Helping out older child -Marriage Breakdown.

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deco87

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My Parents have purchased a house for my sister.
My sister marriage has broken down. Forced Family
Home sale to satisfy her husband.
Too old to get new mortgage and start again (one kid -17)

Divorce agreed and will be completed this year.

The bones of the original plan was my sister gave parents 30k
towards the purchase. An agreement was reached that on completion
of the house sale my sister would give back 70k to parents from house sale
- so totaling
100k.

House cost 300k - Parents financed this from their savings.

Idea being sister would co ownership with parents the house e.g.
one third hers and two thirds parents.

Now after house purchase and sister living their with son rent free
(which parents wished to happen) issues as regards tax liability are concerning.

Specifically , returning the 70k , appears this may incur a liability for parents which
is very problematic , as this was not foreseen.

Issues as regards , sister living rent free , is also causing issues as regards a tax (gift)
liability for sister. Small gift tax exemption , may nullify this liability.

My sister is very anxious to return the 70 k to the parents urgently as they used all their savings and more to buy the house for her which was a kind and generous thing to do however it seems to be quickly turning into a possible tax nightmare situation.

Can anyone advise in a general way , what is the most tax efficient way of my sister repaying parents without attracting a penalty , using whatever tax efficient means that are available.

Parents also looked at is a inheritance , brought forward , as it was needed in their view now rather than later.

any thoughts appreciated
 
Firstly, I would document all of the agreements along the way, if not already done.

From you email its not currently clear if the house was only in your parents name. Or how long this process has been going on, or how long she has been living there?

From my read of the situation above:

Really, I see that the house purchase of €300k should be seen as funded 3 ways, €100k each from your sister, and each of your parents, with your parents loaning 70k to your sister to buy her share. It seems from above she put with 30k of her own funds? And she intends to repay the €70k. If the title does not reflect the fact that your sister gave 30k or the 70k as a consideration for a share of the house, this should be corrected.

For the 70k loan the tax liability is technically on your sister, and is just on the interest foregone by your parents for the interest that €70k would have earned on deposit (assuming they are not charging interest). this would be be very minor given low interest rates, and I don't believe is generally declared in practice. If you parents do charge interest on the €70k, then they technically need to declare that as income.

Your parents can each gift your sister €320k (rate increase 10 October 2018) without attracting a CAT liability. So they can each gift their share of the house to your sister if they wish.

If they do that now, before any gain in house value, then they will not have a capital gain, and therefore no CGT. If they will it, then any CGT will disappear. But if they wait say 5 years and want to transfer whilst still living and house prices have gone up, then there would be a CGT liability.

I dont really know anything about divorce, but I would make doubly sure that it is out of reach of the ex husband.
 
Many thanks , for that very detailed reply. No issue with her ex husband. He is happy with 50% of the house , she had it for years before they met. He is sitting pretty, and happy. House only bought within last two months , its in the parents name presently , but in the process of the title being legally transferred to show her 100k , share . Very interesting reply. Thank you
 
There is a small gift exemption where you can gift anybody 3000 per annum tax free. So your sister could receive 3000 every year from your mother and another 3000 from your dad. So really they could gift her 6000 free rent every year. This doesn’t even eat in to your overall threshold between parent and child. So that should cover free rent.
The other question is what’s your parents long term plans in relation to what they are going to do with all their money. If they were going to divide all up equally maybe she could get her share now in the form of a gift.
Even if the 70000 was a loan, they could call it a gift and she could repay them 3000 each back per year in form of another gift.
 
Hi @deco87

This is a bit complex, when taken together with your own question recently about gifting money to your parents, and shows how having loans should be more effective than giving out right gifts in these situations.

You're obviously all helping each other out, which is admirable, so there's no point leaving your parents with a tax liability.

If I understand it, your parents loaned 70k to your sister. She now wants to repay that loan. Doesn't sound like an issue?

Or if the house is solely in your parents name, she is buying her 1/3 share? Again, doesn't sound like an issue?

I really think this is a situation where an hour with an accountant would be money well spent.

Best of luck with it.
 
RedOnion said:
Hi @deco87

This is a bit complex, when taken together with your own question recently about gifting money to your parents, and shows how having loans should be more effective than giving out right gifts in these situations.

You're obviously all helping each other out, which is admirable, so there's no point leaving your parents with a tax liability.

If I understand it, your parents loaned 70k to your sister. She now wants to repay that loan. Doesn't sound like an issue?

Or if the house is solely in your parents name, she is buying her 1/3 share? Again, doesn't sound like an issue?

I really think this is a situation where an hour with an accountant would be money well spent.

Best of luck with it.
Click to expand...
If you are buying from your parents they may have a capital gains liability. Better to pay them back the loan over a number of years.
 
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