3 way property transaction involving daughter

Discussion in 'Mortgages and buying and selling homes' started by onekeano, Jul 16, 2017 at 5:33 PM.

  1. onekeano

    onekeano Frequent Poster

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    A few years ago my daughter and her boyfriend wanted to move in together but rent prices (even at that time) were prohibitive. Rather than have them waste money on rent, and as my daughter had inherited some money I offered to buy a house with her and basically they could pay the mortgage.

    Recently, they decided that they wanted to buy me out and we are all agreed on price / her equity and so on. They have approached the same bank and were initially this should be no problem. I thought that th process would be that we would have 2 sets of solicitors a) one for myself and my daughter and b) one for herself and her boyfriend.

    However, recently she was told:

    "In essence you can’t sell a home that’s already in your name and buy it back in your name again. In order to remove your Dad from the Mortgage we would do a product amendment form and put the Mortgage in yourself and your boyfriends name. We would then do an Equity release Mortgage in order to raise the funds to pay your Dad the agreed amount in order for him to remove his interest off the property." - sounds fine to me

    and subsequently....

    "You wouldn’t be ‘buying’ it as such as you already own it. If your Dads share is €xxxk, then that would be the proposed equity release in order to remove your Dad from the property. Any right of future residence by your dad would also need to be waived." -
    no problem with this


    "You will definitely need a solicitor but you also need to be aware of any Capital Acquisitions Tax that may become liable on your boyfriends side as he in effect is receiving an asset, i.e the house."
    I don't understand this because with myself taking my share from the property they will be increasing the existing mortgage from say 35% LTV to 75% LTV which they will be jointly responsible for so I am not giving her boyfriend anything.

    I'm kind of at a loss where to go with this and between our 3 way discussions and then her comms with the bank it seems to be just dragging on interminably so I would like to trying to get the transaction concluded as soon as possible.

    Any advice would be much appreciated,

    Roy
     
  2. Brendan Burgess

    Brendan Burgess Founder

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    31,818
    I am not a tax specialist, but this is my understanding of the transaction.

    Forget the mortgage for the moment.

    A, B & C buy a house together for €300k.

    Some years later, when it's worth €600k, A& B buy out C, paying €200k for his share.

    C pays CGT on his gain of €100k.
    There is no CAT as there is no sale at below market value.

    If C sells his share for €100k to A& B...

    C will still pay CGT of 33% on the profit on the sale.
    A and B will subject to CAT for the gift of €50k each.

    However, B can claim a relief for the CGT paid by A. So, in effect, he would pay no CAT.


    Brendan
     
  3. Joe_90

    Joe_90 Frequent Poster

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    You will have to give some numbers.

    Initially you and your daughter bought a house together for €200k she put up €50k and you and you daughter got a mortgage for €150k and each of you own 50% of the property. Your daughter and her boyfriend lived in the house and paid down the mortgage. Part being the payment of her mortgage and then rent of your 50% interest.

    So after 10 years the mortgage stands at €70k and the price of the house is say €200k. So they have agreed that as a 50% owner you should get €100k less half the mortgage (€35k) and half the deposit (€25k) €40k? This is the amount of Capital paid off the mortgage that you would have paid income tax on over the years.

    Now the position is that they are putting the property into joint names 50:50, Your daughter already owns 50% so in effect her partner should pay €100k for their share, if they acquire a 50% interest in the property for less than that then there is a gift.

    It may be the case that she owns 75% and he owns 25% which would avoid the initial gift which could be dealt with post marriage!
     
  4. Brendan Burgess

    Brendan Burgess Founder

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    31,818
    Ah, I had missed the point that the father and daughter bought the house together.

    That probably makes it easier.

    The father will be subject to CGT on the increase in value of the property.

    The daughter will be subject to CAT, but will probably be well within the threshold.

    The boyfriend should buy his share in the house at full value.

    Brendan
     
  5. Foobar

    Foobar Registered User

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    Last edited: Jul 17, 2017 at 1:42 AM
    Are you sure about that? You can get a credit for CGT paid by someone else?
    On the Revenue site, it says:
    http://www.revenue.ie/en/gains-gifts-and-inheritance/credits-you-can-claim-against-cat/credit-for-capital-gains-tax-cgt.aspx


    I
    t reads as though the same person must be liable for both the CGT and CAT
     
    Last edited: Jul 17, 2017 at 1:42 AM
  6. Gordon Gekko

    Gordon Gekko Frequent Poster

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    Hi Foobar,

    That wouldn't make sense; a person couldn't be liable for CAT in relation to something they themselves are disposing of.

    Credit is generally available for CGT paid by X against CAT payable by Y in respect of the same property and the same event, subject to certain conditions (e.g. two year retention period for a gift).

    Gordon
     
  7. onekeano

    onekeano Frequent Poster

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    907
    Going back to my original posting (and forgetting about the tax side of things for the moment) can anyone please confirm if this statement from the bank is correct?

    "In essence you can’t sell a home that’s already in your name and buy it back in your name again. In order to remove your Dad from the Mortgage we would do a product amendment form and put the Mortgage in yourself and your boyfriends name. We would then do an Equity release Mortgage in order to raise the funds to pay your Dad the agreed amount in order for him to remove his interest off the property."

    I would have thought there were 2 entities here 1) myself and my daughter and 2) my daughter and her boyfriend. Surely 1 entity can sell a property to another entity @ market value* - is this somehow illegal? I would have thought this kind of thing happens all of the time where people are bought out of companies / business etc etc (probably properties too)?

    Roy

    * we agreed a price based on the average of 3 quotes from very reputable estate agents

     
  8. Joe_90

    Joe_90 Frequent Poster

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    No in law you and your daughter are not a separate legal entity you own 50% she owns 50%, she can't buy 50% from herself.

    So she has 50% and the question is who is buying the other 50% is it her boyfriend? or is it her buying 25% and him buying 25%.
     
  9. onekeano

    onekeano Frequent Poster

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    So Joe, the funding for the initial purchase was not 50/50 - more like 70/30 so is it just a case of them buying out my 70%?

    I suspect that while somewhat unusual this situation is not unique - who is best placed to advise on this? Is it the bank / mortgage advisor / a solicitor / a tax adviser?

    Roy
     
  10. Joe_90

    Joe_90 Frequent Poster

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    A Solicitor is required.

    Unless the initial purchase deed was split 70:30 then the maximum that they can buy is 50% you put in more at the start but thats different, it means that you don't owe 50% of the loan.
     
  11. onekeano

    onekeano Frequent Poster

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    Last edited: Jul 18, 2017 at 11:32 AM
    Hi Joe, thanks for your help with this.

    Roy
     
    Last edited: Jul 18, 2017 at 11:32 AM