Mortgage and Inheritance Issue?

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Raskolnikov

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I have a complicated one, here it goes. . .

When my grandparents emmigrated back from the US, they were unable to get a mortgage on a house. Therefore, my father stepped in and got the mortgage in his name for £30,000, they did however pay him. Legally however, it was his name on the mortgage and the deeds.

Fast forward a couple of years, Granny Raskolnikov passed away. Since my father owned their home legally, the inheritance was a formality. The house was then rented out (disasterously I may add) for about a year before we decided that the hassle just wasn't worth it and we were going to sell up. After talking to a solictor (useless pleb), he informed us that on the sale of the house (valued at €150,000) that we're going to have to pay capital gains tax of 20% on the increase. So, we're looking at €20,000 or so falling into the hands of the exchequer. Given the fact that inflation has rocketed since 1991, €20,000 on a property that probably hasn't increased in value in real terms seems really punitive.

Can anything be done?
 
There are some concessions for an investor (your father) allowing a dependent relative to live in his property afaik.

The pity of it all is that if your father had put the house into his parents name years ago he wouldn't be in this situation now. He was entitled to inherit approx 470k tax free.

As for the time he rented it out to strangers there is definitely a tax liability.
 
liteweight said:
There are some concessions for an investor (your father) allowing a dependent relative to live in his property afaik.

The pity of it all is that if your father had put the house into his parents name years ago he wouldn't be in this situation now. He was entitled to inherit approx 470k tax free.
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Unfortunately, the house is the otherside of the country, there is absolutely no reason for anyone in the family to live there.

liteweight said:
As for the time he rented it out to strangers there is definitely a tax liability.
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It was all done on the QT, infact, we only recieved rental income for 7 of the 11 months that the house was occupied before the tenant scarpered with half the furnishings!

As you're probably thinking, the auld fella is a complete no-hoper when it comes to these financial wheelings and dealings :eek: At this stage we just want to get him out of this before he hurts himself again!

Is there a possibility that the property could be transferred over to the eldest son as a gift so we could then get shot of the place without getting fleeced for CGT?
 
Afraid not. As its not your father's PPR he has to pay CGT even if he gifts, sells it to one of his children. There is also the issue of stamp duty if he passes it on.

I don't think your father is a no hoper at all. He did a great thing for his parents, he looked after them just like you're trying to look after him!

You know what they say though....'no good deed goes unpunished!'
 
If he can prove the parents paid the mortgage he can explain how the house wasn't really his and he did inherite it. The formality already done may be an issue. I am no legal expert but there was something similar described on the radio about a year ago that sounds similar to me.

Basically a mother "bought" a house for her son and his wife but they paid all payments. When the son died the mother claimed the house was hers and went to kick out the daughter in law. The wife got the house by proving the deeds were only a formality in order to buy and that she paid all monies. It was ruled based on "fairness in law" as I understand it. If your father could do similar the taxman would be happy I would guess. THe taxman may even give you a ruling without going to a judge.
 
That sounds like it could very well be promising Mr. Sceptre. I shall give the boyos in the CGT office at Revenue a buzz and see if anything can be done.

Incase that falls through, I was told that it's possible to claim inflation relief on the capital gains tax up until 2002. Citation below.

[broken link removed]

Since the house was bought in 1990 and the bulk of the asset appreciation was inflationary (house was bought in Ballina for £30,000, valuation €150,000 at todays rate), surely this would make the CGT far more manageable? What does 12 years of inflation from 1990 to 2002 amount to?
 
It's not inflation as published, it's an idexation factor allowed by the revenue. For a property acquired in 1990 the factors depend on date of acquisition as follows

Jan 1 - Apr 5 1.503
Apr 6 - Dec 31 1.442
 
I actually tried this earlier and arrived at a figure of 20K. Since you had already arrived at this figure or were advised of it I assumed (incorrectly it now appears) that you were aware of indexation relief.

House bought in 1990 for 30K
Legal and Auctioneers fees 1
Total Cost 31K

indexation relief 44.2% See here Appendix 1 Pg 37

This means you can increase the 31K by 44.2% = 44.7K

Sale of house 150K
Less selling exps 5K
Total proceed 145K

Total Proceeds 145K
Less cost of purchase 44.7K
Total Gain 100.3K
Capital allowance 1.3K
Taxable gain 99.0K
Tax * 20% = 19.8K

(Hope this makes sense)
 
We actually (the Daddy anyway) got financial advice on this, the solictor didn't mention anything about being able to claim inflation relief. He even went as far as saying that we should be grateful that we were getting anything :eek: The only exemption he informed us of was €1,270K capital allowance.

Thanks for doing the sums on the approx costs of the operation asdfg, thought you made a mistake but you didn't.

The advice is really appreciated guys, it's amazing that what I've gotten for free here is far more than I ever got from paying a 'professional'.
 
Re the advice from Fill Spectre- its called a declaration of trust- i.e that your father held the property in trust for the real owners, his parents- think you should explore this fully before settling for CGT...
 
Some great news! Did a bit more digging and read up about something called the Principle Residence Rate. In a nutshell, this allows you to claim CGT relief based on the amount of time that a dependant (ie. grandparent) spent in the property. Gave the tax office a call and they confirmed this. The rate is calculated by getting the number of years that the dependant was in residence of the property over the no of years that we owned the property. We therefore owe 18.75% on the gain made by the sale of the property.

Happy days :)
 
Raskolnikov said:
Some great news! Did a bit more digging and read up about something called the Principle Residence Rate. In a nutshell, this allows you to claim CGT relief based on the amount of time that a dependant (ie. grandparent) spent in the property. Gave the tax office a call and they confirmed this. The rate is calculated by getting the number of years that the dependant was in residence of the property over the no of years that we owned the property. We therefore owe 18.75% on the gain made by the sale of the property.

Happy days :)
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That's what I was talking about above but I think you misunderstood and took it to mean that he'd have to send a family member to live in it now.

Glad everything worked out for your Dad. Happy days indeed!!
 
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