Buying dilemma - sibling's purchase of house and transfer of agricultural land.

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sparky11

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Folks not sure what title to put on this thread but this is my story.

I have a sibling currently living at home but wants to move out and have his own house. He is on an invalidity pension and while young will problably never work again. He will not get a mortgage but wants me to get a mortgage to buy a house for him and in return he will transfer to me 20 acres of land of which he owns.

I have been thinking about this and wondering which is the best way to go.

Do I buy the land from him and then he goes and buy his house?
Do I look for a mortgage and buy the house?

Whichever way I go, involves going to the bank to look for E70k.
I am looking for your advice on the pitfalls to both options from a monetary and legal point of view.

This is the scenario... the land is worth circa 120k.. the house he wants will be bought for 70k. He does not use the land and is wants desperately to do the swap with one of the family. There are personal reasons why the land should not be sold and kept within the family so please no need to go there.

I have no great desire to farm the land but maybe in a few years time one of my own kids might. Its purely agriculture land and will never be anything else as it is in a very rural area.
 
sparky11 said:
Do I buy the land from him and then he goes and buy his house?
Click to expand...

I think this is the only way to go.

From your sibling’s point of view, it would be a very unsatisfactory arrangement for you to get a mortgage and buy him/her a house, as for a bank to lend you the money, it would have to be your house, not your siblings.

Your sibling would have given up their 20 acres and would no longer own anything.

You would effectively be buying a rental property, becoming a landlord, and your sibling becoming your tenant.
 
Ok.. the issue regarding ownership would'nt really come into it. After all its only a piece of paper..
I'm not trying to be smart here - just trying too work this out as best I can.
Do you think I would have a better chance of getting the mortgage for a house as opposed to a loan for land. And also wouldnt the interest rates be cheaper on a mortgage??
 
How much money have you saved, on what basis could you go to a bank to purchase land for 120K with a loan of 70K.

Yes a mortgage is bound to be cheaper than a loan for land.

How would your sibling pay a mortgage?

What's your income, are you single.
 
Very unlikely that any bank will give you a 100% loan to buy 20 acres of land which is likely to lay unproductive. This is really not a runner.
You may be in a position to borrow for a mortgage but as previous poster said the house and mortgage will need to be in your name. You will also need to put up the required deposit. best way of doing this is to buy the property yourself and agree a rental payment from your cousin or if he cannot afford to pay rent allow him to rent free for a period. You should set everything up legally as ultimately you may need to sell this property yourself. The land transfer doesn't make much sense if it can't be sold!!
 
Ok, maybe I am not explaining myself well enough.
Forget about the value of the land.
The land is the only thing he owns and it was left to him in a will some time ago. He does not farm it and has no interest in it but it is part of a bigger farm that a relation farms.

He wants me to buy him a house in exchange for the land and I am looking at the easiest and the cheapest way of doing it.

I am looking at a €60 - €70k mortgage over 10 years. I will own the house until the mortgage is paid off but effectively he is the person that will be living there. In exchange for this he wants to sign over the 20 acres of land. I dont mind if the exchange happens when the mortgage is clear in 10 years time but am wondering what legal questions and costs will be incurred.

Is there a simpler way of doing this?? Am I complicating things??
 
If I've understood what you want to do:
You buy a house worth 70k and pay the mortgage on that house. He lives there (some kind of residence for his lifetime agreement I suppose). Or does he want to eventually actually own the house?
He gives you land worth 120k.

I know you said forget about the value of the land but I'm not sure it is possible to forget about it - aren't there some kind of rules in place regarding selling property at below market value? At the very least I'd say there would be tax implications (gift tax, for example), wouldn't there?
 
There certainly will be tax implications if you attempt to do what you are proposing. As I understand it, you will have to pay a CAT bill of about 40k to complete the transfer of the land unless you qualify as a farmer after the transfer (i.e. the land makes up more than 90% of your assets). On the other hand if he sells the land to you, he MAY have to pay CGT depending on a number of factors. I think you need professional advice just on the most tax efficient way to do this as well as worry about the financing. I myself am in a somewhat related situation and I've given up trying to figure it all out myself.

The tax rules seem very unfair to be honest when it comes to unmarried people (e.g. the classic elderly bachelor farmer with an unviable small farm) and the transfer of agricultural land. It's difficult/expensive to try to help them without selling the land outside the family whith many are loath to do. If they have children then it's a different story.
 
I think you are maybe over complicating this.

Basically there are two separate transaction here
1) the sibling is going to buy a house for 70K
2) The OP is buying land for 70K (worth 120K)

The OP approaches the bank and says that he needs a mortgage of 70K to purchase land worth 120K (70/120 Loan to value ratio) In return for a loan of 70K the OP offers the land as full security and he also offers a full mortgage to be put on his siblings house. This should be sufficient security for the bank especially if the OP has sufficient earning capacity to service the loan.Once the 70K loan is obtained from the bank it is handed over to the sibling (as consideration for the land) who then purchases his house and the OP simultaneously takes ownership of the land.

There are two possible tax implications
1) The sibling may have a liability to capital gains tax. The gain is basically the difference between the value of the land on inheritance and the market value of the land now at the CGT rate of 33%
2) The OP may have a liability to gift tax (CAT) calculated as the difference between the market value of the land now and the purchase price ie the gift will be deemed to be 120-70=50 at a CAT rate of 33%

The tax calculations should be referred to an accountant or tax practitioner as individual circumstances can affect the outcome of the tax calculation materially.

Any CAT tax payable in (2) can be offset against any CGT payable in (1)
 
Dr.Debt said:
I think you are maybe over complicating this.

Basically there are two separate transaction here
1) the sibling is going to buy a house for 70K
2) The OP is buying land for 70K (worth 120K)

The OP approaches the bank and says that he needs a mortgage of 70K to purchase land worth 120K (70/120 Loan to value ratio) In return for a loan of 70K the OP offers the land as full security and he also offers a full mortgage to be put on his siblings house. This should be sufficient security for the bank especially if the OP has sufficient earning capacity to service the loan.Once the 70K loan is obtained from the bank it is handed over to the sibling (as consideration for the land) who then purchases his house and the OP simultaneously takes ownership of the land.

There are two possible tax implications
1) The sibling may have a liability to capital gains tax. The gain is basically the difference between the value of the land on inheritance and the market value of the land now at the CGT rate of 33%
2) The OP may have a liability to gift tax (CAT) calculated as the difference between the market value of the land now and the purchase price ie the gift will be deemed to be 120-70=50 at a CAT rate of 33%

Any CAT tax payable in (2) can be offset against any CGT payable in (1)
Click to expand...

Just for clarity, any CAT due in (2) can be reduced by the amount of any CGT paid in (1).
 
looks like sound advice and a need to contact the legal people about same. I am going to the bank on monday to put the details to them.
 
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