Inherited property - best course of action?

[rogeroleary]

With 2 siblings I inherited my mothers house last year and put it up for sale but no movement so far. We're now looking to rent the house and there is lots of demand thankfully - expected rent is 2.5k per month.

There is no mortage on the house so from a tax perspective it looks like there would be tax due of 14k p.a. on rental income (41% + PRSI) between the 3 of us. One way to reduce the tax liability would be for 1 party to be bought out by way of a mortgage and the interest could be offset against the income.

Are there any other methods for reducing the tax liability? eg. could we raise a pension mortgage for most of the value of the house and have the rent pay off the mortgage?

Any suggestions would be much appreiciated.

Roger

 

[Brendan Burgess]

You get tax relief on borrowings used to buy or improve a property.

If you buy part of a property from your sister, you will get tax relief on the interest.

If you remortgage the property, the purpose is not to buy the property, so you will not get tax relief on it.

If you are planning to sell it anyway, it would not be a good idea now for one sibling to buy out the other. There will be legal costs and maybe stamp duty.

Brendan

 

[rogeroleary]

You get tax relief on borrowings used to buy or improve a property.

If you buy part of a property from your sister, you will get tax relief on the interest.

If you remortgage the property, the purpose is not to buy the property, so you will not get tax relief on it.

If you are planning to sell it anyway, it would not be a good idea now for one sibling to buy out the other. There will be legal costs and maybe stamp duty.

Brendan

Thanks Brendan, I was aware of the points you made above. I guess what I was looking for was suggestions as to how to make the rental income work as tax efficiently as possible?

Roger

 

[Purple]

Have you considered buying a small Section 23 property between you? Then you should pay no tax on the rent.

 

[gonk]

Have you considered buying a small Section 23 property between you? Then you should pay no tax on the rent.

The price of S.23 properties is inflated to reflect the tax relief attaching to them. In spite of their popularity, I'm firmly of the view that the supposed tax advantage is largely illusory, all the more so when we are seeing a significant slow down in the Irish property market.

 

[Purple]

The price of S.23 properties is inflated to reflect the tax relief attaching to them. In spite of their popularity, I'm firmly of the view that the supposed tax advantage is largely illusory, all the more so when we are seeing a significant slow down in the Irish property market.

My answer to that might involve breaking the posting guidelines
How about; yields are up and should stay that way and as the S23 allowance is calculated on initial sale price a fluctuation in the second hand price of said S23 may be helpful. There is loads of second hand S23's out there that are less than 10 years old.

 

[gonk]

My answer to that might involve breaking the posting guidelines
How about; yields are up and should stay that way and as the S23 allowance is calculated on initial sale price a fluctuation in the second hand price of said S23 may be helpful. There is loads of second hand S23's out there that are less than 10 years old.

Well, I'm of the view that yields are up largely because interest rates are up. Unless Roger and his family are in a position to buy for cash, the higher rental yields are of no nett benefit, although they do of course make a big difference with the inherited property.

There are loads of 2nd hand S.23 properties out there, which tells you something about the state of the market. A lot of these properties were built in areas with poor prospects for capital appreciation compared with bigger urban centres and with equally poor rental markets. No wonder their owners want rid of them.

Anyone looking at an S.23 property should ask themselves would they buy it without the tax allowances. If it doesn't stack up in terms of location, rental market, etc. the tax relief will not be enough to offset that. Any S.23 properties which are well located in these terms will largely have the tax relief built into the price.