Question regarding swapping a house for a mortgage (clearance) repayment

I have a slightly usual query and I was wondering if anyone here could give me an indication of how legal something like this is and what taxes would apply to it.

My elderly mother has 2 houses, her PPR and a relations house she inherited 6 years ago. There is a mortgage outstanding on her PPR. She paid inheritance tax on the relatives house when it was passed to her.

What we are discussing doing is her 'gifting' the 2nd house (former relatives) to me and in return I will pay off her remaining mortgage amount in one lump sum. There are other factors at play hre that make this arrangement attractive to both of us but my query is on the legal and taxation side.

I called Revenue to query this plan and was transferred internally 6 times before being told to "write a letter and someone will come back to you in a couple of weeks"

Any thoughts/suggestions appreciated

Cheers

"What we are discussing doing is her 'gifting' the 2nd house (former relatives) to me and in return I will pay off her remaining mortgage amount in one lump sum."

I don't see what the problem is. It's pretty straightforward.

Buy the house from her. Either at full market value or for the amount of the outstanding mortgage. In each case, ( unless you are a first time buyer), you will pay stamp duty at half the normal rate, she will have a CGT liability ( which may not be too substantial as she acquired the house only 6 years ago) and, if a gift, you may have a CAT liability.

Now it may be that you are asking if its possible to avoid any tax at all - the answer to that is no. You may be able to, quite legitimately, reduce some liability but there will be tax due.

mf

cgt payable by reference to an event which gives rise to a charge of cat is available for credit against such cat, if on or after 6/4/88 gift tax or inheritance tax is charge on a property and the same event constitures a disposal for cgt purposes the cgt in so far as it has been paid shall be deducted from the net gift tax or inheritance tax as a credit against the same provided that the amounts deducted shall be equal to the lesser of the net gift or inheritance tax or cgt under FA 85 Section 63, FA 88 section 66 and CATCA section 104

where cat is chargable more then once in respect of the same property on the same event the net tax payable on an earlier event will be allowable as a credit tax on the later event FA 85 section 62 and CATCA s105

hope this helps you

Ants09 said:

cgt payable by reference to an event which gives rise to a charge of cat is available for credit against such cat, if on or after 6/4/88 gift tax or inheritance tax is charge on a property and the same event constitures a disposal for cgt purposes the cgt in so far as it has been paid shall be deducted from the net gift tax or inheritance tax as a credit against the same provided that the amounts deducted shall be equal to the lesser of the net gift or inheritance tax or cgt under FA 85 Section 63, FA 88 section 66 and CATCA section 104

where cat is chargable more then once in respect of the same property on the same event the net tax payable on an earlier event will be allowable as a credit tax on the later event FA 85 section 62 and CATCA s105

hope this helps you

Click to expand...

Ok, although no accountant I think I follow this

My mother paid €40k inheritance tax on the property after my relatives death. This was 2003 I believe when the house was valued independently at €245k, we have just had the house revalued at €250k.

Her outstanding mortgage on her PPR is €160k so that is the amount I will 'buy' the 2nd house from her for. If we go ahead with the plan she can use the 40k CAT previously paid as a credit against CGT that would be due now? I am a first time buyer myself but I do not plan to live in the house immediately, certainly not for another 5 years or so anyway. Will this have implications for me with regard to stamp duty that might be payable?

Also as an afterthought, as I don't plan on living in the property immediately (I have a rented home with my partner where we are very happy) will there be implications in terms of my mortgage?

Many thanks for the replies so far, very much appreciated

Three taxes.

CGT - unlikely as values very much the same.
CAT - unlikely unless you have received substantial gifts/inheritances in the past.
Stamp duty - if you don't intend to live there, you are an investor and will pay stamp duty on 250K @ 3.5% - total 4305.

Are you borrowing the money to buy the house? Then, yes, you need to tell your bank that it is an investment property.

mf

consanguinity relief under stamp duty sdca99 a transfer of property to your blood relative is charge at half the rate of stamp duty that would otherwise be apply.

Just a quick one on the Stamp Duty,

Under the provisions of Section 41, SDCA, 1999 where a debt/mortgage is being redeemed/assumed it can be put against the market value of the house to reduce Stamp Duty payable. In practice where a mortgage is being redeemed/assumed, duty will be liable on a consideration determined by the greater of either:

• The equity of redemption passing from the Transferor to the Transferee,
• The mortage debt being assumed plus any consideration paid.

The equity of redemption based on a market value of €250K with an outstanding mortgage of €160K is €90K (250K - €160K).



The mortgage debt being assumed by you - €160K + consideration paid (Nil) to the transferor.

This means stamp Duty will be due on the €160K which will significantly reduce liability.