Stamp duty exemption - debatable source of funding

Details first:
- I am a FTB
- My offer of 250K has been accepted on 2nd hand house
- Mortgage arranged of 200K
- Deposit of 50k (savings of 24K sterling + my friend will make up the shortfall)

I'm told that revenue are quite fussy as to where the funding comes from (to avail of a stamp duty exemption), so will there be an issue with the following:

(1) I intend to f/x my 20k sterling to eur, privately with my girlfriend. i.e, I give her my 24k sterling and she gives me 30k euro (assume 1.25 f/x rate for simplicity).

(2) My friend (girlfriend's brother) will give me an 'unconditional' gift of the shortfall of 20k. This is not a loan and nothing whatsoever (money/boats/car/etc) will be returned to him as repayment.

I'm sure (1) is ok, as it is in effect my money and where I exchange my money is my business, provided market rates are followed within reason.
I need reassurance though???????

Regarding (2), I'm not so sure. My friend is my girlfriend's brother and will indeed be my brother-in-law in the future. As my girlfriend (not a first time buyer) will obviously have an interest in the property once we are married, I worry that Revenue will not look favourably on the 20k gift from her brother to me, because of the family connections.

I realise that an accountant/tax advisor would be beneficial here, but your initial thoughts would be welcomed before I do that.

Hiya

I can't see any real problem with the sterling/euro exchange.

In relation to the loan from your girlfriend's brother - Revenue should not take issue with the fact that you have taken (what is essentially) a gift of 20k from your girlfriend's brother in order to purchase the house. However it is a gift and will eat into your group (c) threshold for Capital Acquisitions Tax. The group (c) threshold is €26,020 in 2008 plus 3k small gift exemption every year. So essentially you will have used up €17,000 (20k minus 3k small gift exemption) of your group (c) threshold. This will only really matter if you get a gift/inheritance from any other stranger-in-blood in the future OR if you have taken a similar gift/inheritance from a stranger-in-blood since 1991.

Your lender will most likely require some sort of agreement from your girlfriend's brother in writing that he will not be taking any interest in the property and the 20k gift is not returnable.

If you get married in the future you can transfer the house into joint names with no tax implications however I believe that you may have to wait until 3 years into the marriage before you can avail of this (not sure where I saw this but just be aware of it).

Maybe I'm wrong but I don't think you need to worry so much about what Revenue will/won't think.

Thanks Eamonn - that is what I wanted to hear.

I think I will survive with a reduced group (c) threshold for Capital Acquisitions Tax. I don't expect to meet many generous strangers for the forseeable future.

Bertie, is that you?

In fairness, the whole arrangement sounds a little suspect. Money coming from your girlfriend's and your soon-to-be brother-in-law's accounts would raise a lot of flags. Also, your girlfriend will not be able to make any contributions towards the mortgage, otherwise she would be establishing an interest in the property.

To have any success you would probably need to get your girlfriend and her brother to sign a declaration that they do not have an interest in the property. If you're able to do that and fund the whole mortgage yourself then you might get away with it. It doesn't leave much protection for your girlfriend or her brother should things go pear-shaped though.

There is the strong chance that Revenue will take one look at this arrangement and come to the decision that it was purely set up to avoid paying tax. You really need to get some expert advice before you proceed with this one.

Toto said:

(2) My friend (girlfriend's brother) will give me an 'unconditional' gift of the shortfall of 20k. This is not a loan and nothing whatsoever (money/boats/car/etc) will be returned to him as repayment.

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Why is 'unconditional' in quotes so? If it is genuine a non returnable gift and you make the required Gift Tax return then I can't see any problem with this specific transaction. However I am not a tax professional.

ClubMan said:

Why is 'unconditional' in quotes so? If it is genuine a non returnable gift and you make the required Gift Tax return then I can't see any problem with this specific transaction. However I am not a tax professional.

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There is no need to make a gift tax return if these are the correct figures - only need to make a return when the gift/inheritance constitutes 80% or more of the group threshold. Here he is only using €17,000 of his €26,020 threshold which is approx 65%.

I'm assuming that everything is above board in everything Toto is asking!!

I thought that you had to declare gifts even if they were under the relevant exemption threshold? Same as you have to make other returns (e.g. income, capital gains etc.) even if no liability arises? Apologies if I was wrong.

ClubMan said:

I thought that you had to declare gifts even if they were under the relevant exemption threshold? Same as you have to make other returns (e.g. income, capital gains etc.) even if no liability arises? Apologies if I was wrong.

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Hiya, no you actually only need to make a gift tax return if it's 80% or more of your group threshold ie

"You must make a tax return if the total value of gifts and inheritances you have received in one of the groups, A, B or C, since 5 December 1991 is more than 80% of the tax-free threshold for that group. "

OK - thanks for that info. In this case €20K would seem to be c. 77% of the relevant €26,060 [broken link removed]?

Bertie again - looks suspect I agree, hence the query.

I am not really worried about the transfer from my girlfriends account, as I will have a corresponding record showing the GBP repayment.

As regards the gift from her brother, I cannot see where it clashes with anything Revenue has to say below.

If it was my girlfriend giving me the gift and not her brother, then I see obvious problems.

And should there be an additional 'gift' from my girlfriend to her brother to compensate him, then yes, blatant evasion.

But this 20K is a genuine gift. The fact that they are brother and sister should be irrelevant surely.


What is the position in the case of a gift of part of the purchase monies?
Under Finance Act 2008, a purchaser is defined as an individual who purchases a dwellinghouse or an interest in a dwellinghouse, where the consideration for the purchase is derived from the individual’s own means, which can be or may include consideration derived from an unconditional gift or a bona fide loan evidenced in writing.
The section also provides that a "gift" shall be deemed not to be unconditional and a "loan" shall be deemed not to be bona fide where the donor/lender concerned:

• is not a party to the instrument giving effect to the purchase of the dwellinghouse or the interest in the dwellinghouse and
• intends to, or does, occupy the dwellinghouse with the purchaser as a principal place of residence or
• there is an understanding that the dwellinghouse, or an interest in same, will be transferred to the donor or lender at any time following the purchase.

ClubMan said:

OK - thanks for that info. In this case €20K would seem to be c. 77% of the relevant €26,060 [broken link removed]?

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it's actually only a gift of €17,000 when you apply the €3,000 small gift exemption

Thanks - didn't realise you could apply the two!

The revenue might suspect:

that you might be going to buy the house with the help of a 'pretend' gift.

that your gf might even be intending to help you pay the mortgage but not in a visible way.

that you and your gf could possibly eventually repay the pretend gift in full, but not in a visible way.

Toto, I accept that you are playing with a straight bat and I do apologise for suspecting otherwise.

I am a bit bitter and twisted on this topic because my own house purchase will not be exempt, even tho only one of us has ever purchased before, and that was abroad, and I get tired of reading many posts here from other people who are intent on evading this tax.

Yes, but do Revenue base their judgements on suspicion, theory and speculation. Surely something more solid is needed.

Regardless, that is irrelevant. I play straight always. You make presumptions Eamonn.

Toto said:

Yes, but do Revenue base their judgements on suspicion, theory and speculation. Surely something more solid is needed.

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They assume that you are acting honestly but if necessary they will look into matters in more detail and I think the onus is then on you to prove that you are acting honestly.

Whatever about the deposit funding arrangements, the big issue here is who is living in the house and contributing to the mortgage repayments. If you are going to live there alone and pay the mortgage in full, then you're ok as a FTB.

If its the case that your girlfriend will be living with you and contributing to the repayments/bills, then you may have a problem.

That will not be an issue.

Our finances are entirely separate and furthermore, she will remain in the UK for the next 2-3 years, where she owns and runs her own home.

I am moving to Ireland shortly.

Toto said:

I realise that an accountant/tax advisor would be beneficial here, but your initial thoughts would be welcomed before I do that.

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Let us know what your professional advisor recommends when you see him/her.

Will do - many thanks to all!

Just spoke to my accountant and she sees no problem whatsoever with this, even suggested making the gift a loan.

I'm off for more indepth advice!