Buy, borrow, die; can it be done in Ireland?

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mustang01

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Thought this was an interesting article re how the US rich avoid tax, basically by using their investments as collateral for borrowing.
Know our tax code is v different, but why don’t Irish banks allow us to borrow against assets in this way?
 
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They do. This is pretty much what is going on when people (re)mortgage their home to fund their lifestyle in retirement.

The thing is that, in order to do this, you have to have assets that you can mortgage. For most Irish people who have any amount of assets, most of their assets are represented by their house. That's why a reverse mortgage is the commonest example of this technique that you see in practice in Ireland.

If you do have a fortune in shares, can you pledge those and borrow agains them? Yes, you can. But banks will lend you much less against your shares than they will against a house of similar value. There are a couple of reasons for this:
  • How are you going to repay the loan? If you're borrowing to fund your lifestyle, you're not acquiring assets that will generate income, or that can be sold, to repay the loan; the loan is going to be repaid, sooner or later, by the sale of the assets. And of course when you do that you'll have a CGT liability. (Or, if it''s your heirs, they'll have inherited the assets subject to a CAT liablity.) So that works to limit the loan-to-value ratio they will consider.
  • On top of that, equities are much more volatile than property. The circumstances in which they are most likely to enforce their security are much more likely to arise at a time when equities are low than when they are high so they reckon that, when push comes to shove, a lot of the value that you have in your equities at the time you draw the loan won't be there at they time they enforce their security
So, between those two factors, the loan-to-value ratio they will offer you is very conservative.

Finally, they have to really like you as a customer to do this for you. In general they are much more comfortable lending for investment or to fund business than they are lending to fund your extravagant and debauched lifestyle. If you're the owner of a large commercial enterprise that puts lots of business their way they are much more likely to smile on this. If your only relationship with them is that you want to mortgage your house to buy more champagne, well, you're not their dream customer.
 
I suppose I wondered whether the loan-to-income rules throttles it, especially if the only asset you’re allowed to borrow against is property. Seems very restrictive!
 
SFAIK the Central Bank loan-to-income rules only apply to homeloans — i.e. loans for the purpose of funding the buying, building or developing of a house.

They don't apply to loans that you take out to fund your lifestyle. The banks will have their own rules about giving out those loans because, obviously, they need reassurance that you will be able to repay when the time comes. But if the repayment is going to be funded by the sale of an asset then they don;t care about your income; just about the value of the asset.
 
The regulatory weights applied (Pillar 1) to the lending might make this so expensive as to be unattractive.

What occurs in the US is to my knowledge more a peculiarity of their tax system.
 
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