Case study UK resident with Irish investment mortgage and unpaid taxes

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Ervin

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Personal and income details
Income self: £42,000 GBP. Net pay £2150 pcm.
Income history: Employed
Income partner/spouse: £16,000 GBP
Income history: Returned to work after maternity leave, 4 days per week
Number of children: 1
Amount of Mortgage Interest Supplement received: 0
Home loan
Lender: BOI UK
Amount outstanding: £245,000
Value of home: £255,000
Interest rate: SVR UK
Monthly repayment: £1,150
Amount in arrears: 0


Investment property
Lender: AIB Staff Business
Amount outstanding: ~€250k
Value of home: ~€145k
Interest rate: AIB SVR
Monthly repayment: €1,200
Amount in arrears: €3,000
Monthly rent received - Currently looking for tenant, should be €900 once let.

Other loans and creditors -
Credit Card - €4,000 with AIB. Charged off and they have stopped asking for money. £5,000 UK Credit Cards, £4k at 0% due to run until Spring 2014 and £1,000 at 18.9%
Property management co - €1,200
Revenue - €4k
UK Student Loan - £3k

Other savings and investments
Shares worth next to nothing.


How important is retaining the family home to you?Which of the following best describes your situation?

I really want to keep the family home even if it means having a large mortgage and negative equity for years to come.


Any other relevant information
I have only paid NPPR and Property tax, not income tax against the rent received. Also, I received a Revenue rebate which I put toward the mortgage and they now want that back.

What is your preferred realistic outcome?
Get reduced repayment rate from bank, continue to pay interest only and then make payments toward the capital and hopefully one day sell with equity meeting mortgage. I am massively worried about tax liabilities.
 
Hi Ervin

Sorry, I missed this when you posted it first.

Can you tell us a bit about your story? Are you working in the UK? You are keeping up to date with your home loan in the UK, so I would guess that you are safe enough.

Have you approached AIB about rescheduling your mortgage to interest-only? It seems that the rent will cover the interest and AIB might not like, but should be happy with it. I presume you are an ex-employee?

Are both properties in both your names?

If the Irish one is in only one name, is there an option for the person to go bankrupt in the UK? Probably not worth doing as the rent should pay the interest, but bear it in mind as one of the options.

Did you do the tax returns yourself? If so, you should ask an accountant to have a look at them for you? You should not have much of a tax bill if you are not resident in Ireland. You can set 75% of the interest paid against the rent received.

Brendan
 
Hi Brendan,
Thanks for the response.

I work in England and can just about keep my head above the water. I am hoping to pay off my credit card debts in 2013. My student loan will be finished in 2014 and I'll have £150 pm more.

I have approached AIB about the rescheduling but the difference here is that AIB put the staff mortgages into the staff member's name 100%. The co-mortgagee was guarantor. So they want details off her which she is not prepared to give. She will be ultimately liable but isn't yet.

I have the property up to rent but it is vacant. A lettings agent is looking after it.

Finally, if it is of any relevance, I left AIB due to having had it made clear my career was dead in the woods because I repeated a rumour which was widely known. If that had happened I might have still stayed in Ireland.
 
Can you clarify the AIB loan. You purchased an investment property but a condition of the mortgage was that you required a guarantor and this person is actually jointly on the mortgage with you. Does this person know the problems you're having? Is this person in the UK or Ireland and are they in paid employment and do they have assets.

How long has the property been vacant. Is it PRTB registered, do you pay income tax on it?

What if you sold your home, which is not in NE, would you be able to rent and have more income free to pay off the investment?

What exactly does 'charged off' mean? That you no longer owe the money and if yes does this mean your credit rating is shot?

Could you list how much you're paying monthly on each debt.

What if you sold the AIB property, would you be able to repay 105K at the current SVR? That's if the bank left you which they might.
 
My former girlfriend and I bought a property in 2005. We got the mortgage through AIB Staff Business. The way the mortgage was structured, she was unable to get a staff rate as not staff so she was a guarantor on the loan and the loan is 100% in my name although both our incomes were assessed.

I had a few issues with work and we decided to pack it in and move to England where we now live. I rented out the property at a rate just above the costs. The rent has decreased each year and I put all my money in to keeping it ticking over but the money has gone.

The most recent tenant has left and we are trying, through an agent, to get a new one in but it is a difficult time of year.

I have PRTB registered but not paid income tax since 2008, deluding myself that as it was costing more to pay all the charges than it generated that I was not getting an 'income'. I know this is not correct but it is easy to tell yourself something you want to believe. I don't have any money at all to pay back taxes.

I was able to get a 100% joint mortgage with another person here with whom I have a child. The mortgage was £50 less per month than I was paying in rent. I would imagine that the value of the property has increased by the amount of mortgage payments but I am in year two of the mortgage so to sell up would just pay off the solicitors and estate agents and would leave me paying more in rent as the market has increased since we bought.

The guarantor of the Irish property is not overly concerned but wants no hassle, including providing a financial statement to me to send to AIB.

Charged off means that there is no more fees or interest but the balance still exists and they are actively seeking it.

I do not forsee myself being able to pay off €105k. I'd much rather take my chances in the long run that the equity and value of the property will meet at some point.

We bought the place to live in, we rented it out because we didn't have the money to cover the mortgage while it got sold although this now is evident as the best solution. All we wanted was the place to tick over in perpituity until we could make some form of decision.

I am of the opinion that the solicitor did not complete his job properly upon purchase and that the bank may have no charge over the property.
 
Hi Ervin

It seems that you will have to switch to interest-only whether AIB likes it or not.

You need to sort out your taxes as you will end up paying high interest and fees.

An Irish tenant should be deducting tax on rent paid to a non-resident landlord. You will need to look into this.

Overall, you need an accountant to look into these issues for you. I don't imagine that your income tax bill will be very high, but you need to sort it out.

Have you formally written to your ex requesting that information? You should do so to have a record of your attempts.

At some stage AIB might move to repossess the investment property, but I think it's unlikely if you continue to pay the interest.
 
How much does an accountant typically charge for such services? I am loathe to pay up if I could do it myself.

Re the guarantor, I'll happily carry the can for her.

Once I get the place rented out it will begin to give me more options.

It is a situation I never thought I'd find myself in.

As regards repossession, then they'll be stuck with it and have the same problems as me! It seems more logical for them to keep me trying to pay for as long as possible.
 
With your ex, I presume the title is in both names? What does she have to do now with that property? It's no point you saying you will carry the can for her if you cannot afford to do so. Forget about emotions and why the relationship ended. She went into this mortgage as though she were a joint mortgagee. And whether she likes it or not ultimately she will be liable if you cannot sort it out.

Tax - you don't need to worry about tenant's deducating 20% income tax. It's very good that you are PRTB registered because you may have nil or very low liability. Have you kept every receipt for everything since 2008. Now if you've some holidays might be the time to do up a calculation for each year. If you post up a summary for each year, rental income, fees, repairs, mortgage interest you'll be able to get a fair idea of the tax due on here. One thing for sure, ignoring it only makes the problem worse.
 
Hi, I just thought I'd give you an update of where I am.

AIB have ageed to a moratorium on the mortgage, backdated to clear arrears, and to go interest only for six months.

Outstanding amount is €247k and interest only will be €829.69.

We have a tenant in, paying €900 per month and will have the costs of property management at €120 per month so on an absolute minimum, I will be contributing €50 per month to keep the wolf from the door, which I will hopefully manage.

I am yet to pay any income tax and, given the lack of income, not sure if I will be able to.

What would happen if I were to submit the tax returns with details of what I owe but not actually provide any money with it?

I have no bills or invoices for repairs over the years but do have for 2012.
 
Accountant was looking for €500 to do the tax return. I had hoped that the liability would be less than that. To pay an accountant €500 and then pay the tax amount on top of that is way beyond my means.
 
Hello,

After six months of interest only, AIB have written to me detailing the options. I have asked to extend the interest only period and they have refused, stating that "the bank is no longer extending forebearance in the medium term" and offering the following choices:

1) Return to full capital and interest repayment in July
2) Put the property on the market to sell with interest only repayments extended for 12 months. The residual balance post-sale will be restructured over a 20 year term on a C&I basis, based on affordability
3) 12 months fixed reduced mortgage repayments as a stepping stone back on to full C&I repayments on expiry.

I cannot afford option 1. I can barely afford interest only

Option 2 - If the negative equity in the mortgage, never mind solicitor and estate agent, is €100k then over 20 years, surely that repayment will be greater than the difference between option 1 and interest only.

Option 3 - Probably the best option if I am limited to the 3.

I realise I am clutching at straws but I think that the property prices in my area might have increased slightly, rent seems to have increased.

I am up against it money wise at present but I think that there is some light at the end of the tunnel there as well.

I am trying to keep my UK credit record as clean as possible but have got in to debt on credit cards etc. I have an interest free balance transfer but if I get in to trouble here on the credit bureau, I will not be able to apply for a new card to do the next transfer and then will start being charged interest.

I live a frugal life but have nothing spare to start regularly sending to sort this out.

I can probably just about scrape option 3 if I make serious cutbacks but will not be able to afford to pay the property management then. I have used the tenants' rent to pay the mortgage so will need to use any future tenant's deposit to pay back the existing.

Ideal outcomes:

Pay rise / new job
Rents go up to meet the mortgage payment
House prices go up to enable a sale (need a 60% increase)
Value of sterling increases against euro to enable me to make payments more easily.

I am fed up, especially as my AIB shares were once worth €30k and are now worth nothing, but being fed up is not going to sort this out.
 
Ervin said:
Accountant was looking for €500 to do the tax return. I had hoped that the liability would be less than that. To pay an accountant €500 and then pay the tax amount on top of that is way beyond my means.
Click to expand...

Now this is just burying your head in the sand. The accountant may save you money. For the receipts that are missing, check your bank account and you may be able to work out some of the expenses there.
 
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