Please Advise On Buying Parent's House

[opheliarose]

Hi,
I am looking for advice on what is the best possible way to buy my parents home ( I would be a first time buyer, looking for a 92% mortgage) while also securing a section 32 Retirement apartment for my mother.

The situation is that I am 33yrs old and self-employed earning potential 100k p.a. (returned to work in last 6 months), my mother is 70yrs old with early stages dementia, and will in the future need full time medical care. So this is the first step on the road to securing her medical and financial care.

The current value of my mother's house is about 300k, but it badly needs about 200k worth of work done on it as it is in a very bad state. Because of this and the fact that I gave up my job 4 yrs ago and returned home to look after my dad while he was ill and then my mom, she has agreed to sell the house to me for about 190k .The retirement apartment is 280k, so she would use the 190k plus 90k to buy the apartment. However since the apartment is section 32, would it not make better sense if I was to buy it for her and offset this against my yearly tax bill? 15% per annum over 7yrs. At the moment we are unsure how to go about this. I should also mention that when I buy and refurbish the house, I will need for the first 2-3yrs to rent it out to help pay the mortgage. Realistically, given that I am self-employed I may not be in a position to buy the house for a year to eighteen months until I have proof of earnings for 2yrs. If anyone knows if it is possible to do this sooner, please let me know.

Not to complicate matters, but we are also in the middle of selling part of the farm, for about 150k a) so that she can have a small nest egg in the bank b) to payoff an outstanding small debt on the land and c) to raise the 90k. My mother has a means tested non-contributory old age pension, so she is very anxious that she is not cut or hit with a high tax bill, hence the decision to hold onto the larger portion of the farm which is rented out. The estate i.e house and farm went through probate about 2yrs ago after my dad died.

Also in light of all this who is the best person to talk to solicitor, accountant? Thanks for your help!

 

[DrMoriarty]

Welcome to AAM, opheliarose. While I'm sure you'll get lots of good advice from other posters here, what you've described above sounds like the type of complex scenario on which I would certainly recommend that you get sound professional advice — from both a solicitor and an accountant. Either the one that dealt with your Dad's estate, or another, if you're so inclined.

Two obvious questions spring to my (untrained) eye —
(a) Are there any other siblings, and
(b) Have you already received any other reckonable 'gifts' from either of your parents? Because Revenue would certainly consider your mother selling you a €300K house for €190 as effectively a gift, and the question of how much of your allowance has been used up (i.e. the threshold for tax-free gifts from parent to child, currently [broken link removed]) could be a major consideration.

 

[opheliarose]

Thanks for responding to my post. I have one older sibling, who lives in the UK, we have discussed both the longterm plan for my mother's healthcare and the fact that I would be buying the house for 110k less than it is worth and she is happy with this arrangement.

As regards tax-free gifts, my dad gave my sister and I £6,500 each in 1999. That would have been the only gifts that we recieved. The house and farm, he left to my mum.

On a separate note would the fact that I gave up my job fulltime for almost 3yrs and returned to the family home to be their carer i.e. loss of earnings (could only work 3 months out of 12) not be taken into consideration by the revenue, as I was providing a service? Also paid for my Dad in nursing home for 6 weeks.

 

[DrMoriarty]

Thanks for the clarification, opheliarose — that will certainly help any of our more technically adept/qualified members to respond/offer appropriate advice.

On a separate note would the fact that I gave up my job fulltime for almost 3yrs and returned to the family home to be their carer i.e. loss of earnings (could only work 3 months out of 12) not be taken into consideration by the revenue, as I was providing a service? Also paid for my Dad in nursing home for 6 weeks.

Depending on whether you've claimed a carer's allowance (and if so, you must have had practically a 0% tax liability, in those three years?), I'd guess that yes, it will certainly be taken into consideration in Revenue's assessment of your overall tax position. But, as I said, I'm not an expert! Take on board whatever advice you get here, but ultimately you should engage the services of a good solicitor and tax accountant paid to act in your (and your mother's) best interests.

Good luck with all of that; I suspect that the last few years must have taken up a lot of your energies, and I think that you could probably do with handing some of the nitty-gritty financial matters over to (trusted) specialists. If they do their job right, they'll save you money in the longer term and take an immediate burden of worry off your shoulders...

P.S. One further, 'off-the-top-of my-head' reflection...

...we are also in the middle of selling part of the farm, for about 150k

Are you sure you're getting the best price you can for this? I only ask because I nowadays see 1/2-acre sites going for this or more, around Co. Limerick (10-20km from the city). At the risk of incurring the wrath-of-whoever, I'd venture that – whatever about lawyers and accountants – I would be doubly (triply, quintupally!) wary of anything an Estate Agent told me..!

 

[opheliarose]

No, I didn't claim a carer's allowance (lived off savings and 3 months work per year) as my parents are means tested with a non-contributory old age pension, I didn't look for it, it was not worth the bother or aggravation and would have them fretting unduly over their pensions. From a revenue point of view there is proof that I have been resident at their home for nearly four years in the capacity as full-time carer, a letter in realtion to my dad's healthcare from the public health nurse, and also other documentation on file with my mum's doctor/consultant about her medical care. Then, also utility bills in my name for the last 4yrs which gives their home as my place of address.

Thanks for the advice about selling part of the farm. The land that is going on the market is 12.5 acres of agricultural land. Last year we tried to see if we could get sites on it to sell, but as the land only has half of the required road frontage to get approval for access, that was a non-runner. So that is why we have decided to sell it as agricultural.
The estate agent is trustworthy,he is a former work colleague of my dad's (my dad worked in the building trade for 45yrs, as well as being a farmer) so I do trust his judgement. For example, when he came to do the initial valuation of the land I mentioned that we were also considering selling the larger holding, but he advised for us to hold onto it (though it is much better quality land and worth a lot more), thereby doing himself out of a larger comission. As that land is on a main road there may be the possibility of development in that area in 4-5 yrs time, though it is 6 miles outside of the main town, so I am not sure about this.
At the time, he viewed the 12.5 acres he valued the land at about 120K as it needed work done on it, i.e fencing, drainage, new pump for well and strimming, then he would come back out and revalue it, he believed this work would cost about 3-10K and bring the value of the land to over 150K. We spent 3K on fencing, new pump and strimming, the drainage worked out to be too costly and would also dirty the land, as the drain runs for the entire length of the land. I have to get back in contact with him this week, to come back and look at the work that has been done, so fingers crossed it will get the 150K valuation. Another obstacle hindering the price, is location, though the land is fairly good agricultural land and 5 miles outside of a very thriving midlands town, it is a bit backward in that it is not on a main road, but on a smaller road off this and he did mention that would affect the price. Having said that I am keeping an eye on other land in the area to see what is the asking price and sale agreed price, there is a smaller acreage that has just come up about 4miles away for 200K only 10acres with absolutely, no road frontage, either off a major or minor road so I am going to mention this to him. Also this land is located on the side of a hill, so I would not have thought that from an agricultural point-of-view that the land would be very good quality, or that it would be a runner for sites as it has no road access?

The land that we are selling has been rented out to the same tenant for the last 5yrs, his land borders ours and to say he is disgruntled would be an understatement. After my dad died we decided not to rent the land to him as we thought probate would only take 6months and we would sell the land in early summer, so for it to look it's best we did not want any cattle grazing it, but unfortunately probate took over 18months. Meanwhile the land sat unoccupied and in August, realising that everything was still in probate we let a different tenant take it for 4 months, just to get rid of the grass. Roll on the next year, and we let the old tenant back on the land for 7months, though I was very reluctant to ( said tenant sent a different estate agent to our house 2 months after my dad died to see if we would sell the land or the larger holding, he was politely but firmly told that it was not for sale). My mother decided to let him rent again last year, as she did not want to look for another tenant, despite my best efforts to persaude her otherwise. The old tenant had rented the 12.5 acres at the same price for 5yrs, 635 Euros for 5months, each year he overstayed by 2months but because he was a neighbour my dad said nothing. Anyhow last year I told the tenant that the rent was going up by 200 Euros ( I checked with our estate agent and he told me we should be getting about 1200 Euros for it) the tenant blew his top and refused to pay this measly increase, saying he had done fencing on the land ( I checked this he had not) my mum let him graze the land anyway. At the beginning of this year I told him that the land was going on the market, he firstly tried to get my mum to agree to renting the land to him for 5yrs for 635 Euros a year, by telling her that he would pay 52.91Euros into her bank account each month, for 5yrs. What a joke! I told him no, and that the land was not being rented to him this year, he then wanted to rent it anyway saying it would look better for the sale with cattle on it. Thank God, my mum was persuaded not to let him have it.

Sorry for the prose essay, my main concern now is that our estate agent thinks he main be the only contender for the land given it's location though I am hoping that farmer's who have sold their land on the outskirts of town for development, might be interested or an investor. Unfortunately this disgruntled tenant with his bully boy tactics, may be able to cause problems for us as their is a right of way onto our land for water (his land borders ours), though I do not think this has been used since 1986, so there is a 20yr lapse and our well has not been used. The family solicitor did say he thought this might be a problem, but he thought it should be ok.

Anyway the fun will begin when the for sale sign goes up, as disgruntled tenant has tried to wheedle the price out of me but I told him that he is to talk figures with the estate agent, (who is aware of this difficult individual's reputation) who will come back to us and then we will decide. Also to let him know that I will stand for no more bullying, I told him that the sale of the land is a business transction and not personal, and also that the land will go to the highest bidder. Needless to say he is not a happy bunny. A few weeks ago when I went down with the guy who is going to do the fencing, said tenant on his quad bike went into his forested plantation to get the best vantage point so that he could listen in our conversation. Anyhow in light of the fact that my dad bought this land when he was 24, I am determined in his memory as a gentle, honest,upright and honourable man to do him justice. For the moment their ends my family's version of John B. Keane's, The Field. I apologize in advance of you have either a headache or earache from this posting.

 

[DrMoriarty]

No need to apologise, opheliarose — it sounds like you've had a few headaches of your own there!

It sounds like you're happy enough to trust the family solicitor's and your EA's advice regarding the land, and I've certainly no experience or expertise that would enable me to offer an alternative view. I'm glad to hear that you're holding firm in the face of the former tenant's tactics, though.

Coming back to the revenue position — it certainly sounds like the effective 'gift' you'd be receiving by virtue of your mother selling you the house at €110K less than its market value will fall well beneath the parent-child tax-free threshold. It may even be in your mutual best interests for her to gift you (and your sister) more, rather than leave you a big inheritance at some (hopefully distant) point in the future...

I don't know the first thing about section 32 retirement properties (actually, never heard of 'em!), so I can only repeat my advice about engaging a good tax consultant to assess your overall position and advise you on the best way forward. You should also consider contacting Welfare in relation to the unclaimed Carer's allowance — you may be able to claim some of it retrosectively, and I'm not sure that it would necessarily affect your mother's State pension, since (afaik) that's means-tested on the basis of her own means, and if you were only working 3/12 months (earning +€25K p.a.?), that would be unlikely to affect her pension entitlement substantially...

But now I'm speaking of matters of which I knoweth very little...
Get thee to a good tax consultant and, again, good luck with it all!