My parents are in a position to buy the home in cash
Brendan is right (on this one!).
Many of the other posters seem to have misunderstood the position.
So they are in a position to lend the full cash price.
That is what they should do.
It makes complete sense that parents lend €400k until the house is sold and they are paid back. But underwriters will look at worst case scenario. Brother has €100k mortgage on existing home, loan of €400k from parents and mortgage of €400k on new home. He doesn't sell the old home and parents are looking for their €400k back. What was supposed to be a debt of €400k is now €900k.
How would this approach work if parents buy the property in cash?
I agree that the underwriters are correct in this approach. If they are to go down this route I would imaging that the loan would need to be documented at a non refundable gift as per RedOnions suggestion
I'm pretty sure there would be some CAT implications. The CAT rules include provision for acquiring a temporary benefit like this -- maybe not enormous but definitely there.What if your parents take legal ownership of the original property, with your brother remaining as the beneficial owner? Your brother receives €500k from your parents; it appears as if he’s sold the original property. But because there’s no change of beneficial ownership, no stamp duty arises. Your brother then has €500k from the “sale” to complete the purchase of the second property. The first property is then sold and your parents are repaid.
I'm pretty sure there would be some CAT implications. The CAT rules include provision for acquiring a temporary benefit like this -- maybe not enormous but definitely there.
If I'm reading it right, the beneficial interest would incur a hit of 6.54% for the first year (less if held for a shorter time). That would be over €32k on €500k. It's well within the Group A inheritance threshold, but would count against future inheritance.CAT would not be relevant, other than in relation to the free use of property aspect of the €500k. However, the value of that would be tiny, at most €5,000 a year, and therefore well covered by the Small Gift Exemptions of €6,000.
If I'm reading it right, the beneficial interest would incur a hit of 6.54% for the first year (less if held for a shorter time). That would be over €32k on €500k. It's well within the Group A inheritance threshold, but would count against future inheritance.
Relevant links -- see the Revenue info (esp. example 3) [broken link removed], and Table B of Schedule 1, Capital Acquisitions Tax Consolidation Act, 2003, here.
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