Helping son buy house

Discussion in 'Wills, inheritances and gifts' started by DCD, Apr 16, 2018 at 11:29 PM.

  1. DCD

    DCD Frequent Poster

    Posts:
    251
    Son living in Dublin usual paying big rent. He has 100k in savings. Training and studying. Salary only 25k. Any way myself and wife could help him buy small house apartment without major tax implications. Only child so relucant to use up future limits.
     
  2. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    34,485
    Let's say he wants to spend €400k on an apartment.

    A lender might give him €100k.

    So he is short €200k.

    If you give him €200k , the bank will require that it be a gift rather than a loan. While there would be no tax implications of giving a gift of this amount to him, returning a gift could well involve a CAT payment.

    You could jointly buy the property with him. A bit messy.

    Or could you buy the property yourselves and let him stay in it?

    He could lend you the €100k.

    Or simplest of all, continue paying rent until he is ready to buy on his own.

    Brendan
     
  3. Thirsty

    Thirsty Frequent Poster

    Posts:
    1,713
    Just out of curiosity...

    Parents gift the €200k.

    Son rents out second bedroom in new apartment under rent a room scheme.

    Son gives parents monthly gift of €300 to help them out as he's a great young man.

    Tax implications?
     
  4. Gordon Gekko

    Gordon Gekko Frequent Poster

    Posts:
    2,711
    I’m aware of numerous instances where families tell the bank that a sum of money is a gift and then document (for tax purposes) that the money was under no circumstances a gift and that a particular declaration dated X was pure fantasy and for banking purposes only!
     
  5. DCD

    DCD Frequent Poster

    Posts:
    251
    Brendan if i was to gift son 200k does that not affect future threshold for inheritance of 310k? Are I miss understanding it all. Thanks.
     
  6. john luc

    john luc Frequent Poster

    Posts:
    213
    can the parents not lend him the money
     
  7. Vanessa

    Vanessa Frequent Poster

    Posts:
    156
    I believe that you have the right idea. The parents still have the option of using up the balance to 310000 as well as 3000 each gift annually but then everything else will be taxed at 33% if given in a will.
    He is an only child so it looks like they have a lot of assets to pass on.
    I think its times to speak with a good probate lawyer and accountant to plan how assets can be transferred both now and after parents death
     
  8. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    34,485
    Yes, it does. But deal with the issue now of helping your son buy the house.

    If you have the funds, lend him the entire amount and it won't affect his gift threshold.

    Brendan
     
  9. john luc

    john luc Frequent Poster

    Posts:
    213
    when you lend someone money like this situation are there benefit in kind issues regarding paying no interest. If this is so then the son could pay back interest and loan payment each year of €6000 to the parents. they can then each give €3000 to the son as a gift which does not effect his inheritance allowances.
     
  10. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    34,485
    Hi John

    Let's say the parents lend him €300k interest free. If each of the parents lends him €150k, then any BIK would be in or around €3,000 so it would not affect the CAT.

    Of course, he can avoid the CAT problem by paying interest, but then the parents will pay income tax on the interest received.

    Brendan
     
  11. DirectDevil

    DirectDevil Frequent Poster

    Posts:
    442
    Out of curiosity, why would banks require funds of €X from parents to son to be in the form of a gift as distinct from a loan ?

    Would there be some problem for a bank about getting a good or a prior charge over the property in the event of a default ?
     
  12. Gordon Gekko

    Gordon Gekko Frequent Poster

    Posts:
    2,711
    Last edited: Apr 21, 2018 at 8:05 AM
    The bank would have to factor in the loan repayment to the parent in the context of the borrower’s overall ability to service the mortgage. For a gift, that’s not the case.
     
    Last edited: Apr 21, 2018 at 8:05 AM
    DirectDevil likes this.
  13. Prittstick

    Prittstick Registered User

    Posts:
    30
    DirectDevil likes this.
  14. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    34,485
    Hi Pritt

    As that article is difficult to read, you might do a summary of the main points. I presume it's an Irish article? That was not obvious to me at a glance.

    Brendan
     
  15. Prittstick

    Prittstick Registered User

    Posts:
    30
    Brendan

    If you hit the 'Full Screen' symbol (second from right at bottom) its much easier to read.

    Yes, its Irish.

    Here,s the gist, I have pasted.---

    An alternative approach would be for the parent(s) to lend money to the child with a view to preserving the Group A threshold. On first principles, a loan is not a gift, and the same is true from a tax perspective on the basis that no beneficial entitlement to the capital sum (i.e. the loan amount) arises.

    Nonetheless, there are tax consequences which must be considered; the advancement constitutes “free use of property” per the Capital Acquisitions Taxes Act, and the resulting benefit must therefore be computed. However, rather helpfully, the basis for the calculation is the opportunity cost to the parent(s) of not having the relevant monies, and even more helpfully (for the foreseeable future), is the fact that the accepted proxy is the prevailing call deposit rate. Assuming a rate of 0.5% (which would be hard to find in today’s market), the ‘tax cost’ of a €100,000 advancement would be €500 per annum, which is more than covered by the Small Gift Exemption of €3,000.

    The position becomes even more interesting if (say) the lender decides periodically to write-off a portion of the loan. Consider a €100,000 advancement from parents to their son and daughter-in-law; the same annual tax cost of €500 arises, but the parents could, in theory, write-off
    circa €11,500 of the outstanding loan on an annual basis, thus amortising it over circa nine years. In such circumstances, the next generation’s capital requirement is satisfied, but the tax-free thresholds remain intact
     
    DirectDevil likes this.
  16. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    34,485
    Just to explain where this comes from.

    The father can give his son and his DIL €3,000 each.
    The mother can give her son and her DIL €3,000 each
    That is €12,000
    Less the €500 interest waived.
    €11,500

    Brendan
     
  17. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    34,485
    Is this written down anywhere?

    It means that a father could lend his son €600,000 interest-free and the son would be subject to a charge of €3,000 a year for "free use of property".

    Brendan