Buy out family members from inheritance or not?

Hi all, I’m a long time browser here on AAM. I've only just joined up to ask for opinions on a matter of my own.

Fourteen years ago, myself and two family members inherited land and a house to be evenly divided between the three of us. Sub sequentially the land has been sub divided into three individual lots and the house remains jointly in our three names.

We have always said that the house should remain in the family and should never be sold as it’s a lovely place and holds a lot of sentimental value to the family.

Since things have gone down the drain and work / money is now tight, things have changed. One of the other family members has decided that they want to sell to pay off their own mortgage using their third of the proceeds. The other family member is also in a situation where they could do with the proceeds to help pay their bills. Saying this, there is only really pressure from one party to sell.

I really want to have the house but I’m not in a situation where I can fund buying the other two people out without selling the land that I inherited, not really a thing that I'm in a mad rush to do as it surrounds the house. It was a long term plan to buy the other two out or their share of the house but I planned on making a few investments that would make money first before I purchase / blow a load of money on a family home that I won’t sell.

I'm 26 no bills. I own one third of the house mentioned above, house is worth 400k-450k tops. I own 30 odd Acres worth 10k per acre roughly. I've got 50k saved and save 20k per year. Getting a mortgage to buy the other parties out may be tricky as I don't live in Ireland and probably won’t be home for the next 5 - 10 years depending when things get a little bit better.

I was hoping to get a few ideas / options from people in relation to this topic... What do you think??

• Try and get money together to get a mortgage to buy out the other two parties? (Not really realistic giving the current availability of money)

• Buy out the party that wants to sell urgently and hope the other party will be able to hold off on selling their share until I’m able to buy them out ( Probably going to be 5 – 10 years)

•Sell land to try and buy the others out in one go?

Overall I know that this is not a bad situation for me to be in as I don’t owe a penny and still have assets worth a bit. I don’t mean to aggravate people that are in worse situations than me by posting this topic, but any opinions / views are appreciated.

Thanks very much in advance.

You have to sit back and make a fundamentally important decision, which only you can make.

Do you want to put all your money into owning a house worth €450k and a piece of land worth €300k? That is a very big property for anyone, never mind a 26 year old. It will have ongoing costs in terms of property tax etc, which could become a drain on you.

Who lives in the house at the moment, if you live abroad?

Can the house be rented to bring in an income?

If you do decide that you want to buy this house...

Your urgent brother owns a piece of the house worth €150k which he wants to sell.

Would he accept a contract to sell it now for €150k with €50k paid up front and €20k a year for the next 5 years? That way, you don't need to bother with a mortgage.

The alternative is that you and the remaining brother would have to take out a mortgage for €100k, jointly and severally. I suspect that you would get that easily enough as you have a big income.

As your other brother owns one third of the house, I think he will have to be on the mortgage. You can do a separate binding legal agreement with him that you meet the full repayments and you own 2/3rds of the house.

If you do take out the mortgage, you should take it out for as long as possible and for as much as possible. You could then buy the remaining bit from your brother on a deferred payment basis. Give him the €50k cash and pay off the balance over the next few years.

Overall, it should be doable. But the bigger question is whether or not it is a good idea to do it. It doesn't sound right to me, but I don't really understand the concept of sentimental value.

Check out the rules on tax residency. At the moment, I think you are ok. But there is talk of changing the rules. You want to make sure that your income or the income paid into Ireland does not become subject to income tax in Ireland. You should be ok, but check it out.

Brendan

If you sell the whole lot now, you will have €450k ( €150k for your share of the house and €300k for the land).

Could you use this to build a new house to your own design in the area or on a bit of the land which you own? You would retain the sentimental attachment to the area and be living debt free.

c_donno2001 said:

. Sub sequentially the land has been sub divided into three individual lots and the house remains jointly in our three names.


I really want to have the house but I’m not in a situation where I can fund buying the other two people out without selling the land that I inherited, not really a thing that I'm in a mad rush to do as it surrounds the house. .

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Can you clarify if the house is on an individual plot and how it is accessed?

Why do you want the land?

Why do you want the house?

Your story illustrates why in a family home inheritance situation it is better to never become joint owners with your siblings.

Make sure you investigate the capital gains tax implications of selling the house.

If you inherited the house fourteen years ago and you are not living in it
now, the capital gains tax rate is 33%.

If you have been living in the house for a portion of the 14 years, that will lower the CGT bill

Brendan,

At the moment the house is rented out and getting a rental income of 600 per month split evenly between the three of us. Although its been a long time since we inherited there were other beneficiaries and inheritance tax to be paid so there is no sum of money sitting in reserve just a little bit every now and then to maintain the place and keep it in a rentable condition.

Im not sure if my sibling will agree to the 50k up front and 20 per year there after. There prob looking for an easy fix and a large sum of money up front, But thats a good idea and I will give it some thought and run it past them.

In regard to getting a mortgage jointly with the remaining family member, Im not sure thats going to work as they have currently got a mortgage for a property and they are after getting another mortgage to build on said land mentioned above. If he goes into the bank again looking for more money they will think hes a spaceman.

I know on paper that this seems like a terrible idea and why not let rip with the lot and build whatever I want on the best piece of land that I have and be debt free, but the house is not the sort of place that pops up very often, cant be replicated, and sure as hell if its sold no matter how much money I have ill never be able to get my hands on it again.

I think im ok in relation to the tax thing for now I have been keeping an eye on things like that. Thanks for the advice.

Bronte,

The house is accessed through its own entrance. Its on its own site and is easily separated. All three plots of land are joined and all have their own roads frontage and access.

I want the land and house because I grew up on there and farmed it and I think its the nicest place in Ireland ( I know everyone says that about home)
Its where I want to live and eventually raise a family.

I agree with what your saying about joint inheritances being a nightmare and Its been very tricky and everyone involved really had to thread carefully. Its also very hard when something like this happens to keep your cool with the others involved might I add... Thanks for your advice too.

If I were to buy one person out of the house what are the tax implications for them? Is there a smart way to go about this transfer / sale? If indeed I decide to go for it?

Dr.Debt said:

Make sure you investigate the capital gains tax implications of selling the house.

If you inherited the house fourteen years ago and you are not living in it
now, the capital gains tax rate is 33%.

If you have been living in the house for a portion of the 14 years, that will lower the CGT bill

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All taxes charges have been paid up and nothing outstanding.

Hi donno

If you apply for a mortgage, you should get it on the strength of your own credit record and savings record. They will just have to add your brother's name so that they can enforce the security if they ever need to. Adding your brother to the mortgage strengthens the bank's position.


His current borrowings should not affect the decision, although the banks are a bit odd about stuff like this.

You should sit down with the remaining brother and see what he thinks. If you can agree something between you, then you can approach the bank.

It is is going to be your home at some stage in the future, then it's worth going for.

If you are buying something, you won't face a CGT bill. The seller will.

If you are selling your plot of land, which doesn't seem likely, then you might face a CGT bill.

Brendan

c_donno2001 said:

In regard to getting a mortgage jointly with the remaining family member, Im not sure thats going to work as they have currently got a mortgage for a property and they are after getting another mortgage to build on said land mentioned above. If he goes into the bank again looking for more money they will think hes a spaceman.

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And luckily for you the bank will probably not entertain this. It's only going to lead to more problems down the line. And has all the halmarks of turning into a nasty family feud if anything goes wrong with one of your finances never mind marriage, divorce and children.

If you really really want the house then sell the land. Save and hope to buy back the land in years to come. You're very young to be tying yourself to a house you may never live in, that will cost you in income tax and repairs. If you buy the house, you get part of what you want and your two siblings who both could do with the money will also be happy. And surely all 3 of you being happy is worth more than keeping some land.

Presumable all 3 of you are tax compliant on the rental income?

I don't think I'll be selling anything to be honest. I know I'm putting a big mill stone around my neck by doing this but if I really get into financial trouble, I could sell some land and keep the house. What's the best way to get amv? I generally dislike estate agents varied opinions. Are they the only option? Similar properties aren't really existing in the area. The value above is just my opinion.

It's only going to lead to more problems down the line. And has all the halmarks of turning into a nasty family feud if anything goes wrong with one of your finances never mind marriage, divorce and children.

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Hi Bronte

Just to clarify. I was proposing that donno buys the first brother out in full. He will have a mortgage of €100k. He is saving €20k a year, so he could have it fully paid off within 5 or 6 years.

The second brother will not be involved in terms of ownership or repayments. However, the second brother's name will have to be on the mortgage as he owns one third of the property. If the second brother's finances deteriorate, that does not affect this transaction.

Anyway, between them they will have a mortgage of €100k secured on a house worth €450k which has rental income of €7,000 a year. It is very unlikely that there will be any problems with the repayments.

The potential problem is where the second brother needs cash in the meantime and donno doesn't have the cash. Donno, you should reach an agreement with your second brother to give him the option to sell his 1/3rd to you on 6 months' notice and failing that, the whole property would be put on the market.

And has all the halmarks of turning into a nasty family feud

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I think that two way ownership where neither brother has to sell is much more stable than three way ownership where one party needs to sell asap.

c_donno2001 said:

I know I'm putting a big mill stone around my neck by doing this but if I really get into financial trouble, I could sell some land and keep the house.

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That is a very good point. You are not committing yourself to this deal for all eternity. If you need to sell, you can sell the house or the land and you will have loads of equity in it. You may lose money on the transaction, but that is a risk worth taking.

What's the best way to get amv? I generally dislike estate agents varied opinions.

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You should sit down with the second brother first and suggest the two options to him. Is he happy to hold off for 5 years or so.

Then you need to sit down with the brother who wants to sell. If you can come with a valuation between you, then you will both be happy and can save yourselves a lot of fees.

If your brother gets a valuer, he will probably overvalue the farm as it's in his client's interests and if you can't raise the finance for the higher valuation, the valuer might get the job of selling the property on the open market.

You could offer your brother a figure. If he is not happy, put the property on the market but with the understanding that you can match the highest genuine offer.

Bronte
Yes we are all fully tax compliant on all our dealings. Mr Tax man will always find you if you misbehave. My only income in Ireland is 200 pm rent. Not great for the mortgage application but thats another days work. I hope the feud won't happen regardless. But I understand how easy it can blow up.

Brendan,
Thanks for the tips with regard the valuation. Those things mentioned are what I'm afraid of. Our local auctioneer's are as thick as thieves, I'm hoping we can come to some agreement away from them and maby even in my favour if I get a family member reduction. They are stuck for money but still have a heart I hope..... Time will tell.

Will they have to pay cgt of 30% no matter what way we do the transaction? Or is there a more cost effective means of transfer?

c_donno2001 said:

Will they have to pay cgt of 30% no matter what way we do the transaction? Or is there a more cost effective means of transfer?

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The CGT rate is now 33%, and there's no way around it, but bear in mind it's payable on the GAIN in value since the inheritance, so that's the gain in value since 14 years ago - so you need 2 values to work out how much they'll owe tax on.

The first one should already have been established in the course of settling the original inheritance, so the solicitors may have that information.

donno

Property prices are not much higher than they were 14 years ago, so the sellers should not have a CGT exposure.

Would your brothers accept the valuation of 14 years ago as the basis for valuing the property today? If prices in your area are 10% higher today, then use that figure. They will presumably need an independent valuation to confirm the figure for their own tax returns.

If the probate said one third was worth €150k 14 years ago and it's worth €170k today, they will pay 33% of €20k. Even if they sell it to you for €150k, they will pay CGT based on the arms lenght valuation.

OP should check what the property valuation was on the probate application of 14 years ago. This will give him the base price for calculating the CGT.

In my experience, valuation of property for probate purposes is usually on the low side and if it was valued on the lower side of things 14 years ago then the CGT could be significant.

Brendan is right that property prices today are not that much higer than 1998 however there was a huge spurt in property prices for the two years just before that (1996 - 1998)

Are you sure the house is worth €450K. Unless its rented well below market rates a house that is rented for €6K could not possibly be worth anywhere near €450K (although I understand the relationship between prices and rents in rural areas may be more elastic than in urban areas)

Don't sell your share of the House or Land if at all possible, chances of ever getting to buy it back would be slim! I am not from a farming background (lived in a town all my life) so can see where some of the other posters are coming from with regard to selling the land being suggested.

I have recently inherited a family farm 7 months ago, something that I never dreamed about ever owning (another story).

Now farming just over 3 months and love it, would love to be able to go farming full time & give up the off-farm jobs but unfortunately I don't think we would be able to make a living off it. We would love to be able to buy back the land that my grandfather sold years & years ago, my uncle had been renting it a good few years from the people who bought it, he always hoped to be able to buy it back someday, the people don't farm that bought it, so hopefully I can fulfil his & my dream.

I would approach the bank & tell them the story, and see what they suggest & how much they would be willing to offer - ideally buy out your 2 brothers at the same time, less mess legally.

I got a mortgage early last year for a house that my sister wanted to buy (buy to let), she's a student & this property would suit her business perfectly when she is qualified. The mortgage is in both our names but the house is in her name (I have legally sorted that the house cannot be sold without the mortgage being cleared in full). It's rented out now & paying the mortgage. The bank were very helpful, hopefully they will be as helpful & accommodating when I approach them with regards to buying the land!

Hope it all works out for you.

tvman said:

Are you sure the house is worth €450K. Unless its rented well below market rates a house that is rented for €6K could not possibly be worth anywhere near €450K (although I understand the relationship between prices and rents in rural areas may be more elastic than in urban areas)

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Yeah its worth that 400 - 450 alright. Its in a rural area that rents are low in as you mentioned. Its the norm in the area. I know of alot worse than above.

NHG said:

- ideally buy out your 2 brothers at the same time, less mess legally.
.

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This would be ideal, but if it means that you have to borrow €250k for an "investment" on which you get a rent of only €7k a year, it is going to stretch you financially.

If one brother doesn't mind holding off, you can do it gradually.

Presumably if the property means a lot to you, it means something to them as well and they would like to see it staying in the family? Also, they might not like to see you selling your land to a stranger to buy the house.