What A Mess-help Required

Hi

Long winded saga but here i go, really would appreciate any help or pointers people could provide

My aunt (81 ) lives in old cottage next door to me (i live with parents at moment ) , she has agreed for me to apply for planning permission for extension to her house so i can live in ( classed as an extension but really will be a 3 bed dormer bungalow with seperate doors etc ,but for planning purposes will be as extension and we must show for planning that in later years both houses can be combined into one ).
Architect reckons cost of construction will be 135k max plus legal bills etc etc added in . then additional costs of fitting the house ,other expenses etc (rough total 160k ..ready to move into fully furnished )
With my own savings etc , i will be looking for a mortgage of approx 125k, what way will the bank look for security on giving me a mortgage ?
Speaking to the solicitor today , she mentioned "joint tenancy " ,whereby my auntie signs half her estate over to me (less than quarter an acre including the current house size ) ,therefore i am only liable at present for "gift tax" of half the value of the house.

Is the any better solution to avoiding the "gift tax" or reducing my tax bill to the revenue
Building the house is not the problem, the tax bill to boot may be the killer and drive me beyone my budget
Can i ask my aunt to guarantee the mortgage or will the bank refuse because of her age,she has already willed the house and estate to me in the event of her death.
Would really appreciate any help or advice anyone can offer to me

much appreciated
andrew

andrew1977 said:

she has agreed for me to apply for planning permission for extension to her house so i can live in ( classed as an extension but really will be a 3 bed dormer bungalow with seperate doors etc ,but for planning purposes will be as extension and we must show for planning that in later years both houses can be combined into one ).

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Is this kosher? It sounds a bit dodgy.

Speaking to the solicitor today , she mentioned "joint tenancy " ,whereby my auntie signs half her estate over to me (less than quarter an acre including the current house size ) ,therefore i am only liable at present for "gift tax" of half the value of the house.

Is the any better solution to avoiding the "gift tax" or reducing my tax bill to the revenue

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You and your aunt should really be talking to an independent tax expert to get detailed advice about the most tax efficient way to manage these matters. Assuming of course that your aunt is amenable to making such decisions about her own personal property.

I know you have simplified the story but, as you describe it, it sounds to me like a family feud waiting to happen.

What if your aunt decides to change her will and not leave you her house? You then are left in a property which is attached to hers and, if my understanding of planning law is correct, you will not able to sell your property separately from hers. What if you are then in a legal battle with some other relative who owns her house and wont play ball with you? Or what if she has to go into a nursing home and needs to sell her house to fund that?

The only way I would proceed with something like this would be if I could take over ownership of my aunt's entire property before building. There are reductions in stamp duty for buying from a relative.

Of course you would need to have a legal agreement drawn up setting out your obligations to your aunt in terms of providing her accommodation for the rest of her life. This could get tricky for you if she ends up needing expensive nursing home care.

I would also advise you to be upfront now with any other nieces and nephews your aunt may have. She might have given them the impression that you would do something for them to compensate them for not inheriting.

Sorry to be negative but as you say yourself you heve the ingredients of a horrible mess here.

Hello

Thanks for the pointers and advice.
My aunt has agreed also to sign over full ownership of the house to me if i want , she has her full senses about her and has made it quite clear to the rest of the nieces and nephews that the house will be mine anyway in the event of her death .They all have their own houses and lives elsewhere and it has been me taking care of her and doing DIY etc round the house for her.
I just thought taking over half of the property at first might have been the better option to initially reduce my tax liability, if i do get planning permission,i would be able to finance the building work etc but then to try and get the extra cash to pay the revenue commissioners would be a struggle.
Drawing up an agreement to provide for her accomodation for the rest of her life is not a problem, quite willing to do so, the architect mentioned this to me before ,
Does anyone know if the bank would allow my aunt to go guarantor on the mortgage considering her age , i suppose security on the mortgage wouldnt be a problem if the whole property was in my name

Again, thanks for the help and advice,newbie to this website and some very interesting tips and pointers on her
cheers
andy

try to run this past another lawyer and NOT use a joint lawyer until you understand the issues fully.

while it quite rightly sounds awfully messy (eg. what happens if she goes into a nursing home and the state tries to sell her house or the relatives want you to sell it for her nursing home fees ) it may be quite workable as long as the will and contract are interlinked fully and are utterly consistent with each other .

What about selling and transferring all to you in return for the cash now and a "life interest" which is a lease for life on a defined property and is unbreakable as long as she lives.

If the bank does allow your aunt to go guarantor, the insurance premiums will be crippling. I would be extremely surprised if they did allow it though. I

Not sure if you have looked into this particular issue, but the banks will not be able to offer you a mortgage for anything classed as an "extension" to another person's house, if you see where I'm coming from? It's not a "house" that they could for example repossess if you don't meet the repayments.

Came up against this issue myself when I looked into building an extention to a relative's house that would have been essentially a seperate living area, i.e. our own house but attached to my relative's house. But as it's classed as an extention and not a separate house it's not really possible to get a mortgage secured on it, you may have to re-mortgage the main house to finance the "extension".

This brings in the issue of the entire house being signed over to you as your aunt would probably not be in a position to secure a mortgage in her own right as I assume she would be on a pension, and as you said yourself you may need a guarantor anyway to raise a mortgage, again I'd assume your aunt would not be accepted by the banks as one due to her income, or raise the funds elsewhere. you may already have found a way around this though.

I haven't explained myself very well there have I!! Hope you get the gist of what I am saying, and check with the banks to ensure they will actually be willing to provide a mortgage on something that is not classed as a "house" (even though for all intents and purposes it is) but an extension.

Good luck!

cheers snuffle for the reply, very good information you have given me
How did you eventually get round the problem you had to raise the mortgage to build ?
My father has agreed to go guarantor on the loan ,his own house is mortgage free at present ,
If i get my aunts property signed over in full to me,it leaves me wide open to a big tax liability to the revenue ,will have to do more checking with the banks,solicitors and what not
Its never easy ,is it !!
thanks again

We didn't get round it actually!

in the end we decided not to go ahead with the build for a number of reasons, but the only ways I could see round it at the time we were considering it were:

a)re-mortgage the main house to build it's "extension", in which case you'd have to have the house signed over to your name (again, I'm assuming your aunt wouldn't be considered by the banks for a mortgage if she's on a pension etc.). However, our position was a bit different in that the house would have been going from grandmother to me, via my mother (her daughter), so we would have avoided "gift tax", I'm not sure what the situation is with an aunt to nephew though, sorry!
or
b) take out a whopper of a personal loan
or
c) look around for a generous family member who could loan you a big wad of money that doesn't mind you paying it off slowly.

even with getting a personal loan to build the extension though, as I said before, banks probably won't let you take out a loan to build an entension to a house that is not your own as such - and the repayments would be through the roof!
it's a tricky one, but perhaps having a chat with a bank manager/broker/lawyer might help you come up with a way round this that we didn't consider at the time.
hope you can sort it!

I handled almost the exact same situation (for the same planning reasons) for a young couple (except that it was a gift from parent to child, not aunt to nephew).

What you want to do can be done; it can be done in such a way as to avoid the inheritance tax bill. Also, in the case which I handled, the proposed 'together but separate' arrangement was made explicit to the planners, and they were ok with it.

The main problem areas are:

1. Inheritance tax. There is more than one way to deal with this. Get advice from your solicitor on the way which best meets your requirements. If he\she cannot handle it, find one who can, or ask that tax advice be sought from a specialist.

2. From the bank's perspective, the whole shoot (including your Aunt's section) has to be mortgaged to them. Otherwise, they just don't have a marketable security. This does NOT mean that your aunt has to be the borrower. Very similar banking arrangements are absolutely commonplace in the situation where an older relative has a right of residence in a house which is being mortgaged. The big issue here is simply that your Aunt is risking the loss of her home if you don't pay the mortgage. If (and independent advice is an absolute must) she is happy to do this, then this hurdle can be negotiated.

Hi Mob
Thank you for the advice, you have certainly given me some hope that there might be light at the end of the tunnel.
My aunt has said that she will do whatever it takes for me to be able to build beside her, be it signing half the property, all of the property into my own name , She is elderly and we live in a rural area and she wants some family beside her for the rest of her life, her will has already been made passing ownership of the house to me when she passes away . It is a an old cottage in the family generations and part of the family tradition is that it must stay in the family surname,all other family members are aware that the property will be mine and at present nobody has mentioned any problem that it will be my inheritance.

I have another meeting with the solictior next Monday and will raise the pointers you have given me. Is it best i ask her to consult the tax expert on my behalf or find a tax expert myself ? Perhaps the 3 of us meet at some stage and trash out all the possibilites
In what way can the inheritance tax be reduced/minimised ?

When i was thinking of purchasing property i was mortgage approved for 210k, to build this extension area to my aunts house ,i would look for a mortgage of approx 120k and fund everything else from my personal savings,its the inheritance/gift tax which might cripple me

thanks again for the help and also to snuffle for his opinion

I would strongly advise you not to tell the planners in your local authority that you're applying for an extension but it's really going to function as a dwelling unit (as worked for Mob). It's very unusual for planners to be cool with what basically constitutes a breach in planning law. They might be inclined to turn a blind eye, but being explicit about the nature of your "extension" is really asking for trouble.

Because the extension will effectively be a separate dwelling unit it definitely requires planning permission. Usually planners will look favourably on applications for the construction of a "granny flat" as long as the applicant presents a case that there is a necessity for such a unit. The intention behind "granny flats" is to give elderly people a living space, close to their loved ones, but separate nevertheless, to give them some privacy & independence. I suppose it's a variation on sheltered housing. I think your case would defo be acceptable, it's topsy turvy with you wanting a unit separate but close to your Aunt rather than the other way around, but I don't see any reason why local authority planners wouldn't accept that. If you have a look at the area's development plan (almost certainly online), you will probably find a policy encouraging or regulating the construction of "granny flats".

It's important to bear in mind that building such a unit does not mean that you have to legally divide the property folio into two separate dwelling units. Granny flats are often designed so that they can be re-integrated with the main property. People often convert attached garages or add on extensions to accommodate granny flats. They don't have to be small either by nature. Also, remember you don't have to own the land to seek planning permission on it, you just need written permission from the owner.

If you're still determined to keep it under the radar (I understand there may be tax reasons for this - which I don't know squat about), just apply for the extension. Don't show a kitchen in the extension just in case that throws up any questions. You don't need to show that level of detail in a planning applications anyway, engineers & architects just do it to give the planner an idea of how the space will be used, but it's not required. Defo don't disclose that it'll b a separate dwelling unit if that's not what you're applying for.

After 5/7 years (I'm can't remember which off the top of my head) of use as a separate dwelling unit it is no longer constitutes a breach of planning law. This is a bit of a non-issue, as there is little to no enforcement. The only exception being if someone knows that you didn't get the appropriate planning permission, has a grudge against you and reports you to the planning authority. If there's some nosy relative who begrudges you the property, bear this in mind (ie keep your gob shut or else apply for the appropriate planning permission).

When someone reports a breach in planning law, the planners are legally obliged to follow up on the case. They will usually send out some warning letters to try and scare you. This is usually sorted, when the person who is in breach of the law applies for permission to retain the unlawful development. Permission in these cases is almost always granted.
I know you were looking for info on the tax/mortgage side of things but thought it's also nb to see things from a planning perspective. Good luck!

"In what way can the inheritance tax be reduced/minimised ?"

Any number of ways. For example:

1. Aunt settles property on herself for life with remainder to you; No taxable event unless and until she dies (or surenders her life interest). If she lives more than three years, and if you are then living in the house, and if you own no other house, the inheritance will be tax free when you get it.

2. You "buy" a share of the house for, say, €80k. Perhaps this gives you one half share of the house in its current state (or maybe a 40% share, whatever). No gift there. No stamp duty either (as long as half share is less than €127k value). You and Aunt then jointly renovate - she putting her €80k into it, you doing likewise.

This is just two ways off the top of my head. I am sure there are many other ways. You must not rely on tax advice given here, and must get your own adviser, but I have posted these suggestions as a starting point.