Gifting Money for deposit

The_Fitz

Hypothetical Situation:

First time buyer and can get a mortgage for €190K.

Deposit Saved of €30K. Parents want to gift £50K. (Parents live in UK and have nothing to do with Irish taxation (at the point before gifting I should say).

Saving €1,000 per month, rent of €2,500. Shouldn't be an issue for a mortgage that will cost roughly €800 per month.

Want to use €80k for the deposit for a house worth €270K.

Does anybody know the ramifications of this gift? I understand a gift letter would be required.

http://www.opesfidelio.ie/tax-implications-of-financial-gifts-to-your-children/ - says parents can gift children up to €335K tax free.

Manion

The website you linked to has it covered and you acknowledge you'll need a gifting letter. Is there something of specific concern?

Regardless of gift or not, 80K is obviously a much greater deposit then you'll need provided there isn't a loan to income issue at play. I would consider using the minimum deposit and then overpaying a lump sum. For our mortgage provider we have the option of taking the over-payments back at any stage without the need to break the mortgage agreement. So effectively this give us the option of have access to that money if we ever really needed it, not so with a deposit.

zf0wqv9oemuasj

Manion wrote: »

The website you linked to has it covered and you acknowledge you'll need a gifting letter. Is there something of specific concern?

Regardless of gift or not, 80K is obviously a much greater deposit then you'll need provided there isn't a loan to income issue at play. I would consider using the minimum deposit and then overpaying a lump sum. For our mortgage provider we have the option of taking the over-payments back at any stage without the need to break the mortgage agreement. So effectively this give us the option of have access to that money if we ever really needed it, not so with a deposit.

You should also consider a higher deposit can give you a lower rate due to LTV. My personal choice would be to put the max deposit you can while still keeping a little money aside for a rainy day and other expenses. With 80k I would probably put 60k to the deposit and keep 20k.

DM1983

Manion wrote: »

The website you linked to has it covered and you acknowledge you'll need a gifting letter. Is there something of specific concern?

Regardless of gift or not, 80K is obviously a much greater deposit then you'll need provided there isn't a loan to income issue at play. I would consider using the minimum deposit and then overpaying a lump sum. For our mortgage provider we have the option of taking the over-payments back at any stage without the need to break the mortgage agreement. So effectively this give us the option of have access to that money if we ever really needed it, not so with a deposit.

What bank let's you take back an over payment? Seems strange.

Quazzie

Charli Fancy Karate wrote: »

You should also consider a higher deposit can give you a lower rate due to LTV. My personal choice would be to put the max deposit you can while still keeping a little money aside for a rainy day and other expenses. With 80k I would probably put 60k to the deposit and keep 20k.

Surely if the OPs current outgoing's are €3500 per month, and his mortgage payment will be €800 per month then there will be massive scope to increase savings to €2000+/month with existing levels. Hardly any need for a rainy day fund at that level.

jumbone

DM1983 wrote: »

What bank let's you take back an over payment? Seems strange.

Any offset mortgage product works that way

Thoie

From a gift tax perspective, if it worked for you and your parents, they could give you the minimum amount you need for a deposit and to make the monthly payments affordable for you, then give you the balance over a number of years at the annual threshold.

I think (but you'd need to check) that you can receive an annual gift of €3,000 that doesn't count towards your overall gift tax. So let's say you take €30,000 off them now (which counts towards your lifetime gifts/inheritance), they could drop €3,000 a year into your mortgage for you every year for the next 6-7 years and that remaining €20,000 wouldn't count towards gift/inheritance tax afaik.

https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-exemptions/small-gift-exemption/index.aspx

Actually, it looks like each parent could give you €3,000 a year and it doesn't count.

DM1983

jumbone wrote: »

Any offset mortgage product works that way

I don't think so?

You can overpay some mortgages and build up a positive balance meaning that you can take a payment holiday in the future until your positive balance is consumed. If you pay a 100k lump off your mortgage, you can't then decide you want the 100k back?

The_Fitz

Manion wrote: »

The website you linked to has it covered and you acknowledge you'll need a gifting letter. Is there something of specific concern?

Regardless of gift or not, 80K is obviously a much greater deposit then you'll need provided there isn't a loan to income issue at play. I would consider using the minimum deposit and then overpaying a lump sum. For our mortgage provider we have the option of taking the over-payments back at any stage without the need to break the mortgage agreement. So effectively this give us the option of have access to that money if we ever really needed it, not so with a deposit.

Loan to income is an issue. In this situation, the partner has just started their own company and cannot be considered for at least another year and a half.

The_Fitz

Thoie wrote: »

From a gift tax perspective, if it worked for you and your parents, they could give you the minimum amount you need for a deposit and to make the monthly payments affordable for you, then give you the balance over a number of years at the annual threshold.

I think (but you'd need to check) that you can receive an annual gift of €3,000 that doesn't count towards your overall gift tax. So let's say you take €30,000 off them now (which counts towards your lifetime gifts/inheritance), they could drop €3,000 a year into your mortgage for you every year for the next 6-7 years and that remaining €20,000 wouldn't count towards gift/inheritance tax afaik.

https://www.revenue.ie/en/gains-gifts-and-inheritance/cat-exemptions/small-gift-exemption/index.aspx

Actually, it looks like each parent could give you €3,000 a year and it doesn't count.

Cheers for that, interesting. Can also give their children's spouse the same I think.

zf0wqv9oemuasj

The_Fitz wrote: »

Cheers for that, interesting. Can also give their children's spouse the same I think.

It is also from each parent. So your parents can give you are your spouse 12k tax free per year without using any of the lifetime tax free threshold.

Manion

jumbone wrote: »

Any offset mortgage product works that way

DM1983 wrote: »

What bank let's you take back an over payment? Seems strange.

KBC. Any overpayment regardless of if its monthly or in a lump sum can be accessed as a later date. Monthly repayments would increase back based on a formula. They don't really advertise this.

The_Fitz wrote: »

Cheers for that, interesting. Can also give their children's spouse the same I think.

Ah, I was wondering if tax avoidance advice was really what you where looking for. Nothing wrong with that btw.

The_Fitz

Manion wrote: »

KBC. Any overpayment regardless of if its monthly or in a lump sum can be accessed as a later date. Monthly repayments would increase back based on a formula. They don't really advertise this.



Ah, I was wondering if tax avoidance advice was really what you where looking for. Nothing wrong with that btw.

Yes and no

My main question is does being gifted a sum of money for a deposit affect the amount available for loan at all.

But also my question was if I was gifted the sum of money is their any ramifications, so yes a tax question, and I would like to avoid paying tax as much as possible (legally of course)

Manion

Some family members where in the same boat as you and it didn't have any impact once there was a gifting letter. They weren't overly concerns about how the deposit was reached.

I sympathise with your concerns, I've been through the inheritance process twice in Ireland and it was scary how many pitfalls we had blindly sidestepped that would have raised tax complications. The rules and treatment of probate in Ireland changed only a couple months ago and thresholds have been reset for make making declarations, thats another thing to keep on eye on. It's smart to be asking these questions now.

https://www.irishtimes.com/business/personal-finance/probate-is-changing-what-does-that-mean-for-you-1.4364452

Grant Stevens

jumbone wrote: »

Any offset mortgage product works that way

Be careful, offset accounts are not classed as current or savings accounts and may not be covered by govt bank guarantee. I had a sum saved against my mortgage with EBS a while back and got a notion to call them about this one day. Guy on the phone said my sum wasn't covered. I quickly instruction to pay down that amount against the mortgage straight away.

Imagine a scenario where there was a run on the bank and your 'rainy day offset sum' was swallowed but your debt remained? By God I'd be furious.

Maybe not a likely scenario but with the way the financial system seems to be headed plus the sneakiness of banks...

Manion

Grant Stevens wrote: »

Be careful, offset accounts are not classed as current or savings accounts and may not be covered by govt bank guarantee. I had a sum saved against my mortgage with EBS a while back and got a notion to call them about this one day. Guy on the phone said my sum wasn't covered. I quickly instruction to pay down that amount against the mortgage straight away.

Imagine a scenario where there was a run on the bank and your 'rainy day offset sum' was swallowed but your debt remained? By God I'd be furious.

Maybe not a likely scenario but with the way the financial system seems to be headed plus the sneakiness of banks...

I may have lost this facility when switching to fixed rate. I never got the official name of it but it was exactly as described in this thread. I also didn't realise there was potential for the money not to be covered or was in some way at risk.

https://www.askaboutmoney.com/threads/offset-mortgages-available-in-ireland.206870/

Grant Stevens

Manion wrote: »

I may have lost this facility when switching to fixed rate. I never got the official name of it but it was exactly as described in this thread. I also didn't realise there was potential for the money not to be covered or was in some way at risk.

https://www.askaboutmoney.com/threads/offset-mortgages-available-in-ireland.206870/

I don't think they officially exist in the sense that these products aren't marketed here in Ireland in this manner. When I got my mortgage I was living abroad and these were heavily marketed as 'Mortgage Offset Accounts' so I was familiar with them overseas. They're actually a fantastic idea. Imagine you had a mortgage of €200k and came into €50k through a windfall. Using a mortgage offset account to put your €50k into means your repayments are now calculated on the balance of €150k whilst still holding access to the €50k.** I think we all get the gist of how this works, etc.

Now, as I mentioned, Irish banks do not offer this. However, if you were to lodge €50k against your mortgage as described above, without giving specific instruction to the bank, an offset account scenario sort of emerges! This is what I did with EBS for many years until one day I was querying what the fate of this sum might be in the event of a banking crisis. Low & behold after many minutes of being placed on hold (while the stunned call centre chap spoke to multiple supervisors!) they came back with "a mortgage account is neither a current account nor a deposit account and therefore cannot be covered by the Government Bank Guarantee".

Whether correct or not, I wasn't taking any chances. As I said, it's not a conventional product offered here and in any case the laws and regulations surrounding this scenario may not be solid.



** I had a work colleague in Australia who had an equal amount on deposit in an offset account against his mortgage. Essentially he had the ability to clear the mortgage with a phone call but said that deed storage was expensive and as long as the mortgage was in place, the bank would store the deeds! The guy must have had steel balls and clearly trusts banks too much. Hopefully he won't learn a painful lesson in the near future.