House under market value - 1.5 Million

J

JSHESTON

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Hello! My husband and I have a query.There is a family home (his side) that has been empty for 2 years - formally his grandfathers home. It’s worth €1.5 million.
My husband’s aunt is desperate to keep this house in the family but understandably nobody could afford it. My husband and I are looking to buy a home - and his aunt is querying if we could purchase it under market value.
We have a mortgage approved for €800,000.
The house is valued at €1.5 million.

What are the tax implications?
How much would tax would we have to pay?
How much would his grandfathers late estate have to pay?

I really have no clue, there’s lots of figures online. Any help would be much appreciated!
 
This is very complicated, so each issue would need to be dealt with separately.

First, it is important to understand the grandfather's estate.

The grandfather died two years ago.
Who is the Executor of his will?
To whom did he leave his assets?
What was the total value of the assets?
Has probate been granted?

For example - is the house still in the estate or has his daughter, your husband's ex, inherited it and so now she owns it?

Brendan
 
Hi Brendan,

Thanks for the reply.
So there are 4 siblings, 3 of them wanted to sell the house and 1 of them didn’t (the aunt who wants to keep the house in the family)
She bought the siblings out - so she purchased the property and the other siblings will get their inheritance.

The rest of the inheritance I don’t know anything about.

So currently the house belongs to my husbands aunt. Now she was able to afford to buy it outright but doesn’t intend to keep it herself. She would like someone in the family to buy it. Nobody can afford it - but we have a mortgage for 800,000 - and we are wondering is it an option for us to buy it.

Thanks again for any help!
 
It still isn't clear what the position of the estate is - you say they "will" get their inheritence which seem sto imply that the estate has not yet been distributed.

If your husband's aunt wants to sell it to him at a discount to the market value, then, of course she can. The discount will be treated as a gift from his aunt to him and would be liable for CAT
 
Hi, sorry to clarify.
All the siblings have received their inheritance.
The aunt now fully owns the house.

Could you break down what we and she would have to pay - I am struggling to figure it out. As if it’s a large sum, we wouldn’t be able to proceed.
 
OK , the estate and its distribution history are no longer relevant.


Your aunt owns a house worth €1.5m.
She can sell it to you for €800k if she wishes.

You definitely need to take professional tax planning advice on this. I am not a tax expert, but this is my understanding of it...

You will be deemed to have received a gift of €700k - the market value less what you paid for it.
Roughly speaking, you will be liable for 33% CAT - Gift tax on this or €230k
 
Your aunt acquired a house which I presume is not her residence?

Therefore if it has increased in value since she acquired it, she will have to pay Capital Gains Tax.

So if she bought out her siblings at €1.2m, then the capital gain is €300k, so she would be liable for CGT of 33% or €100k
 
However...

As both the CGT and CAT arise from the same transaction, you would get a credit for any CGT she paid.

So your CAT bill of €230k would be reduced to €130k.

Brendan
 
An alternative would be for your aunt to sell you the house for its market value of €1.5m.

She can lend you the €700k interest-free.

However, you would be deemed to be receiving a gift of the interest on the €700k every year - about €14k of a gift, so maybe about €4k tax.

Brendan
 
My conclusion is that it could be done, but can you afford to own a house worth €1.5m?

If you are early in your career and expect salary growth, then you could stretch yourself.

Of if you expect to receive inheritances, you could stretch yourselves.

Brendan
 
If you literally can't afford it, and the aunt doesn't want to sell to a non family member, I wonder is there any suitable model where the aunt keeps some ownership?

It would make things messy e.g. who has access to house and right to live in it, decisions to sell in the future, getting mortgage approval, who funds spending money for improvements and maintenance etc.
 
@JSHESTON

Do you already own your own home?

Building on SPC's suggestion, you could rent your Aunt's house and let out you own home.

This is not very tax-efficient as you pay tax on your rental income and your aunt would pay tax on the rent you pay her while you get no significant credit for the rent you pay.

It's also a bit messy if you want to spend money refurbishing or decorating the house.

Brendan
 
Is there land included with the house that could be sold off to help fund/lower the market price of the house?
 
You should probably do the transaction at €1.5m, €800k cash plus €700k loan note.

The Group B and Group C thresholds will deal with €50k or so. Then write off €6k per year for the rest of your aunt’s life.

Then remortgage or fund the tax payment in some other way when the loan becomes an inheritance.
 
@JSHESTON

There is good advice in the thread on how to minimise the tax liability with such a transaction. If you do go ahead both you and and the aunt will need good-quality, separate legal advice as well.

The broader question is: why are you doing this? Sentimentality is a very bad reason to make a house purchase unless it's really where you want and ideally suited to your needs. Even still the needs of you and other family members will change and your aunt's favour will limit your room for manoeuvre in future, potentially for decades.
 
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