Buying a house below market value (not a family member) Problems and Benefits?

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Mink_uss

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Hello, we are in the fortunate position of being offered the opportunity to purchase our first home below market rate from a friend of a friend. They just happen to be very considerate people and see it as being way over valued due to the housing crisis! They did have it valued and its being offered to us, off market for about 35-40% below perceived market value. We are not related in anyway.

What problems can this cause? Does it affect stamp duty? Is there any tax implications?

Or also what benefits, other than price can this cause? Does it give you more negotiating power with the banks due to a better loan to value rate,or does that not apply for first time buyers?We would still be getting a 90% mortgage on the agreed price.

Any advise would be welcome,as I'm sure it is a relatively unusual situation and finding info on the net is near on impossible.
 
The difference between the market value and the actual sale price will be considered as a gift and there may well be Capital AcquisitionTax (CAT) or Gift tax due - that will depend on the discount offered and any prior gifts or inheritences from un-related third parties since 1992

CAT is charged at 33% on the value of the gift after deducting a tax free amount of € 16,500
 
Won't the seller be assessable for CGT based on the fair market value rather than the discounted selling price unless it's CGT exempt (e.g. their PPR)?
 
For the purchaser I presume the gap between market and recorded price is treated as a gift and is eligible for CAT. Group C threshold for unrelated persons is €16,250 per person. After that it's taxed at 33%.

Assume house is worth €300k and you pay €200k. The "gift" is €100k or €50k each, take away €16,250 and €33,750 each is taxable at 33%.

Maybe it can be treated as a "gift" from each spouse to each spouse. So husband A is gifting €25k to husband B and €25k to wife B, and wife A is gifting €25k to husband B and €25k to wife B. Maybe someone else can advise.

Mink_uss said:
Does it give you more negotiating power with the banks due to a better loan to value rate,or does that not apply for first time buyers?We would still be getting a 90% mortgage on the agreed price.
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I doubt it gives you more negotiating power. For the valuation I don't doubt bank will be concerned as they will have a charge over a house worth a lot more than the mortgage, they are usually worried about the opposite case.
 
What is the value of the house?
What price are you paying?

There is wide variability in the prices of houses and the value of houses.

Unless it's an apartment in a block of identical apartments, can someone really say that the market value is €300k and not the €200k paid?

While the above answers are correct, I am not convinced that Revenue would be that interested unless they suspected some form of tax evasion e.g. They sold it to you for €200k on the books and €50k under the counter to avoid CGT and lower stamp duty.

What is the value for Local Property Tax?

Brendan
 
Brendan Burgess said:
While the above answers are correct, I am not convinced that Revenue would be that interested unless they suspected some form of tax evasion e.g. They sold it to you for €200k on the books and €50k under the counter to avoid CGT and lower stamp duty.
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I agree. It frankly doesn't sound like a gift. And as the parties aren't connected, there's no inherent need to apply market value.

Revenue might well look at it for signs of tax evasion but once there's nothing funny going on, happy days for the OP.
 
Hi Brendan,

I take your point but aren't there two questions here?

1. What is the correct level of tax to pay?

2. Will the Revenue be "bothered"?

My sense is that 1 and 2 are not necessarily the same thing.

The follow-on question is that should AAM be advocating that people pay the correct tax?
 
Technically

The OP should get an independent valuer out to value the house. The valuer should come up with an exact figure. And taxes should be based on this. So if the property is worth €30k more than the OP is paying, he should fill in a CAT return and pay about €3k in CAT.

But valuation is not an exact science. Who is to say what the correct value is?

And contrary to public perception, Revenue does not chase every transaction to see if they can get a few euro in taxes from it.

Revenue has higher priorities and allocates its resources accordingly. And they are right to do it.

Brendan
 
JimmyB99 said:
should AAM be advocating that people pay the correct tax?
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Yes, they should. And we delete posts promoting tax evasion.

However, it's also practical. And the valuation of a house in this situation is a matter of opinion.

And if the OP had said that he was getting a reduction of €100k in the market price in exchange for €50k under the table, we would take a very different approach.

Brendan
 
Brendan

I think we'll have to agree to differ. In my opinion, this goes way beyond an opinion on the market value! Look at what OP actually said.

"We are in the fortunate position of being offered the opportunity to purchase our first home below market rate...............They just happen to be very considerate people.........They did have it valued and its being offered to us, off market for about 35-40% below perceived market value."

Surely, the correct thing from a tax point of view is to get a second valuation or something? To effectively assume that the professional valuation is over-stated by 50 to 60 per cent does not sit well with me.
 
T McGibney said:
No, how can it be a gift when it's a deal between strangers?
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You don't have to know someone well to give them a gift.

T McGibney said:
No different to any bargain sale when the owner needs to sell and there's only one bidder.
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It's not a firesale they are deliberately not seeking an open market sale and offering a material discount to market value.

I only assume the highest motives of people who ask questions on AAM but if I was Revenue I would query whether there was something going on here, such as an attempt to avoid CGT on the uplift with the purchaser making the refund to the vendor in cash.

Such scams were not unknown when stamp duty was 7%.
 
NoRegretsCoyote said:
if I was Revenue I would query whether there was something going on here, such as an attempt to avoid CGT on the uplift with the purchaser making the refund to the vendor in cash.
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Brendan Burgess said:
I am not convinced that Revenue would be that interested unless they suspected some form of tax evasion e.g. They sold it to you for €200k on the books and €50k under the counter to avoid CGT and lower stamp duty.
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NoRegretsCoyote said:
You don't have to know someone well to give them a gift.
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Do tell me how that works?

If someone buys property from a mug who doesn't realise its true worth, or who isn't interested in charging full whack for it, nobody would seriously call that a gift.
NoRegretsCoyote said:
It's not a firesale they are deliberately not seeking an open market sale and offering a material discount to market value.
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They're still not connected parties and as such there is no requirement to apply market values to the transaction.

And who really knows what it's worth? The vendor may well be hiding a fault of some sort that totally undermines the value being assumed by the purchaser, and they may actually be delighted to get rid of it at the offered price. Beware of Greeks bearing gifts as they say...
 
T McGibney said:
nobody would seriously call that a gift.
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Well the OP would:
Mink_uss said:
we are in the fortunate position of being offered the opportunity to purchase our first home below market rate from a friend of a friend. They just happen to be very considerate people and see it as being way over valued due to the housing crisis!
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T McGibney said:
And who really knows what it's worth?
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Well the vendor for one:
Mink_uss said:
They did have it valued and its being offered to us,
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Hello,

My brother alerted me to this message. Like the poster at the start, my wife and I bought a house from a wealthy family friend who offered us the house for well below what it was worth. This was in 2021 and we never declared this gift. TBH, it never really crossed our minds. Reading the messages on here now, we are worried that we should have paid gift tax. The problem is we just wouldn't have the money to pay the gift tax. We're really unsure what to do or what we could do. Any advise welcome.
 
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