Buying Family Home While Parents Living - Tax Implications?

G

G_Hand

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Hi

4 years ago I moved in with my elderly father to look after him when he was recovering from a major surgery. Im still living there now and have an apartment thats rented out (all legal, registered with PTRB, pay 'second homes' tax etc - I can 'prove' Ive been living at Dads that long basically).

My father has offered to sell me the family home and will split the price of the sale between my two brothers. It would be done on the understanding that he has a home for life etc.

For simplicity, say the family home is worth EUR900,000 and we have agreed a sale price of EUR600,000. Ive been gifted 300k by buying the house under market value, and each of my brothers would then get EUR300k cash.

How does the tax work?

Stamp Duty - Based on Market Value

CGT for my Dad - 0 as its the family home. Does that still apply if he doesnt then buy somewhere else? Hes owned the house for 50 years, we were raised in it.

Inheritance tax implications for me - if I sell my apartment am I exempt for inheritance tax because Ive been resident in the house for > 3 years? Or do I need to sell the apartment first, then wait another 3 years to get that exemption? Or would I be liable for 30% of the EUR300,000 or something else?

My brothers both fully support the plan and I believe I can raise the purchase price as Ive decent savings and a 6 figure income.

Im not liable for CGT on the apartment as I bought during the boom and its still worth less than I paid.

The only thing that will scupper it is if either I or my father get hit with an enormous tax bill.

Can anyone tell me what I would owe to the revenue if we go ahead with this?

Thanks - and feel free to move if this is the wrong forum for this question

GH
 
You’ll owe Revenue nothing other than the €9k of stamp duty.

- Your Dad gets Principal Private Residence Relief

- Your €300k gift should not give rise to a tax liability based on my understanding that you have a €310k tax-free threshold

- In terms of getting the Dwelling House Exemption and preserving your €310k threshold, that will only work if you inherit the share of the property and have sold your apartment at that time. The problem is the bank; you need a lender who will provide a split title mortgage which is far from straightforward. That’s so you can get finance to pay your brothers the €600k but with your father still retaining his 1/3 share to will to you. Messy, and unnecessary unless you will inherit further wealth down the line.
 
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Thanks Gordon

On eur310 threshold, if the house were valued at a million and we still went ahead with the purchase so I was deemed to be gifted eur400, 000 what would I owe then? Its a house in Dublin where the neighbours houses aren't compatible so it's hard to guess what it would be valued at and prices are flying up

In what circumstances can I avail of the inheritance tax exemption give I live in the family home and if I sold my apartment this year? Would I qualify?

Thanks
 
G_Hand said:
Thanks Gordon

On eur310 threshold, if the house were valued at a million and we still went ahead with the purchase so I was deemed to be gifted eur400, 000 what would I owe then? Its a house in Dublin where the neighbours houses aren't compatible so it's hard to guess what it would be valued at and prices are flying up

In what circumstances can I avail of the inheritance tax exemption give I live in the family home and if I sold my apartment this year? Would I qualify?

Thanks
Click to expand...

33% of everything over and above €313k for a gift.

You cannot own another dwelling at the time you inherit the property in question. The exemption no longer applies to gifts.
 
Just so I understand - I can't avail of the inheritance tax exemption because I'm not inheriting the house I'm buying it?

The transaction therefore counts as a gift of the difference between market value and sale price.

And I will owe 33% on any part of the gift over eur313k?

Who will determine the value of the house/gift?
 
G_Hand said:
Just so I understand - I can't avail of the inheritance tax exemption because I'm not inheriting the house I'm buying it?

The transaction therefore counts as a gift of the difference between market value and sale price.

And I will owe 33% on any part of the gift over eur313k?

Who will determine the value of the house/gift?
Click to expand...

It’s a self-assessment system; the onus is on you to apply market value.
 
G_Hand said:
My father has offered to sell me the family home and will split the price of the sale between my two brothers. It would be done on the understanding that he has a home for life etc.
Click to expand...

Hi G

Forget the tax implications for the moment, why is he doing this?

Your elderly father is giving away a valuable asset.

You are acquiring an asset with a sitting tenant with a right to stay there for life. You will be tied to it with a very large mortgage.

Fathers and sons fall out. Worse than that, fathers and daughters in law fall out.

He has a right to stay in the house. Who will mind him if you are no longer around? Will he have the money to pay for homecare? Your brothers may well not want to part with their money.

What if the right thing to do is for him to move into a home. But he has a right to stay in the house?

The only reason why your father might do this is that one of your brothers needs a lot of cash now. But that is not a good enough reason.

Your father should hang onto his house.

Alternatively, if he does sell it to you, he should hang onto most of the proceeds.

Brendan
 
Thanks Brendan, I see what you are saying. All of the above are valid points. We have/are considering all of them as a family but we wanted to close out the tax considerations first because the rest is moot if the tax implications would prohibit the whole thing anyway.
 
Hi G

I think that is the wrong way around.

You should not let the tax tail wag the dog.

Decide what you want to do without considering the tax consequences. Your priority probably should be what is best for your dad.

Then decide if you structure that in a tax-efficient way.

Brendan
 
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