Tax implications for sibling paying off mortgage

T

Trixibelle

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Hi, I'm separated and my sibling wants to pay off my mortgage in full. My ex is happy with this arrangement as they will be free to start again. What are the tax implications for my sibling and I and what is the easiest way to do this? €100,000 left on the mortgage
 
If you have not received any other gifts from your siblings, nieces, nephews or uncles or aunts, you can receive up to €32,500 which would be exempt from Gift Tax (Capital Acqisitions Tax)

So if she gifts you €100k, it will be taxed as follows

Gift €100k
Less small gifts exemption €3,000
Less threshold: €32,500
Taxable : €70,900

Tax at 33% : €23k

If you want to pay off a mortgage of €100k, she would need to gift you €132,000

Gift €132k
Exemptions: €35,500
Taxable: €96,500
Tax: €32,000

Brendan
 
@Brendan - out of interest, if it's an interest free loan, is that still the case (no tax liability)?

If sibling (or other relative) repays at a nominal €1 a week, it's still a loan?
 
Brendan Burgess said:
However, if it's a loan which you intend to pay back, there is no tax liability for you.

Brendan
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Thanks Brendan. I'm not in a position to pay back a loan but my siblings name will be on the house jointly. Sorry, I should have stated this originally. I'm new to posting and in a quandary as to the best course of action
 
Trixibelle said:
my siblings name will be on the house jointly.
Click to expand...

That is completely different. Your sibling is buying a share of the house and will be a joint owner with you.

You need to give the following information

1) Market value of the house now
2) Amount of mortgage outstanding on the house
3) Amount your sibling will be paying for their half of the house

Has the lender agreed to this transaction? They will in effect, issue a new loan to you and your sibling to buy out your ex.

Brendan
 
Brendan Burgess said:
That is completely different. Your sibling is buying a share of the house and will be a joint owner with you.

You need to give the following information

1) Market value of the house now
2) Amount of mortgage outstanding on the house
3) Amount your sibling will be paying for their half of the house

Has the lender agreed to this transaction? They will in effect, issue a new loan to you and your sibling to buy out your ex.

Brendan
Click to expand...
Market value 160k approximately
Mortgage 108k
My sibling will pay off the full mortgage in one go.
The bank has agreed to no penalties for full payment.
My ex wants nothing as this is the family home and will transfer the property to my name. I presume this will have to happen at the same time as the mortgage is being paid off.
My sibling wants nothing, just the best for me and my dependents and to also provide me with permanent security as I'm not in a position to work.
 
RedOnion said:
Sorry, this is still confusing. You need to be absolutely clear on the scenario to get any meaningful guidance.

Is sibling gifting you 100k, no strings attached, or are they becoming joint owner in your house?
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Joint owner, this was initially to stop my ex from having a claim but we have signed off on succession rights in the separation agreement.
My sibling isn't fussy about her name on the deeds as long as the house is secure. We just need to find the easiest way to minimise the tax implications as I don't have the money and I don't want to put her under more pressure
 
OK, you have a house worth €160k.

With a mortgage of €110k.

Your ex will have to "sell" his half of the house to either you or your sister.

You should not redeem the mortgage until he has done that.

If your sister pays off the mortgage of €110k and ends up owning half of the house, she has given you a gift of about €30k - the difference between what she paid and the value she got which is €80k.

As the gift is less than the exemption for siblings, then there is no CAT.

It is a bit messy to have a sister owning half of your house,but I don't think there is any way around it.

If she gifts you €110k you would have a Gift Tax liability as set out above.

But as Red says, you and your solicitor and your sister and your ex need to fully understand what you are doing.

I will repeat. Don't pay off the mortgage and then not complete the paperwork. Your ex will still own half of the house.

Brendan
 
The whole thing is messy but no animosity with my ex.
We're putting the separation agreement and house through at the same time so my ex can transfer it into my name before the mortgage is paid.

Could my sibling loan me the money on an interest free basis? Is there a minimum I could pay? I came across this in another thread but revenue isn't very clear
I'm not trying to tax dodge, I'm just not in a position to pay big money due to invalidity.
 
I think you need legal advice more than tax advice.

Yes, your sibling can loan you the money interest free without any tax implications. Say for example they loan you money for 10 years interest free. The current deposit rate for 10 years is c. 1% (using state savings as a benchmark). So sibling is 'gifting' you 1k per year by not charging interest. This is below the annual small gift exemption. They could write off another 2k per year to use up the rest of the allowance. So after 10 years, you only owe them 80k, and no tax is due at all.

You could use demand deposit rates of 0.01% either, so they could write off 3k of the loan balance each year. If they've a spouse, and they both give you the loan, they can write off 6k per year.

Just document it all clearly, and keep a paper trail. But the legal bits are more important.
 
Brendan, thank you and everyone for the help. I'm in a better position now as I have some idea of the best way forward and yes, my sister needs to be protected too
 
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