Tax implications of paying off jointly held mortgage

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phildin

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Suppose Alice and Bob (who are not married) jointly buy a property. At a certain point, Alice decides, with the consent of Bob, to move into the property and take sole responsibility for the mortgage. Bob does not reside at the property and is happy to walk away from the property/mortgage as soon as Alice is in a position to arrange her own finance.

Does this situation give rise to an income tax liability on the part of Bob? For example, suppose Alice makes mortgage payments of €12,000 over the course of a year consisting of €5,000 principal and €7,000 interest. Since Bob's name is still on the mortgage, is Bob considered to be notionally in receipt of 50% of this and liable to pay tax on €6,000? Does the presence or absence of a tenancy agreement have any bearing on the tax position? What if Alice over/underpays the capital portion of the mortgage?

Thanks,
Phil
 
If the bank agree to the transfer of the house solely to Alice, it's treated like a sale. So all the paperwork that has to be done for a sale has to be done again (unfortunately). The way it's seen in the eyes of the bank/tax man is that the house is being sold from 'Bob & Alice' to Alice. So the sale attracts tax on 50% of the current market value at the time of the sale. I just recently completed a transfer like this and there was a tax liability on both my side and my ex's side. I had to cover both as she doesn't have the means.
 
Thanks for your response Lucuma but I think you're referring to stamp duty at the time that title is transferred which should be quite straight forward as you describe. I'm referring an income tax liability that might arise during the period prior to the sale in which Alice is paying the full mortgage (capital + interest) while Bob still has his name on the deeds.
 
Hi phildin

Bob is not getting any rent, so no, there would be no tax liability.

I suppose it could be argued that if Alice pays capital off the mortgage thus reducing Bob's liability, that he has a rental income.

The way to make sure that this does not happen is for Bob and Alice to reach an agreement where Bob has no interest in the property and so won't benefit from Alice's capital repayments.

Brendan
 
Hi Brendan,

Thanks for your response. What you say certainly makes sense; I'm just being a bit paranoid about it since when I spoke to Revenue about this, they agreed verbally but didn't have anything definitive that they could point me to in writing.

Phil
 
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