# Gift of Investment Property from parent



## paulpd (14 Aug 2009)

I need a little advice regarding a potential gift / transfer of a property from a parent to a daughter.

My friends mother wishes to transfer a house to her. She has had the house rented out since the 1970's. There is approx E200k owed on the house due a the purchase of some apartments a few years ago by my friends mother. The house is realistically valued at E650k. (Was worth E900k to E1M about 2 years ago). So say the "net" value of the "gift" would be E450k as the mortgage would go with the house.

My questions are :

1. I presume there would be a substantial CGT liability for my friends mother on the transfer?

2. My friend and her husband want to move into this house as their PPR and renovate it. They need to borrow approx E150k to do this. Is there any way that by NOT doing the transfer (and therefore avoiding her mothers CGT bill) that a bank would lend these funds to my friend and use the property as collateral, eventhough her mother would remain on the deeds?

Basically they want to transfer the house without the issue of CGT coming up. Either way, the house will be willed to my friend. It's just that they have decided to move into it asap as opposed to waiting years.

It's a bit messy but thanks a lot!


----------



## Wild Rover (14 Aug 2009)

1.  If the house is valued at 650k then this is the deemed consideration (not 450k). It doesn't matter if there is a mortgage on the house or not. As the house is a rental property and not a PPR then CGT would be payable.

2.  If you friends mother agrees to this then its really up to whether or not the bank will lend the money. However, it will not be their PPR as your friends mother's name will still be on the house?


----------



## paulpd (14 Aug 2009)

Thanks for the reply. I understand that E650k wold be the deemed consideration, but from a gift tax point of view I assumed that E450k would be the figure.

I see what you mean regarding the PPR. Their plan is to move into this house, take over the existing mortgage, and get a further secured loan to renovate the house. (It's an old Edwardian redbrick). They're worried that any bank might run a mile from giving them a loan secured on an asset owed by their mother! It's her mothers CGT that they couldn't afford to pay. Maybe going down the route whereby a solicitor draws something up might give more comfort to the bank.

Thanks again.


----------



## mathepac (14 Aug 2009)

paulpd said:


> ...1. I presume there would be a substantial CGT liability for my friends mother on the transfer?...


Yes,  once the existing €200k mortgage is satisfied, the owner will be assessed for CGT liability on disposal. The recipients (daughter and husband) may also be liable to CAT (gift / inheritence tax) on receipt of the house, based on the €650k figure


paulpd said:


> ... 2. ... Is there any way that by NOT doing the transfer (and therefore avoiding her mothers CGT bill) that a bank would lend these funds to my friend and use the property as collateral, eventhough her mother would remain on the deeds?...


No - how can a bank extend a mortgage on a property to someone who doesn't own it?


----------



## paulpd (14 Aug 2009)

I thought there might be a chance that if her mother kept the house and maybe got the loan herself and used the house as collateral. Maybe in some way like where the banks were offering older people (she's mid '60's) some equity release and this is then repaid apon their death. With the existing loan of E200k and a new loan of E150 we're looking at a LTV of approx 55%)

Looks like it's going to be difficult for them either way!


----------



## mf1 (14 Aug 2009)

There is of course always the possibility of simply 

A. Selling the house, paying the CGT and gifting the balance to the daughter who can buy another house or 
B.  Taking the hit on the CGT, gifting(or selling)  the house with the daughter taking on a mortgage to discharge the current mortgage, CGT etc.

The upside  of both is that there is movement on the property. The downside is the tax issue but I don't see how it is at all possible to achieve the after death tax free scenario on an intervivos (i.e. during lifetime)  transfer. 


mf


----------



## mercman (14 Aug 2009)

Why doesn't the friends mother simply gift the property to the daughter, using the allowance amount from parent to child of approx €450k. the additional value would then be treated for CAT. Any further inheritance from a parent would be fully taxable at the CAT rate.


----------



## paulpd (14 Aug 2009)

I see all your points.

What would be the chance of her mother getting a loan (c.E150k) in order to renovate the house. Her daughter and son-in-law would obviously repay both loans, with both loans being secured on the house? Altogether the loans would be E350k which would be very manageable as they both have secure jobs with good income. 

They won't sell the house as it's 400 yards from my friends place of work, in the area she grew up, and where she also has a free childminder 5 mins drive away!


----------



## mathepac (14 Aug 2009)

mercman said:


> Why doesn't the friends mother simply gift the property to the daughter, ...


But what about the €200k mortgage?


----------



## mercman (14 Aug 2009)

Surely if the daughter and son-in-law take out a new mortgage to replace that which is in the mother's name will complete the transaction. What would be the point of the mother trying to get a new loan for renovation purposes and the daughter etc to pay it. Firstly there would be massive Tax implications and secondly what is the point of trying to embark on the entire transaction to keep it squeaky clean and then to leave the mother with a pile of debt.


----------



## mf1 (14 Aug 2009)

mercman said:


> Why doesn't the friends mother simply gift the property to the daughter, using the allowance amount from parent to child of approx €450k. the additional value would then be treated for CAT. Any further inheritance from a parent would be fully taxable at the CAT rate.



The problem is with the mothers CGT liability 

mf


----------



## mercman (14 Aug 2009)

Well then either increase the mortgage or decrease the renovation to pay the CGT for the mother. It all will depend on the amount and time of the original purchase.


----------



## Scrambler (16 Aug 2009)

Wild Rover said:


> 1. If the house is valued at 650k then this is the deemed consideration (not 450k). It doesn't matter if there is a mortgage on the house or not. As the house is a rental property and not a PPR then CGT would be payable.
> quote]
> 
> 
> Surely if the mortgage is taken over with the house or the daughter pays it off, this would be an allowable deduction for CGT & CAT purposes and the 450k is a relevant figure?


----------



## mathepac (16 Aug 2009)

Scrambler said:


> ... Surely if the mortgage is taken over with the house or the daughter pays it off, this would be an allowable deduction for CGT & CAT purposes and the 450k is a relevant figure?


What reasoning /  precedent are you using as the basis for this argument?


----------



## Scrambler (18 Aug 2009)

Sorry I see I'm wrong on the CGT.
With CAt though, if the recipient of the gift worth 650k effectively pays consideration of 200k, will the taxable amount be reduced by that amount?


----------



## mathepac (18 Aug 2009)

Scrambler said:


> ...  I'm wrong on the CGT...


and on the CAT.


----------



## Scrambler (18 Aug 2009)

Why not explain?


----------



## Scrambler (19 Aug 2009)

From Revenue's website:

"Gift & Inheritance 
Gift tax is charged on taxable gifts taken on or after 28 February, 1974, and Inheritance Tax is charged on taxable inheritances taken on or after 1 April, 1975. An inheritance is a gratuitous benefit taken on a death and a gift is a gratuitous benefit taken otherwise than on a death. 
The tax is charged on the taxable value of the gift or inheritance. The taxable value is arrived at by deducting from the market value of the property comprised in the gift or inheritance permissible debts and incumbrances and any consideration paid by the beneficiary."


From this, it looks as though you can deduct the 200k if paid by the recipient, but check it with a tax advisor.


----------



## Ned_ie (19 Aug 2009)

1 - CAT gift tax on the transfer of the property - the daughter could move in to the house and live there for a period of 3 years. After that period the house could be transferred to the daughter free of tax (under current rules) and so long as the daughter has no other property in her name or beneficailly entitled to same

2 - CGT for mum - could wait until death to have the house actually transferred to the daughter - thereby avoiding any CGT and indeed Stamp Duty (not mentioned as yet). 

3-  Loan - herein lies the biggest problem. You mention the property is worth 650 with 200 owing at moment. Why not see if mum can borrow the extra 150 with daughter and hubby going as gaurantors on that loan? would that work? i think it might - the problem is - does any bank have 150 to give!!!!


----------



## paulpd (20 Aug 2009)

Ned_ie said:


> 1 - CAT gift tax on the transfer of the property - the daughter could move in to the house and live there for a period of 3 years. After that period the house could be transferred to the daughter free of tax (under current rules) and so long as the daughter has no other property in her name or beneficailly entitled to same
> 
> 2 - CGT for mum - could wait until death to have the house actually transferred to the daughter - thereby avoiding any CGT and indeed Stamp Duty (not mentioned as yet).
> 
> ...


 
I would think that would be the best bet, ie your last point with the daughter & husband going as guarantors. There is no doubt that the property will be passed onto the daughter on her mothers death. It's all about trying to avoid triggerig a CGT liability and also getting finance to renovate the property.

Thanks!


----------



## Ants09 (20 Aug 2009)

How long does your friends mother own the house is it more then 10 yrs ?
and how old is your friends mother ?


----------



## paulpd (20 Aug 2009)

Ants09 said:


> How long does your friends mother own the house is it more then 10 yrs ?
> and how old is your friends mother ?


 
My friends mother is around 67 or 68. (ie, not much chance of getting a loan!). She has the house since the early '70's and it has always been rented out. It was mortgage free until about 3years ago. She then re-mortgaged by E200k to buy a couple of apartments abroad. As far as I know, there is no life cover on the loan due to her age. It is simply secured on the house in the event of death. 

It's a case of trying to approach the bank in such a way so as to basically re-mortgage the existing E200k, and get approx E150k on top of that to renovate the house. Total E350k. At E350k there'd be a LTV of approx 50%. My friend then plans to live in it with her husband for life. Their combined salaries come to approx E120k. I don't think there's an issue with affordability.


----------



## Ants09 (20 Aug 2009)

well then your friends mother could dispose of the house to her daughter and claim retirement relief under s598 TCA97 and she doesnt have to dispose of her other investments at the same time, the amount that can be claimed is €750,000 dont know if this help you or not


----------



## Ned_ie (20 Aug 2009)

Ants09 said:


> well then your friends mother could dispose of the house to her daughter and claim retirement relief under s598 TCA97 and she doesnt have to dispose of her other investments at the same time, the amount that can be claimed is €750,000 dont know if this help you or not


 

Retirement relief does not apply to investment assets. so would not apply in this case.


----------



## Ned_ie (20 Aug 2009)

paulpd said:


> As far as I know, there is no life cover on the loan due to her age. It is simply secured on the house in the event of death.


 
I think they will have to have life cover on each others lives which would be assigned to the bank for the purpose of the transaction. 

They should talk to a bank


----------



## Ants09 (20 Aug 2009)

Ned_ie said:


> Retirement relief does not apply to investment assets. so would not apply in this case.


 
*Chargeable Business Assets​*[FONT=Arial,Arial]Chargeable business assets are assets used for the purposes of a trade (including farming), profession, office or employment, carried on by:​
♦ The individual,

♦ The individual’s family company or

♦ A company, which is a member of a trading group of which the holding company is the individual’s family company.
Land, buildings, plant and machinery are chargeable business assets. Goodwill is a chargeable business asset. Shares and other assets held as investments are excluded. Assets, which are not chargeable assets (for example, stock, debtors or cash) would not be included in the definition. Essentially every asset is a chargeable asset except one on the disposal of which, at the time of the disposal, any gain arising would not be a chargeable gain. Thus shares held as an investment would not be a chargeable business asset but would be a chargeable asset. 

so i presume since the property is held since the 70's and was rented out it be classify as a chargeable business asset !​[/FONT]


----------



## Graham_07 (20 Aug 2009)

Ants09 said:


> *Chargeable Business Assets​*
> 
> 
> 
> ...


 
Look at the very first line in your post. 
Investment properties ( like shares in the example you gave) are chargeable assets but not chargeable business assets. Retirement relief cannot be claimed in such situations. There is no trade/profession being run from the property. Rental income is "unearned income" Sch D Case V.​ 
There is one situation where it can apply to a rental property, where a company (trading) rents the premises from its proprietory director and on retirement the director disposes of BOTH the trade and property to the one party. In that case Retirement relief may apply to the property.  However that does not apply to the case in this post.​


----------



## Gervan (20 Aug 2009)

Renting is not  a trade.


----------

