Gift Tax-negative equity

M

morny1

Guest
Two friends bought a house together 3 years ago for 330k and the house has recently been valued at 250k. One has decided to take over the full mortgage as the second wishes to move in with girlfriend. They have been advised that gift tax will come in to play because house in negative equity, can anyone advise if this is true?
 
pudds said:
If both are 'joint owners' where does gift tax come in :confused:
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I suppose because the equity is worth 'minus 80K', in releasing the co-owner from the mortgage, the guy taking on the full mortgage is effectively gifting 40K to the guy escaping the mortgage. No idea if this is true but I suppose it makes sense.
 
I think the calculation will be a little bit more complicated - you might have to take into account the stamp duty paid at the time of purchase or the legal costs involved in transferring half the ownership to the new 100% owner. One thing is sure - any valuation in the current market is just a guess.

They should just call the Revenue Commissioners - who I expect will be fairly sympathetic in the circumstances of negative equity. The key point to tell them is that you really don't have a clue about the value of the property in the current market.
 
I am in a similer situation and wondered if anyone knows anything further about this.
 
If the property is owned by two people who are not related to each other then the value of the property is irrelevant. It would just be seen as a contractual agreement between two people and no gift tax should arise.
 
Strictly speaking the negative equity isn't the difference between 330k and 250k; it actually depends on how much is outstanding on the mortgage. If for arguments sake the mortgage balance is now 300k, then the buyer is taking on an additional 150k of debt to acquire 125k worth of property. (ignoring additional legal costs etc)

There is no gift tax issue, provided the two parties are unrelated, because it is a de facto arms length transaction, and clearly the arrangement is not being undertaken for the purpose of tax avoidance. (In fact it facilitates the vendor in purchasing a property elsewhere, and paying stamp duty as he will no longer be a FTB!)
 
Thanks alot to you both. Do you know from where or who i could get this in writing so i could have something to give to the revenue commissioners if they ever come asking?
 
JJHart said:
Thanks alot to you both. Do you know from where or who i could get this in writing so i could have something to give to the revenue commissioners if they ever come asking?
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A tax consultant should be willing to provide you with written advice in relation to your query.
 
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