Selling house for under market value

R

rev87

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May seem like a stupid question! But can someone sell their house for under the market value?

Basically we've been living in my fiance's grandmother's house for the last 3 years, she now wants us to buy the house from her(she will still live there).

The house was valued at 360k but she won't accept anymore than 200k from us! Even getting her to consider 200k was a battle!
 
Not an expert on this - but I'd be fairly sure that if the Revenue establish that you've bought the house significantly under it's value that they'll want to apply 'gift tax' to the transaction.

Not a reason for not doing it - just need to establish if I'm correct and how much the tax may amoumt to, in order to build in to your figures.

Regards,


BM
 
Depending on whether you have inherited before (or received gifts) you will have some tax free allowance. Above that, you will have to pay gift tax at 20% on the difference between the market value (as valued by auctioneer/valuer) and the price, (360 - 200) ..20% of 160 (360 - 200).

Also will have to pay stamp duty on the full market value, though that will be at half rate as you are buying from a relative. Check out revenue.ie.

Ask a solicitor about the possibility of "favourite nephew/niece" allowance (where you will be treated as a child (rather than nephew/niece) for tax purposes - greater tax free threshold.
 
mu66 said:
Also will have to pay stamp duty on the full market value, though that will be at half rate as you are buying from a relative. Check out revenue.ie.
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Even though i'm a first time buyer?
 
Yes, you are probably right - first time buyers should be exempt from paying stamp duty ..... (have never been one myself!) :cool:
 
Hiya,

i'm assuming that you are both first time buyers and therefore no stamp duty will be payable. if either of you are not FTB then you will both lose the stamp duty exemption.

the house will be sold to you as full market value of 360k, with 200k consideration and 160k gift from your fiance's grandmother. it may be possible to use the dwellinghouse exemption from capital acquistions tax (gift/inheritance tax) if it is the case that neither of you have any other interest in any property, you have lived there for 3 years and intend to continue living there for another 6 years. it is also required that the reason that you are living with her for the last 3 years is because she is old or infirm (new restriction introducted by finance act 2007). if you use this exemption there will be no gift tax at all on the 160k and it will not be aggregated with future gifts or inheritances.

if this exemption is not open to you - then you will both be taking a gift of 160k from her. your fiance can take approx 52k from her without gift tax and you can take approx 26k from her without gift tax, anything over that amount is taxed at 20%.

an option worth considering would be to give her grandmother a right of residence over the property for her lifetime. this would reduce the value of the house and it would protect her grandmother.

hope that helps
 
Speak to your solicitor about the vendor's right of residence in the property and how that will be structured. If a lender is aware of this, they may take a view. Example - You two take the mortgage...default on repayments...lender moves to repossess the house...runs into difficulty because granny has right of residence and cannot be evicted.
 
Are you 100% sure its market value is 360k. you could argue that it wouldn't fare to well in the current market and that would see the sale price/market value ratio decrease. This is an opportunity to get on the ladder comfortably so look at every avenue to keep your outlays to a minimum.
 
MrMan said:
Are you 100% sure its market value is 360k. you could argue that it wouldn't fare to well in the current market and that would see the sale price/market value ratio decrease. This is an opportunity to get on the ladder comfortably so look at every avenue to keep your outlays to a minimum.
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I have an estate agent coming out to value the house tomorrow! So will know for sure, thanks for all the tips!
 
I don't see the big problem here. If you buy it under it market value (€200k say) you would be subject to (potentially)

- gift tax for the difference
- stamp duty on market value.

But so what? You have saved €160k.
 
Plus i'd like to have an idea of what i will have to pay!! Don't want to be hit with an unexpected bill from the taxman!

I don't think i will have to pay stamp duty as both of us are FTB's
 
LDFerguson said:
Speak to your solicitor about the vendor's right of residence in the property and how that will be structured. If a lender is aware of this, they may take a view. Example - You two take the mortgage...default on repayments...lender moves to repossess the house...runs into difficulty because granny has right of residence and cannot be evicted.
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The grandmother could sign an agreement that if there is a default in the mortgage she would/could not claim her right of residence. As long as the bank see something like this they should be ok with a right of residence. anyway a right of residence is just one option.
 
Granny should take independant legal advise before she signs her property over to you. What if you don't get on anymore and want to evict her?
 
eamonn22 said:
The grandmother could sign an agreement that if there is a default in the mortgage she would/could not claim her right of residence. As long as the bank see something like this they should be ok with a right of residence.
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Are you sure that banks would be OK with this? I would have thought that most lenders would run a mile from having security which involves evicting a pensioner with no income. Can you see the tabloid headlines now?
 
LDFerguson said:
Are you sure that banks would be OK with this? I would have thought that most lenders would run a mile from having security which involves evicting a pensioner with no income. Can you see the tabloid headlines now?
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It was quite common for the Transferor in these type of cases to postpone their Right of Residence in favour of the lender and it was acceptable.

I agree with you though that Banks might be a bit more nervy about lending in these circumstances in today's climate.

mf
 
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