Selling rental house-gift to daughter

[Boston Guinness]

Hi all

Just wondering if someone could answer a question I have on a rental property I'm selling and hoping to gift proceeds to my daughter to get on the property ladder herself. The house is worth approx €640k; we have a mortgage on it of €340k, so coming out with €300k. We bought house as our primary residence in 1999. Lived in it till 2008 and then moved out and it was rented out since then. I know we will be liable for CGT and once house is sold we will be going to a financial planner to sort out how much we will be left with after paying the CGT. We will then be giving what's left over to our daughter as part of her inheritance (effectively giving her most of her inheritance early so she can get on the property ladder).

However, my question is whether there is any option for me to keep the house and just gift it to my daughter. She can get a mortgage of €340k no problem. As my daughter, I assume she is entitled to the inheritance threshold of €335k? Not sure of the tax implications to be honest. Just seems a shame if I can't give her the house and she continue paying off the mortgage but there are probably rules in place that you can't gift property to your children at below market value....is that correct? Sorry for the long winded thread but unsure of the situation. Thanks!

 

[Protocol]

Of course you can give her a gift of the house.

You may have to pay CGT, depending on the original purchase price.

She will have to pay CAT.

There may be a relief/offset between the CGT and the CAT.

There is no such thing as "taking over a mortgage".

You would have to repay the 340k mortgage.

She would have to raise a mortgage.

Other posters may suggest better ways of structuring this transaction.

 

[Boston Guinness]

Thanks for the response. When I said "taking over a mortgage", that was the wrong choice of words. She would be getting a mortgage of €340k to pay off what I owe on the house.

I think I see the problem here, based on your response. I could gift the house to my daughter, however I'd then have to probably take out a loan of approximately €80k-€90k to pay off the CGT liability that would arise here if I gifted the house to her....effectively it leaves me just the option of selling the house and giving my daughter what's left over after the CGT liabilities are met. Seems a shame we can't give the house to our daughter but them's the rules I suppose.

 

[NoRegretsCoyote]

Seems a shame we can't give the house to our daughter but them's the rules I suppose.

You can still gift her the house and she gifts or loans you the balance to pay off the CGT.

But TBH it's rare that the precise rental property will be perfectly suited to your child's needs. Cash is always more useful than the same value in bricks and mortar.

 

[Boston Guinness]

Thanks for the response. I think the problem with my daughter also gifting or loaning me the balance to pay off the CGT is that she can only afford to raise the €340k for the mortgage on the house (just about). She's no other capacity to raise €80k-€90k. Guess the only way forward here is to sell the house and just give her what's left over after settling the CGT liability.

The house we're selling is a 4 bed house in a really nice area; it would have been nice to keep it in the family, to be honest. My daughter will still probably be able to afford a 3 bed house in an area a little further out than she hoped for but she's still in a good position compared to a lot of young people in her age group. Really do feel sorry for young people trying to get their feet on the property ladder but have to do what I can for my own children to try to get on the property ladder.

 

[DannyBoyD]

Can your daughter move into the property & make the mortgage payments, leaving the mortgage in your name?

she can use rent a room as well.

 

[Boston Guinness]

Unfortunately, we were on a tracker mortgage (which was fine for the first 15 years) but with the recent rises in interest rates, the monthly payment for us now on the house is €3,750. Don't think she can really afford the mortgage on her salary at the moment. She's used to living alone and not sure if she wants to rent out a room.

 

[DannyBoyD]

payment for us now on the house is €3,750.

Ouch. Do you think you can get a better deal?

Don't think she can really afford the mortgage on her salary at the moment.

But in your earlier post you mentioned she could raise a mortgage of 340k?

She's used to living alone and not sure if she wants to rent out a room.

Some compromise will be required here.

Rent a room could earn her a little over 1100 tax free every month. Thats 1/3 of the mortgage covered; not to be sneezed at.

 

[_OkGo_]

But in your earlier post you mentioned she could raise a mortgage of 340k?

That should be pretty obvious. She couldn't afford the monthly payment of €3750.

The OP clearly has only a few years left on the mortgage hence the very high monthly payment. The daughter can afford the monthly payments on a 30-35 year mortgage of €340k

 

[_OkGo_]

However, my question is whether there is any option for me to keep the house and just gift it to my daughter. She can get a mortgage of €340k no problem. As my daughter, I assume she is entitled to the inheritance threshold of €335k? Not sure of the tax implications to be honest. Just seems a shame if I can't give her the house and she continue paying off the mortgage but there are probably rules in place that you can't gift property to your children at below market value

Your mistake is that you are not comparing apples with apples.

In the sale and cash route, your gift to your daughter is €200k. In the 'gift property' route, you are planning to give your daughter €300k+ which you can't afford because of the mortgage and CGT that you owe.

The only way it works is if your daughter can get mortgage approval for the €430k or so that you need to clear mortgage and CGT. The remainder can be gifted to her with no CAT.

 

[DannyBoyD]

That should be pretty obvious. She couldn't afford the monthly payment of €3750.

The OP clearly has only a few years left on the mortgage hence the very high monthly payment. The daughter can afford the monthly payments on a 30-35 year mortgage of €340k

and the suggestion was that OP could look to remortage to a get a better deal (ICS come to mind for buy to let as they will go to age 70 & that might help); and also for offspring to collect the 1100 available tax free under rent a room.

If a remortgage over say 15 years was possible, that would bring the monthly payment to say 2800 (rough calculation), less 1100 and we are looking at 1,700 per month.

Again at a rough guess offspring would need an income of c. 80-100k to raise a mortgage of 340k; so if they can't afford 1,700 a month on that income, there's something wrong.

Edit: correct typo

 

[_OkGo_]

and the suggestions were that OP could look to remortage to a get a better deal

That had not been suggested, only just now.

But either way, it would be an incredibly foolish thing for the daughter to do for several reasons.

Firstly they would have no ownership of the property despite paying €3k/m on someone else's mortgage. The OP cannot gift any percentage of the property until that mortgage is cleared.

Secondly, if they could manage to switch, it would be at rates of ~7%.

Thirdly, rent a room scheme is not for everyone and certainly should not be part of a 15 year plan for affordability. The daughter might want to have a life, get married, have children. They might even already have a partner. It would be even worse for them to be paying a mortgage for their potential FIL with nothing to show for it.

And after all of that, when the OP finally gifts the entire property to the daughter after 15 years, the entire amount is deemed a gift so they would have another hefty CAT bill

If the OP does not have funds to clear the mortgage and CGT, then the reality is the cash gift after the sale of the property is the only option.

 

[DannyBoyD]

That had not been suggested, only just now.

See post #8

But either way, it would be an incredibly foolish thing for the daughter to do for several reasons.

Firstly they would have no ownership of the property despite paying €3k/m on someone else's mortgage. The OP cannot gift any percentage of the property until that mortgage is cleared.

Secondly, if they could manage to switch, it would be at rates of ~7%.

Thirdly, rent a room scheme is not for everyone and certainly should not be part of a 15 year plan for affordability. The daughter might want to have a life, get married, have children. They might even already have a partner. It would be even worse for them to be paying a mortgage for their potential FIL with nothing to show for it.

There was no suggestion of a 15 year long rent-a-room.

And after all of that, when the OP finally gifts the entire property to the daughter after 15 years, the entire amount is deemed a gift so they would have another hefty CAT bill

if its left as inheritance is there still CAT?

If the OP does not have funds to clear the mortgage and CGT, then the reality is the cash gift after the sale of the property is the only option.

Oh there's always room for a bit of creative thinking!

 

[_OkGo_]

See post #8

I have seen it, no mention of a mortgage restructure to 15 years. And taking a 7% interest rate on a longer term does not constitute a better deal.

There was no suggestion of a 15 year long rent-a-room.

If a remortgage over say 15 years was possible, that would bring the monthly payment to say 2800 (rough calculation), less 1100 and we are looking at 1,700 per month.

How else does your €1700/m plan work?? You have literally said it in the same sentence, it's implied.

if its left as inheritance is there still CAT?

Yes, of course. Paying someone else's mortgage does not give you any ownership of the property. The OP would have to gift the entire property which should have risen in value. There will be at least €300k above the CAT threshold.

And it would be even more foolish for the daughter to rely on a will. We know nothing about the OP, there could be other children, he could die intestate, he could change his will, he could get remarried. Any number of things that would screw the daughter after having paid for the mortgage

Oh there's always room for a bit of creative thinking!

Terrible advice does not count as creative thinking.

The OP is trying to do something good for his daughter. A €200k cash gift will help her to afford a ~€550k property. Unless either one of them has access to another €100k then the plan does not need to be more complicated than that

 

[DannyBoyD]

We know nothing about the OP, there could be other children, he could die intestate, he could change his will, he could get remarried.

Indeed, but we haven't asked any of those questions; & only the OP can decide on what is applicable.

Teasing out possible strategies is entirely reasonable. Again only the OP & their offspring can make these choices based on their circumstances.

Keeping a well located / high value property in the family might have a higher priority & the OP has said they would like to do that.

If I recall correctly, inheritance tax kicks in at 330k for parent->child & if there is a mortgage outstanding (assuming no mortgage protection in place) that is deducted in calculation.

Would there still be capital gains tax to be paid from the estate on OPs passing?

(Sorry to be morbid here OP, but its all useful info).