Buying house with partner from my parents

I have read through the various posts on Askaboutmoney to try to find the answers to my questions and to see if there is any planning I can do to avoid or reduce stamp duty. This is the situation:

My partner and I are planning to buy my parent’s house for around €900k. Current value around €1.2m.

I am a first time buyer, he is not. He has 500,000 from the sale of his previous house.

Scenario no 1
This is my understanding of the stamp duty position:
- Because he is not a first time buyer, we lose my first time buyer’s exemption. (?)
- The stamp duty will be on the value of the house, and not the price I pay.

We will pay 875K@ 7% + 200k@9% = €79,250 (?)

I lose the benefit of being a first time buyer
I also lose the reduced rate of stamp duty for being a family member?

Because we are buying the house at a discount of €300k, he would be regarded as getting a gift from my parents of €150k and have to pay around €25k in gift tax (20% of 150k – 26k threshold).
Would this be the case if we were married? Would he then be considered part of my family, therefore this gift tax would not be applicable?

Scenario no 2
I can buy the house in my own name but with his name on the mortgage. He is also providing the deposit of €500k.
I will still not be regarded as a first time buyer as his name will be on the mortgage. (?)
But I will save half the stamp duty – or €40,000 (?)

He would not have to pay gift tax on the discount.

Does this work?
If he lends me the €500k, will I have to pay gift tax on it? Or will I have to pay gift tax on the notional interest on the loan? Is there some arrangement we can come to so that
I can use his money, perhaps a loan? Or in trust?

Scenario no 3
Same as plan no 2 but we get married first.
I assume that there would be no gift tax on his loan to me.
After I buy the house at the reduce rate of stamp duty, I can add his name to the deeds.



Scenario no 4
Do nothing. We live in the house anyway, so that won’t change.
When my parents die, I would get the house free of any stamp duty.
But my parents would like the money now. And also, I would be assuming that they don’t change their will before they die.




Thank you so much for any advice you can offer...as you can see, it's a complex problem that has left me muddled!

I'm neither a tax consultant ,an accountant or a solicitor. However, I seriously think that in a situation like this , you must get the best professional advise because as you say , it appears that depending on how it is done, it has various implications for tax and FTBS.That does not include the legal implications for you and your partner buying as single people. This is a huge transaction, do your parents have an accountant/solicitor?
Spend a couple of thousand, it will save you a fortune in the long run.
Best of luck!!

Quick hypothetical thought:
I wonder could a legal document be drawn up where your parents transfer ownership of the house to you and you owe them the €900k rather than getting a bank involved?
The €300k gift is below the threshold for gift tax.
Then when you do get married, as far as I understand, your hubby is free to contribute to the outstanding loan.
Could a good solicitor pull this one off whilst keeping everyones interests protected?

"Could a good solicitor pull this one off whilst keeping everyones interests protected?"

I love the idea that " a good solicitor" could "pull this one off whilst keeping everyones interests protected"!

There are a couple of issues - not least of which is the parents want the money now.
I have a general view - do it properly, do it clean. Much less likelihood of blood on the floor in months/years to come.

I reckon a combination of scenarios 2 and 3.

mf

Is your estimate of the value of the property based on a professional valuation. If not you will have to get a professional valuation for stamp duty purposes. It would be no harm letting the valuer know what value you would like them to put on the property as it could save you tax wise. Make sure a seperate value is put on contents as they are not subject to stamp duty.
If your partner is contributing towards the purchase price it will be very difficult for you to claim First time buyer relief or relationship relief for stamp duty.
Also for gift tax there is a small gift exemption of €3,000 per annum so if both your parents names are on the title deeds then your partner can receive a gift of €3,000 from each of them tax free in addition to the ordinary group threshold.

Hi dazza

If your partner is contributing towards the purchase price it will be very difficult for you to claim First time buyer relief or relationship relief for stamp duty.

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I don't think that there is any question of difficulty here, is there? If he contributes to the purchase price, she won't get first time buyer relief.

However, I don't think that such a contribution affects the relationship relief in any way?

Brendan

Hiya

I think you really need to go to a Solicitor/tax advisor but in the meantime here are a few things to consider:

* if you buy the house from your parents with your partner you will pay the full rate of stamp duty because he is not a first time buyer. stamp duty will be paid on the value of the house minus the value of the contents if they are included. if you buy it yourself you will not have to pay any stamp duty.

* the gift element of 300k. you and your partner should both be able to use the dwelling house exemption from CAT (gift/inheritance tax) based on the information that you've provided, if you are living in the house for the past 3 years and will continue living there for 6 years after the purchase. this would be ideal because this gift will not be aggregated with any other gifts/inheritances that you might receive in the future from your parents. so you would still have a clean slate to inherit up to €521,208 (2008 figure) free from CAT in the future.

* it is highly unlikely that a bank would give him a mortgage on a property where his interest is not noted on the deed.

* if he lends you 500k you will be liable to gift tax on the interest that you should be paying him. you can take the 3k small gifts exemption off the interest every year, and gift tax would be liable on the excess however you can take €26,060 (2008 figure for stranger in blood) from him in your lifetime before any tax will be payable.

* if you can, i would purchase the house from your parents (stamp duty free) using the 500k loan from partner. you could have a loan agreement in place behind the scenes to protect your partner. there should be no CAT payable using dwelling house exemption. your parents won't have to pay CGT if it's they're PPR. also the gift tax on the 500k loan should be minimal and would cease accruing on marriage.

* if you are intending to get married soon then you can later transfer the property into your joint names with no CGT, CAT or stamp duty implications between spouses.

hope that helps