Stamp duty query with a twist..

hi all,
ok so bought a house just over year and a half ago with a friend. We were both FTB and the house we bought was under stamp duty limit for second hand houses, so no stamp duty paid.
I am now considering buying an apartment myself, which will then become my PPR. The first house now becomes an investment property to me. BUT is still the PPR to my friend who will continue to live there.

So If I want to rent out my room in the house to cover my mortgage payments, I am obviously liable for clawback of the stamp duty.
The stamp duty we would have paid originally had we not been FTB, works out at 5% of 300K = 15K approx.

So my question is if I do all of the above, do I just have to pay my half of that stamp duty clawback (7.5K), since my friend is still living in the house.
Or would I have to pay the lot?!

thanks in advance for any advice
Roz

My gut response is that you are probably liable for the €7.5k - but it's also possible (though less likely) they'd view you as having an investment property acquired for €150,000, in which case the duty would be only €4.5k.

Advice? Talk to the Stamp Duty people in Revenue - as you realise, it's not a straightforward question, and you'll need their advice.

As a matter of interest, how does your friend feel about this? I think I'd be a little freaked out if my co-owner plonked a tenant in with me!

Hey, thanks for the reponse, didnt think of it like that. So I could possibly be viewed as having an investment property of 150K, and so would only be liable for clawback at the 3% rate.. that would be nice ! but yeah i will confirm it with revenue. Just seeing if anyone had any experience with on here first.

getting a bit dramatic there on the second point!! I wouldnt be "plonking a tennant" in with her?! The whole situation would be discussed to come up with a solution that suits us both as best we can.
Obviously, the ideal solution would be if she had someone in mind that she wanted to live with. Or if she wanted to live there alone, she could pay me equivalent of the rent I would recieve.. all that has yet to be worked out.
Im just finding out whats involved first.

cheers again!
Roz

Sorry - I was just being frivolous in the way I phrased it! I'm genuinely interested in how people arrange things when, having bought together, one person decides to move onwards and upwards while the other is staying put, since there are so many more people who've bought with friends / siblings in the last few years.

No worries, If it all goes ahead, Ill post how we arranged things..! thanks for your comments..!
R

I'd consult your solicitor. I would be surprised if the same property could be classed as both a PPR and an investment property at the same time (even for different people).

I guess your friend could avail of the Rent a Room scheme, but you can't as you will no longer be living in the property.

Revenue generally take the view that where there is more than one purchaser and all of the purchasers are not ftb's that in those circumstances, none of the purchasers get the ftb break. All will pay top rates.

I suspect - but certainly it would be worth asking the question - that Revenue would regard this as a full stamp duty clawback situation.

Given the fact that so many people have bought jointly this is one worth hearing about as one that should be covered in the pre purchase agreement.

mf

Meaning that potentially Roz's friend gets re-categorised, and taxed, because of Roz's action? That would appear to be a very brutal interpretation - and there may not yet be rules to cover it. A factor they might take into consideration in coming to a ruling (Revenue, that is) is whether they are joint tenants or tenants in common, as that might give greater clarity on the ownership to be exercised by each party.

In any case, the plot thickens... RozM, do keep us informed!

Well when we bought the house, we agreed and signed the documents with our solicitor, that should something happen to one of us, that persons half goes to their next of kin and NOT automatically to the other owner.
So I think that makes us Tenants in common, right

There are a number of very similar threads to this. It's a amazing how many people buy properties together, sign the basic legal forms which cover the most extreme event but don't really think about the more likely "what if" scenarios.

This has been my opinion on the other threads: mf1 is correct that the full clawback in payable as THE PROPERTY is now an investment property. It does matter one iota what convoluted ownship structure is in place.

The tax (stamp, rental, cgt) in liable by both parties. HOWEVER the rental income is also payable to BOTH parties. You own a 50% stake in the property, you are entitled to 50% of the rental income that it generates. It would be ludicrous under this scenario then for the remaining owner to pay you rent, which you then have to split and pay back to her.

I believe this would be the legal opinion. You would "imagine" that neither party would need to get legal if you knew each other well enough to buy together. But the numbers involved are many thousands of euros, if not 10's of thousands.

By far and away the most tax effecient way to go about these sort of things is for the remaining owner to buy out your stake and then rent out the room herself under the rent-a-room scheme. No stamp, no cgt, no tax on rental income. If you want to be a property investor, take this (tax free) lump sum and buy another property with it and rent that out.

Did you sign a co-ownership agreement aswell? It seems you are tenants in common but sometimes you will sign a co-ownership agreement as well which goes into more detail. normally if you don't want to stay there and want to purchase a new property you could either A sell to the other party or B both sell. It doesn't usually go into the renting situation and if you did not sign an agreement as to what would happen in these circumstances then I doubt you would be covered. With regard to stamp duty I think that you will be liable for full amount as Revenue will not be interested in treating one person different from another i.e. one is investor while one is first time buyer when they both own the same property.

You have to pay back revenue when you rent a property but if you rent your room you are not renting a property you are just renting a room so I am not sure if a claw back would even be applied. I think you have to rent the whole house, the owner (albeit co-owner) will still be living there. I would like to know how this will turn out because I think when you tell the co-owner you want to rent your room you could run into difficulty - it is not that simple, if she said no she/he would, I think??, be completely within there rights to say - if you dont' want to live here then sell (to me ) or we will sell whole property.

good lord, some of you guys seriously bite dont ye.. its like being under interrogation...

Now Im only asking for people who have been in this situation before, to share their experience, so that I might have a better idea of what is involved BEFORE i do anything. I searched the AAM site for similiar posts i.e. where 2 people AGREE to continue with joint ownership, with one moving out and one remaining.. but i didnt find any. So I am sorry for reposting old news..

Excuse me, Howitzer, for suggesting something so "ludicrous" but I didnt know the fact you stated about rental income. Learning things like that were what i hope to gain, by posting my query here.
However if WE BOTH AGREED that I keep my half, and she didnt want anyone else living there, we would obviously NOT be paying money back and forth like you suggest..

you say its your opinion that the full clawback is due - can i just enquire do you know that for sure? (and no im not being pedantic here, I really want to know!)

and BK2, thanks for your comments but remember as i already stated, Im not planning on TELLing my friend to "lump it or like it!" as you all keep implying.
If I do decide that I want to go after a property of my own, I will let her know, we will discuss the in and outs of it, and hopefully come up with a solution that suits us both in so far is as possible.
If we were to rent out my room, the tenant would HAVE to be okayed by her first. If she didnt like that scenario at all, then we rethink things. simple.

I think the problem here is everyone thinks the worst when they see these situations, and there are a lot of horror stories to back that up,which is fair enough.. but SOMEtimes people do manage to work it all out amicably..

I never said I wanted to be a property investor, there are a number or reasons why we would like to hold onto this house, that you are unaware of. Otherwise I would rather just sell up, as its a much cleaner process..
So dont assume that just because Ive asked about this particular situation, that it is the way we intend on doing things..
remember my original query was not - "I want to move on and buy my own property, what should we do with the first house we bought together?"
It was a query about what the stamp duty implications would be, should we go down one possible route..

thanks anyway for the advice & comments on the stamp duty side of things..

Roz

You are correct you did only ask about stamp duty and not what people thought of the situation so it is unfair that you are given a hard time about how you should deal with situation. To answer the question that you really asked - as the property will become an investment property the clawback will be for the full purchase price not for half so you will both be treated as investors and full amount will be payable.

Thanks BK2.

I'd imagine we'll look at other options so, as I wont have my decision cost my friend, and I cant afford to foot the whole stamp duty clawback bill.

Cheers
R

I wouldn't agree that all is lost here.
When you bought your house (I am assuming that it was secondhand at the time) your title deed would have contained the following certificate:

“It is hereby certified that the purchaser/one or more of the purchasers/a person or persons in right of the purchaser/a person or persons in right of one or more of the purchasers will occupy the dwellinghouse/ apartment as his/her/their only or principal place of residence for the period specified in section 92B(3)(b)(ii) (residential property first time purchaser relief) of the Stamp Duties Consolidation Act, 1999, and that no person (other than a person who, while in such occupation, derives rent or payment in the nature of rent in consideration for the provision, on or after 6 April 2001, of furnished residential accommodation in part of the dwellinghouse/apartment concerned or other than by virtue of a title prior to that of the purchaser) will derive any rent or payment in the nature of rent for the use of the dwellinghouse/apartment or any part of it during that period.”


I think that you could argue that even though the house is no longer your PPR, your friend is living their not only as a tenant in common but also in your right as their PPR. Subject to you drawing up an agreement with your friend, I think your friend could rent the room in the house under the Rent a Room Scheme, without attracting adverse stamp duty consequences. The problem for you is that the rent would have to actually be received by your friend and could not be received by you as it would then be deemed to be rent or a payment in the nature of rent. Perhaps you could deal with this by drafting an agreement whereby your friend would agree to apply all rent received by her towards the monthly mortgage repayments, enabling you to meet your mortgage obligations?

Might be worth exploring with your tax advisor.