our saving now to pay for any potential tax bill and will seek professional advice before making any plans .Thanks again everyone

all that will do is defer the tax you will have to pay. you will also have to pay tax in the meantime between the reduced rent and full market rent of the property. also, if you wait until she leaves it to you in her will you will pay tax on the value of the house at the time of her death. this will be more than the tax due now, assuming the house increases in value. one possibility is to take a mortgage on the house sufficient to cover the tax due. definitely seek professional advice.

hullaballoo

Moderator: I have deleted some posts for giving... let's say unique views on the issue. Basically dangerous stuff with no basis in law.

OP, as pointed out, there is very little you can do to avoid a tax liability if you are gifted a large asset like a house. But in order to minimise the liability or structure the "deal" in a way that is affordable to you, you will need to engage a number of different professionals. The tax liability will have to be settled up front but as against that, you should be able to borrow - for argument's sake if the house is worth 300k and allowing for thresholds you can receive without incurring tax, you might need to borrow in the region of 73-74k. You may be able to get a residential mortgage at the prevailing interest rates (I do not know this as a fact, hence "may") but either way you should be able to get the money using the house as security at a relatively low interest rate.

If you borrow that, you could repay over 10 years at about €720 per month. About a third of average rents in Dublin. You can repay over a shorter or longer period and reduce the overall cost. Over 10 years, the loan of 75k will cost approx 86.5k at current rates on some back of an envelope calculations, which will no doubt be corrected for me shortly.

Seems like a sweet deal to me but it's your decision.

justin77

hullaballoo wrote: »

Moderator: I have deleted some posts for giving... let's say unique views on the issue. Basically dangerous stuff with no basis in law.

OP, as pointed out, there is very little you can do to avoid a tax liability if you are gifted a large asset like a house. But in order to minimise the liability or structure the "deal" in a way that is affordable to you, you will need to engage a number of different professionals. The tax liability will have to be settled up front but as against that, you should be able to borrow - for argument's sake if the house is worth 300k and allowing for thresholds you can receive without incurring tax, you might need to borrow in the region of 73-74k. You may be able to get a residential mortgage at the prevailing interest rates (I do not know this as a fact, hence "may") but either way you should be able to get the money using the house as security at a relatively low interest rate.

If you borrow that, you could repay over 10 years at about €720 per month. About a third of average rents in Dublin. You can repay over a shorter or longer period and reduce the overall cost. Over 10 years, the loan of 75k will cost approx 86.5k at current rates on some back of an envelope calculations, which will no doubt be corrected for me shortly.

Seems like a sweet deal to me but it's your decision.

Thanks for taking the time to write such a detailed reply - a lot to think over ! Should have probably mentioned that part of our panic is because we have zero savings and our credit rating wouldn't be great either. Will sit down and have a chat and obviously seek professional opinion thanks again

LuasSimon

You should refuse this offer from your aunt and take a case against her for all the anxiety it’s caused you and settle for 300k in court .

TimeToShine

justin77 wrote: »

Thanks for taking the time to write such a detailed reply - a lot to think over ! Should have probably mentioned that part of our panic is because we have zero savings and our credit rating wouldn't be great either. Will sit down and have a chat and obviously seek professional opinion thanks again

How much is the house going to cost? If it's under £250k you can pay the tax out of the lump sum, no savings required.

coylemj

justin77 wrote: »

Should have probably mentioned that part of our panic is because we have zero savings and our credit rating wouldn't be great either. Will sit down and have a chat and obviously seek professional opinion thanks again

But if you take the aunt's money, pay the tax and top it up with a mortgage, you will be looking at a low Loan To Value (LTV) ratio so those issues shouldn't be show stoppers.

Unless your credit rating is totally in the toilet, the only issue that you'll have to deal with is to convince the lender that you will be able to make the repayements because their loan will be well secured.

PhilOssophy

TimeToShine wrote: »

How much is the house going to cost? If it's under £250k you can pay the tax out of the lump sum, no savings required.

I'm trying to understand why he doesn't do that myself!

justin77

We are clueless totally clueless lads that's why I asked the question ! Again am very appreciative of all replies and information

justin77

LuasSimon wrote: »

You should refuse this offer from your aunt and take a case against her for all the anxiety it’s caused you and settle for 300k in court .

Now there's a plan ;-)

MOD
No!

Donald Trump

cruizer101 wrote: »

Donald Trump wrote: »

There is a thing called favourite niece/nephew relief but it might take you a few years to set that up to qualify - that's even if that is practical for you ... which it probably isn't.



Under that you would be treated in the same band as a child

I was under the impression that was only for business assets most commonly farms. i.e. you have a family business but no kids (or at least none interested in taking it over) so you can pass it on to a niece/nephew without tax implications. I don't think it could be used for a residential house

You are correct. Which is why I said it would take a few years to set up and it might not be practical.


Suppose said Aunt had set up a company 5 years ago and niece/nephew made sure to legitimately tick the boxes to fulfill other requirements - then assets of that business could now be gifted as if under child band.


Additionally and separately, if the aunt had put all that money into a going concern business and left it to the niece/nephew - it could qualify for business relief.


If you combine both then a niece/nephew could inherit/be gifted assets/business worth 3.35m from an aunt/uncle and have to pay zero tax.


Completely legal and above board.

Pawwed Rig

Donald Trump wrote: »

You are correct. Which is why I said it would take a few years to set up and it might not be practical.


Suppose said Aunt had set up a company 5 years ago and niece/nephew made sure to legitimately tick the boxes to fulfill other requirements - then assets of that business could now be gifted as if under child band.


Additionally and separately, if the aunt had put all that money into a going concern business and left it to the niece/nephew - it could qualify for business relief.


If you combine both then a niece/nephew could inherit/be gifted assets/business worth 3.35m from an aunt/uncle and have to pay zero tax.


Completely legal and above board.

They would need to set up a viable business that lasts 5 years and has assets at the end of that time. Also the OP would need to work for the business. Therefore the business would have to be making enough money to sustain at least one wage for that 5 years??

We have moved along way here from a gift of cash to buy a house.

Left field solutions which could work (while not to be taken entirely seriously)
1. Agricultural relief. Buy viable farmland and lease it for a number of years. OP ensures he meets the farmers test when he receives it. Will have a tiny amount of CAT. OP sells farm.
2. OPs aunt marries OPs partner. They get divorced in a couple of years and receive funds as a divorce settlement. Partner then marries OP and transfers assets within marriage.

More serious solution - set up a personal loan between OP and aunt over a long period of time (as I said earlier it depends on how long the aunt plans to live). OP pays back loan at nominal interest + capital less €6,000 a year utilising small gift exemption. If aunt lives 30 years then €180k will have transferred tax free. If aunt is married double this to 12K per year.
On death loan is written of whereupon OP and partner utilise Group B and C thresholds with remainder liable to much reduced CAT.

Donald Trump

Pawwed Rig wrote: »

Left field solutions which could work (while not to be taken entirely seriously)
1. Agricultural relief. Buy viable farmland and lease it for a number of years. OP ensures he meets the farmers test when he receives it. Will have a tiny amount of CAT. OP sells farm.

I wasn't suggesting it as a solution. I don't know the OP's circumstances. But just to elaborate on your Agricultural relief - the receiver of the gift/inheritance must keep it for 6 years


Under business relief, you also do not need to satisfy asset tests which you do for agricultural relief.



Also, for agricultural relief you must satisfy "qualified farmer" criteria for that time period or else lease it to someone else who does.


Edit: As regard OP having to work for the business - yes that is true. But there is no rule saying that they can't also have another job. The business could pay the OP minimum wage for 2x7.5 hour weekend days if it wanted to. Would result in extra income tax being paid but if it meant going from a third of a few million going on tax vs into the recipients pocket then it would be worth it for some.

Is your credit that bad OP that you couldn't borrow to pay the tax or top up your funds?
Have you considered all options or spoken to a broker?

If your situation is that bad could you take the cash, pay any inheritance tax and then buy a property from what is leftover?

thomas 123

Dont think its been said already, - what a lovely aunt.

hullaballoo

justin77 wrote: »

Thanks for taking the time to write such a detailed reply - a lot to think over ! Should have probably mentioned that part of our panic is because we have zero savings and our credit rating wouldn't be great either. Will sit down and have a chat and obviously seek professional opinion thanks again

I don't think these are insurmountable issues in the context you have described. It may take a mortgage broker to convince a bank to lend you the money but lenders are obliged not to reject loan applications without giving them serious consideration.

That means that in a situation such as the one you describe, if say you have been paying roughly average Dublin rent for 3 years and have a joint salary of say 60k, with a real property worth 300k, I would be very surprised if your broker couldn't find a willing lender. There is practically zero real risk.

Unless the current pandemic turns into a 12 Monkeys scenario, the property market will not collapse to the extent that your 300k house becomes worth less than the 75k you will be borrowing.

Imo this comes down to repayment capacity and the deposit issue floats off into the ether because you dont need to have 10% LTV on my understanding if you already have the house. This is essentially a secured loan without the normal risk levels involved. An unusual situation but that is why there is flexibility in the lending rules.

If you're paying rent then you can, via a broker if possible, display adequate repayment capacity for a loan in the region suggested, provided my sums are at least somewhat in the ballpark. It may even be feasible to take out a 5 year loan and only have to repay approx 81k for the 75k borrowed if you can meet €1,350 per month repayments.

Definitely one for the professionals imho.

ardinn

If you are not married get your other half to marry your aunt.

justin77

thomas 123 wrote: »

Dont think its been said already, - what a lovely aunt.

Yes thank you i really should have said that before now but we are genuinely blown away at her generosity and we are so thankful to have her in our lives

hi!

I know very little about tax and surprised at the different rates depending on person gifting.

If hypothetically a grandparent gave their child money (your parent) and then your parent gave that money to you how would that work in terms of tax?

ohnonotgmail

hi! wrote: »

I know very little about tax and surprised at the different rates depending on person gifting.

the rate doesnt change. the amount that can be given before it becomes taxable does change depending on the relationship.

hi! wrote: »

If hypothetically a grandparent gave their child money (your parent) and then your parent gave that money to you how would that work in terms of tax?

hypothetically the money could be taxed twice

hi!

ohnonotgmail wrote: »

the rate doesnt change. the amount that can be given before it becomes taxable does change depending on the relationship.


hypothetically the money could be taxed twice

Okay so say grandparent gave 60k to parent and that parent then decided to give you 55k is that not exempt because there’s a higher limit on what parents can give to children
Where’s as if you got 55k directly from grandparent you’d be paying 33% tax on it

coylemj

hi! wrote: »

If hypothetically a grandparent gave their child money (your parent) and then your parent gave that money to you how would that work in terms of tax?

Each gift would be subject to the parent (Group A) threshold so in theory, money or property worth up to €335K could be passed down in that way and be free of tax in the hands of the recipient. The same as if the grandparent and then the parent died and bequeathed the property down one generation at a time.

But the parent and child would then have used up their Group A allowances so all future inheritences they receive from their parents would be subject to the full rate of tax, currently 33%.

Pawwed Rig

hi! wrote: »

If hypothetically a grandparent gave their child money (your parent) and then your parent gave that money to you how would that work in terms of tax?

There is specific anti avoidance legislation for this exact scenario. While there are ways around it, it would likely be treated as a gift from Grandparent to grandchild.

relax carry on

hi! wrote: »

Okay so say grandparent gave 60k to parent and that parent then decided to give you 55k is that not exempt because there’s a higher limit on what parents can give to children
Where’s as if you got 55k directly from grandparent you’d be paying 33% tax on it

Gift splitting covers this.

The information relating to CAT is available on the Revenue website. While professional advice should be sought for this level of gift, your should at least familiarise yourself with the taxable implications by using the source material available.

https://www.revenue.ie/en/gains-gifts-and-inheritance/gift-and-inheritance-tax-cat/how-do-you-calculate-cat.aspx#:~:text=If%20a%20gift%20is%20passed,it%20is%20called%20gift%20splitting.

coylemj

Pawwed Rig wrote: »

There is specific anti avoidance legislation for this exact scenario. While there are ways around it, it would likely be treated as a gift from Grandparent to grandchild.

As mentioned by the poster above, gift splitting would apply. But the Revenue website would appear to imply that if the intermediary held the gift for three years before passing it on, it would then be unencumbered i.e. treated as a standalone transaction.

There's no harm in discussing hypothetical scenarios all we like but if anyone wants to test our theories, they should first seek professional advice.