Buying house owned from parents

kevin306

So this is my situation. My father inherited a house from his uncle when he passed away. For the past 5 years we have been renting this house from my parents. The time has come where we want to buy it, and do some home improvements extension etc.

Its a small 3 bedroom bungalow in the countrside built approx 60 years ago. Obviously as we are buying from my parents they are not looking for the same fee as they would from a stranger. They just want something to help with retirement. We were about to start engaging with the banks about applying for a mortgage when my partner thought of something that for me makes a lot sense, but its possible we are missing something and their are various "gothas" we havent thought of.


The fee my parents have decided on is €60000 (yes we are very lucky) there is also a raised bed for a septic tank that absolutely needs to be done which initially they said they would do, but this would not be included. Rather than getting a mortgage of maybe 120000 to buy the house and renovate and extend all at once, we thought of something that would make things much easier.


Setting up a direct debit into a saving account of my parents of 1000 monthy, which over the course of 5 years would cover the fee. And then we could prolong the period of our renevation, getting small loans periodically for home improvements and for an extension. This would avoid having to take out a big mortgage. For me this makes perfect sense and is the right thing to do. I was just aware there may be some things that we have missed which would prevent us from doing the above.

jlm29

Someone else will come along and give another More expert opinion.... but, on a quick read of your post my initial thoughts are: if you’re borrowing money anyhow, look at the cost of that. A mortgage will be a much cheaper loan.
Secondly- It Would be much easier to just do it now, do it all and do it right, rather than doing a bit here and a bit there. That’s a bit torturous IMO, but depends on your lifestyle and your personality, I suspect.
Thirdly- your partner won’t own the house without paying a significant tax bill. Your parents can give it to you, but not both of you, tax free. Maybe they won’t mind, but a lot of people would prefer to purchase it for legal reasons

Lantus

You will need a solicitor and legal advise on this to get the deed transferred and all tax liabilities.

secman

From Revenues point of view the transaction would have to be "at arms length". It would need to be market value.

Sleeper12

secman wrote:

From Revenues point of view the transaction would have to be "at arms length". It would need to be market value.

Just in case op is confused at this.

The sale doesn't have to be market value. For tax purposes it has to be valued at the current market value. Any tax will be based on the market value and not the 60k you are paying

Dutch_Druid

Irish Times had an article about this a couple of days ago that dives into buying housing for less than the market value from parents:
Buying mums house at less than market value could cause tax issues

kevin306

Ok, I will definitely take the advice on board and speak to a solicitor regarding this before doing anything. I will need to speak to my partner about whether she is comfortable not having her name on the house. I guess my focus was on avoiding the banks. By receiving a gift from my parents and me paying them the montly fee of €1000. As you said there would still be a 33% tax to be paid on the market value less the 60,000

Sleeper12

kevin306 wrote:

Ok, I will definitely take the advice on board and speak to a solicitor regarding this before doing anything. I will need to speak to my partner about whether she is comfortable not having her name on the house. I guess my focus was on avoiding the banks. By receiving a gift from my parents and me paying them the montly fee of €1000. As you said there would still be a 33% tax to be paid on the market value less the 60,000

You have a gift/inheritance allowance from your parents of over 300k.

kevin306

Sleeper12 wrote: »

You have a gift/inheritance allowance from your parents of over 300k.

Ok then, so the penalty on my side would be my partner not having their name on the property, correct? And on my parents side would they have extra taxes?

Sleeper12

kevin306 wrote:

Ok then, so the penalty on my side would be my partner not having their name on the property, correct? And on my parents side would they have extra taxes?

If your partner is on the deeds then they will be gifting half to her/him. They don't have the gift allowance so gift tax will be payable on half on the market value. The other option is to have it totally in your name.

Posters here can give you a general idea of what to expect but you definitely need legal advice & possibly advice from an accountant

Gumbo

1. Sort out the legal side.
2. Paying €1000 per month into a savings account for your parents seems reasonable. Once they don’t need access to the full amount before then.
3. Borrowing sporadically for small renovations over many years may actually be more expensive from an interest point of view and may end up with piece meal renovations being done. Sorting out insulation and air tightness and possible ventilation needs to be carried out all at once. Flooring one room now leads to mismatching later.

I would seriously borrowing to buy and renovate in one go and get it all done at one time.

The Student

Sleeper12 wrote: »

If your partner is on the deeds then they will be gifting half to her/him. They don't have the gift allowance so gift tax will be payable on half on the market value. The other option is to have it totally in your name.

Posters here can give you a general idea of what to expect but you definitely need legal advice & possibly advice from an accountant

Has the value of the property increased since your parents inherited the property. If yes they will be liable for cgt based on the increase in market value between date of inheritance and sale date.

Value at sale date is market value irrespective of how much you actually pay.

If your parents gift the house to you it will be below the life time inheritance for band A limits (parent to child of €335k).

Once the house is in your name you can add your wifes name to the seeds. From a tax perspective there is no tax payable on the gifts between spouses.

jlm29

The Student wrote: »

Has the value of the property increased since your parents inherited the property. If yes they will be liable for cgt based on the increase in market value between date of inheritance and sale date.

Value at sale date is market value irrespective of how much you actually pay.

If your parents gift the house to you it will be below the life time inheritance for band A limits (parent to child of €335k).

Once the house is in your name you can add your wifes name to the seeds. From a tax perspective there is no tax payable on the gifts between spouses.

The OP doesn’t have a wife. They have a partner.
OP, getting married would Potentially solve some Issues. If you’re that way inclined anyhow.

kevin306

jlm29 wrote: »

The OP doesn’t have a wife. They have a partner.
OP, getting married would Potentially solve some Issues. If you’re that way inclined anyhow.

FYI getting married in July, covid pending

Sleeper12

kevin306 wrote:

FYI getting married in July, covid pending

Congratulations.

Wesser

Mortgage might be cheaper than.multiple small loans.....

WildCardDoW

Sleeper12 wrote: »

Just in case op is confused at this.

The sale doesn't have to be market value. For tax purposes it has to be valued at the current market value. Any tax will be based on the market value and not the 60k you are paying

Yup, and the way around this is to note how much extra you owe them to make the difference as a personal payment. Hush hush type of thing though.

recyclebin

Get the parent to gift you the house after you get married.
You and your partner gift each of your parents up to 3000 per year tax free. (12,000 in total)
60000 could all be paid off in 5 years?