# Helping son buy house



## KOW (16 Apr 2018)

Son living in Dublin usual paying big rent. He has 100k in savings. Training and studying. Salary only 25k. Any way myself and wife could help him buy small house apartment without major tax implications. Only child so relucant to use up future limits.


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## Brendan Burgess (17 Apr 2018)

Let's say he wants to spend €400k on an apartment. 

A lender might give him €100k. 

So he is short €200k. 

If you give him €200k , the bank will require that it be a gift rather than a loan.  While there would be no tax implications of giving a gift of this amount to him, returning a gift could well involve a CAT payment. 

You could jointly buy the property with him. A bit messy.

Or could you buy the property yourselves and let him stay in it? 

He could lend you the €100k. 

Or simplest of all, continue paying rent until he is ready to buy on his own.

Brendan


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## Thirsty (17 Apr 2018)

Just out of curiosity...

Parents gift the €200k.

Son rents out second bedroom in new apartment under rent a room scheme.

Son gives parents monthly gift of €300 to help them out as he's a great young man.

Tax implications?


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## Gordon Gekko (17 Apr 2018)

I’m aware of numerous instances where families tell the bank that a sum of money is a gift and then document (for tax purposes) that the money was under no circumstances a gift and that a particular declaration dated X was pure fantasy and for banking purposes only!


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## KOW (17 Apr 2018)

Brendan if i was to gift son 200k does that not affect future threshold for inheritance of 310k? Are I miss understanding it all. Thanks.


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## john luc (17 Apr 2018)

can the parents not lend him the money


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## Vanessa (18 Apr 2018)

DCD said:


> Brendan if i was to gift son 200k does that not affect future threshold for inheritance of 310k? Are I miss understanding it all. Thanks.


I believe that you have the right idea. The parents still have the option of using up the balance to 310000 as well as 3000 each gift annually but then everything else will be taxed at 33% if given in a will.
He is an only child so it looks like they have  a lot of assets to pass on.
I think its times to speak with a good probate lawyer and accountant to plan how assets can be transferred both now and after parents death


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## Brendan Burgess (18 Apr 2018)

DCD said:


> Brendan if i was to gift son 200k does that not affect future threshold for inheritance of 310k?



Yes, it does.  But deal with the issue now of helping your son buy the house.

If you have the funds, lend him the entire amount and it won't affect his gift threshold. 

Brendan


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## john luc (19 Apr 2018)

when you lend someone money like this situation are there benefit in kind issues regarding paying no interest. If this is so then the son could pay back interest and loan payment each year of €6000 to the parents. they can then each give €3000 to the son as a gift which does not effect his inheritance allowances.


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## Brendan Burgess (19 Apr 2018)

Hi John

Let's say the parents lend him €300k interest free.  If each of the parents lends him €150k, then any BIK would be in or around €3,000 so it would not affect the CAT. 

Of course, he can avoid the CAT problem by paying interest, but then the parents will pay income tax on the interest received. 

Brendan


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## DirectDevil (19 Apr 2018)

Brendan Burgess said:


> Let's say he wants to spend €400k on an apartment.
> 
> A lender might give him €100k.
> 
> ...



Out of curiosity, why would banks require funds of €X from parents to son to be in the form of a gift as distinct from a loan ?

Would there be some problem for a bank about getting a good or a prior charge over the property in the event of a default ?


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## Gordon Gekko (19 Apr 2018)

The bank would have to factor in the loan repayment to the parent in the context of the borrower’s overall ability to service the mortgage. For a gift, that’s not the case.


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## Prittstick (20 Apr 2018)

Here is a very interesting article on this very subject, especially on  how a ,gift,  can be structured as a loan

[broken link removed]


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## Brendan Burgess (20 Apr 2018)

Hi Pritt 

As that article is difficult to read, you might do a summary of the main points.  I presume it's an Irish article? That was not obvious to me at a glance. 

Brendan


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## Prittstick (20 Apr 2018)

Brendan

If you hit the 'Full Screen' symbol (second from right at bottom) its much easier to read.

Yes, its Irish.

Here,s the gist, I have pasted.---

An alternative approach would be for the parent(s) to lend money to the child with a view to preserving the Group A threshold. On first principles, a loan is not a gift, and the same is true from a tax perspective on the basis that no beneficial entitlement to the capital sum (i.e. the loan amount) arises.

Nonetheless, there are tax consequences which must be considered; the advancement constitutes “free use of property” per the Capital Acquisitions Taxes Act, and the resulting benefit must therefore be computed. However, rather helpfully, the basis for the calculation is the opportunity cost to the parent(s) of not having the relevant monies, and even more helpfully (for the foreseeable future), is the fact that the accepted proxy is the prevailing call deposit rate. Assuming a rate of 0.5% (which would be hard to find in today’s market), the ‘tax cost’ of a €100,000 advancement would be €500 per annum, which is more than covered by the Small Gift Exemption of €3,000. 

The position becomes even more interesting if (say) the lender decides periodically to write-off a portion of the loan. Consider a €100,000 advancement from parents to their son and daughter-in-law; the same annual tax cost of €500 arises, but the parents could, in theory, write-off
circa €11,500 of the outstanding loan on an annual basis, thus amortising it over circa nine years. In such circumstances, the next generation’s capital requirement is satisfied, but the tax-free thresholds remain intact


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## Brendan Burgess (20 Apr 2018)

Prittstick said:


> the parents could, in theory, write-off
> circa €11,500 of the outstanding loan on an annual basis



Just to explain where this comes from. 

The father can give his son and his DIL €3,000 each.
The mother can give her son and her DIL €3,000 each
That is €12,000
Less the €500 interest waived.
€11,500 

Brendan


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## Brendan Burgess (20 Apr 2018)

Prittstick said:


> the accepted proxy is the prevailing call deposit rate.



Is this written down anywhere? 

It means that a father could lend his son €600,000 interest-free  and the son would be subject to a charge of €3,000 a year for "free use of property". 

Brendan


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## Daddy Ireland (11 Aug 2018)

Just exploring an idea.  Could my wife and I loan our daughte 200k to purchase fully a 3 bed property interest free. Our daughter is 19 and commencing a 4 year undergrad. The property would be in her name.   Could she then rent out 2 rooms under rent a room relief scheme.   Plan would be to sell the property after 4 years, pay and CGT due and daughter repay us our 200k.


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## Bronte (11 Aug 2018)

But if it's her PPR there would be no CGT. Would the 200k be the full cost of the house.

It's very clever because your daughter would live rent free, the rent from two others helps pay her college fees and your money which was earning diddly squat is being used to maximum benefit.

But is this legal from a tax evasion perspective.


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## Daddy Ireland (11 Aug 2018)

Thanks.
House would be max 200k.
Overlooked no CBT.

No doubt there are some taking this approach if it's legal.


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## Bronte (11 Aug 2018)

I'll be meeting my accountant this month and will ask him if this is legal. Or how I can make sure it is legal. I have major costs for college looming. Accommodation being the costliest. Unfortunately with property in two university cities my child doesn't want to study in Ireland!


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## RedOnion (11 Aug 2018)

Daddy Ireland said:


> No doubt there are some taking this approach


Yes, people do it.

Few things to consider:
Do you have any younger children that might end up going to same university?
Does it actually make sense before looking at tax aspect?
You daughter will lose FTB status which will affect her depending on what rules are when she wants to buy in future.


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## Daddy Ireland (11 Aug 2018)

Do post back Bronte later on what your accountant says.
No younger children.
I think it makes a lot of sense.
Even if the property was to drop in value after 4 years to 170k the other two renting students will have paid my daughter's 4 years uni costs.   That should be worse case scenario and would result in a breakeven situation,  With property not likely to be falling in value abd interest rates likely to remain low I think I srptand a good chance of at least seeing my 200k in 4 years.
Take your point Red Onion on FTB status  but is that really all that important I wonder.


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## Daddy Ireland (11 Aug 2018)

Apologies for typos.  Early morning thoughts,.


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## Gordon Gekko (11 Aug 2018)

Daddy Ireland said:


> Just exploring an idea.  Could my wife and I loan our daughte 200k to purchase fully a 3 bed property interest free. Our daughter is 19 and commencing a 4 year undergrad. The property would be in her name.   Could she then rent out 2 rooms under rent a room relief scheme.   Plan would be to sell the property after 4 years, pay and CGT due and daughter repay us our 200k.



There would be no issue whatsoever with this. As Brendan has pointed out, there would be no CGT. I’m amazed at how few people avail of “Rent a Room” relief; it’s a superb relief. Yes, perhaps people with money don’t want strangers living with them, but in this case it’s a neat angle.


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## Daddy Ireland (11 Aug 2018)

Thanks Gordon.


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## Bronte (11 Aug 2018)

I will come back to you DI. 

I don't think there is FTB anymore.


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## Bronte (11 Aug 2018)

Gordon Gekko said:


> There would be no issue whatsoever with this. As Brendan has pointed out, there would be no CGT. I’m amazed at how few people avail of “Rent a Room” relief; it’s a superb relief. Yes, perhaps people with money don’t want strangers living with them, but in this case it’s a neat angle.


This is a no brainier. You also could possible have two students in a double bedroom. Just as long as you keep the rent to the limit. Student year is about 8 months.


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## RedOnion (11 Aug 2018)

Bronte said:


> I don't think there is FTB anymore.


there is, but the benefits have changed over the years.

There used to be 2 different stamp duty rates, which was the big difference, but that's gone. Currently the main difference is the 'help to buy' scheme which is only available to FTB's. This can be worth up to 20k.

Depending on political changes there might it might not be a benefit in a few years when the daughter is buying their permanent home.


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## Gordon Gekko (11 Aug 2018)

As I understand it, Help to Buy is only for new properties, which is reasonably restrictive.


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## Dintelligentinv (12 Aug 2018)

The BIK point is a non issue as no income tax consequences when relationship isn't an employer employee relationship. What would be an issue is the annual benefit foregone by the parents as a result of the loan i.e. the interest income the parents could have earned by putting the funds on deposit e.g. probably 0.5% in the current environment. This benefit is potentially subject to CAT. However unless the loaned amount is substantial or deposit rates increase probably going to be covered by the small gift exemption


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## Daddy Ireland (13 Aug 2018)

Just another angle on this idea please.  I lend my 19 year old daughter the said 200k interest free to purchase a house in which she will not live in but rent out for the next 4 years.   As a 3rd level student commencing a 4 year course the idea would be that the rent from the property would cover her accommodation elsewhere and 3rd level fees.    Any uplift when selling in 4 years would be subject to CGT as not used as a PPR.   She would have no other income in them 4 years.   Her rental income lets say is 10k per annum.
What is her taxable position on the rental income ?


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## Gordon Gekko (13 Aug 2018)

That doesn’t make a whole lot of sense as the rental income is taxable, albeit at the 20% rate with some exempt. She’d just be taxed on the rental income as normal.


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## Daddy Ireland (13 Aug 2018)

So Gordon having no other income her tax credits don't mean a jot.


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## Dintelligentinv (13 Aug 2018)

The first 8250 for income tax purposes would be covered by the single person tax credit. The balance of 1750 would be subject to income tax at 20%. Prsi of 4% payable on the full 10k. Shouldn't be any usc as below the threshold.


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## Daddy Ireland (13 Aug 2018)

Thanks for that so it does make some sense. 750 out of 10k isn't too bad in the overall scheme of things.


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## Daddy Ireland (13 Aug 2018)

I will choose either of the following so based on replies.

Option 1 : Post 18 - 200k interest free loan.  Rent to 2 pals approx 8k per year for 4 years.   Sell after 4 years.  Any uplift no CGT as PPR.  Assuming no price increase in property for this comparison.

One drawback is daughter will feel obliged that she must take care of place as opposed to living a normal student life and she may not thank me for that or may feel she would like to be elsewhere in the city.

Outlay 200k
Income 32k (8k x 4 years)
Uni Costs 24k (6k per annum being 3k student contribution and 3k living/travel costs)
Landlord costs 2k over 4 years
Net position assuming no increase in property price over 4 years 206k.
So a gain of 6k over initial 200k outlay.

Option 2: Post 32 - Actually have my eye on a property all in costing 170k.  Net rental income of approx 11.5k.  Tax at 20% on 11.5k less 8,750 plus 4% PRSI on full 11.5k and no USC.  So taxes total 1,010 giving net 10,490.   Daughters costs in Uni assumed at 10k p.a being 6k as in option 1 plus 4k accommodation costs.
Outlay 170k
Income 46k
Uni costs 4 years 40k
Taxes 4k
Net position assuming no increase in property price over 4 years 172k. 
So a gain of 2k over initial 170k outlay.

Taking everything into account, any thoughts on which you would choose would be appreciated.


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## Dintelligentinv (13 Aug 2018)

I have a concern. I think Revenue could say you would be the real beneficial owner of the property albeit that you would put your daughters name forward as legal owner for the purposes of amongst other things avoiding tax. Revenue has the power under the general anti tax avoidance rules where they suspect artificial structures are put in place to avoid tax to look through such schemes and apply the tax rules as if such schemes did not exist. I would seek professional tax advice before proceeding.


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## PaddyBloggit (13 Aug 2018)

Daddy Ireland said:


> One drawback is daughter will feel obliged that she must take care of place as opposed to living a normal student life and she may not thank me for that or may feel she would like to be elsewhere in the city.



em... surely this consideration shouldn't exist; she's getting accommodation for free and I would expect that she would take care of any other property if she was renting it.


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## Gordon Gekko (13 Aug 2018)

Dintelligentinv said:


> I have a concern. I think Revenue could say you would be the real beneficial owner of the property albeit that you would put your daughters name forward for the purposes of amongst other things avoiding tax. Revenue has the power under the general anti tax avoidance rules where they suspect artificial structures are put in place to avoid tax to look through such schemes and apply the tax rules as if such schemes did not exist. I would seek professional tax advice before proceeding.



That just wouldn’t be the case.

It’s a real transaction; the daughter would actually be buying the property.

General Anti Avoidance isn’t relevant here.


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## Daddy Ireland (13 Aug 2018)

Thanks for replies.

PaddyBloggit: Students will be students I guess and my daughter would not prove too popular with her housemates if she was telling others to be careful of the place.
Another negative on Option 1 would be if my daughter didn't like her course and wanted to move to a different city.   Had this already with another child of mine.  Didn't like the course or Dublin so moved to Cork and loved it there.


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## RedOnion (13 Aug 2018)

Daddy Ireland said:


> Another negative on Option 1 would be if my daughter didn't like her course and wanted to move to a different city.


Then it becomes Option 2, which isn't so bad a scenario.


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## Daddy Ireland (13 Aug 2018)

Thanks Red Onion.    I am slightly coming down in favour of Option 2 myself but welcome any further opinions.  200k outlay v 170k outlay.  Main  negative I think with Option 2 would be CGT applying to any possible increase in value over the 4 years.


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## RedOnion (13 Aug 2018)

Daddy Ireland said:


> welcome any further opinions


By the way, what does said daughter think?
After all, it's her investment...


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## Dintelligentinv (13 Aug 2018)

It sounds to me from what was said previous that it would be the father's investment property if we are really being honest with the daughter as legal owner as it suits us better for tax purposes. I'm not saying Revenue would bring the case against you or that they would win. I'm just saying this is what I would think if I was in Revenue's shoes


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## Daddy Ireland (13 Aug 2018)

Red Onion: To learned people it should be fairly obvious what I am at so no need really to ask my daughter.    If what I am doing is legit why not do it ?   I have put 3 other of my children through Uni with no help of student grants or student loans and my wife and I don't earn big salaries. 

Dintelligentinv:  Thanks for your inputs.


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## RedOnion (14 Aug 2018)

Daddy Ireland said:


> Red Onion: To learned people it should be fairly obvious what I am at so no need really to ask my daughter.


I understand completey, my poor attempt at sarcasm.

But on a serious note, I think you need to really think about what will happen if it all goes wrong. As in, 4 years down the road property is worth less than you buy for. Will you sell anyhow? Will daughter owe you the shortfall? There are tax implications of you saying no. Or will you keep it, potentially having tax implications for your daughter once she starts working full time?

What if your own financial circumstances change and you need the money?

If the property increases by 50k in value, is that money yours or your daughter's?
What if your daughter refuses to sell?

What if something happens to yourself and Mrs. Daddy?

I know what you're doing, and I would be doing the exact same in your circumstances (my children are far too young to be allowed to own property directly), but at the end of the day you and your daughter are entering in relatively large legal agreements, so you both need to understand the implications of what you are doing, and put an appropriate loan agreement in place between you. You never want to think family fall out, and I'm not trying to scare-monger, but it's best to have thought this through now than if it goes wrong in future.


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## Daddy Ireland (14 Aug 2018)

Thanks Red Onion. 
I take all your points on board.


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## Daddy Ireland (20 Aug 2018)

Dintelligentinv said:


> The first 8250 for income tax purposes would be covered by the single person tax credit. The balance of 1750 would be subject to income tax at 20%. Prsi of 4% payable on the full 10k. Shouldn't be any usc as below the threshold.



The first 8,250 of rental income would be covered by the single person tax credit of 1,650.  I think single people are entitled to 3,300 in tax credits.  Would this then not mean that the first 16,500 would be subject to no income tax ?


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## Dintelligentinv (20 Aug 2018)

No. I'm guessing the extra 1650 you're referring to is the employment tax credit. You're not entitled to this if no employment income


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## Daddy Ireland (20 Aug 2018)

I see thanks for putting me right on that.  So if part time employment income of say 2k and the rent of 10k then would any of the rental be subject to 20% ?


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## Dintelligentinv (20 Aug 2018)

You can't use employment tax credit to offset the rental income. If you have 2k of employment you'd only be entitled to a reduced employment tax credit. Not the full 1650


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