Buying home off parents at below market value

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kevin306

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My father inherited a house ~15 years ago from his uncle. We have been living in the house for a few years now and intend on buying it. The house in todays market is probably worth around 170,000. He is only looking 60,000. Are there any tax implications around this? I am married.
My understanding is:
If my parents gift the house to me it will be below the life time inheritance for band A limits (parent to child €335k).
Can I then pay off monthly (€1000) into some savings account or other. Or would some of this then be deemed taxable.
 
The tax impact is for your father. Regardless of whether he gifts you the house for free, or sell it to you for 170k, they will have capital gains tax to pay from the value at the time he inherited it up to the market value when he disposes of it. The savings account idea is a red herring.
 
they can gift you 110,000 (170,000 minus 60,000) under the inheritance rules. If you don't think you will come near the lifetime threshold limits of 335,000 you can do that and nothing else to worry about.

Your father could gift you €3000 and your wife another €3000 and you would then "inherit" a reduced amount of €104,000. If your mother is alive and co-owner of the house, she can do likewise an reduce the "inheritance" further again to €98,000.

Alternative, your father could gift ye the house and ye repay interest free loan over the coming years. The interest that he could've earned from 170,000 would probably be below the €3000 tax free limit anyway, so ye could do that and keep your lifetime inheritance limit of 335,000 if required for the future.

Your father may have CGT liability if the house is worth 170,000 at the time of its transfer (regardless of what he actually sells it to you for). CGT would be liable at 33% after costs and expenses after an annual allowance of 1270 euro. It depends what the house was valued at the time of your fathers inheriting it 15 years ago.
 
if inherited it back in 2007 or 2008, then perhaps the house was valued significantly higher than 170,000 in which case, there's no CGT liability and your father can actually record a capital loss, which might be of use to him at some point in the future.
 
PebbleBeach2020 said:
if inherited it back in 2007 or 2008, then perhaps the house was valued significantly higher than 170,000 in which case, there's no CGT liability and your father can actually record a capital loss, which might be of use to him at some point in the future.
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That's a great point.
 
Could you turn your proposal on it's head as follows...

You gift your father & mother 60k at 6,000/year over the next 10 years under the gift allowance.

They Will the house to you & write up a contract that you have sole & exclusive use of the house during their lifetime or similar.
 
PebbleBeach2020 said:
they can gift you 110,000 (170,000 minus 60,000) under the inheritance rules. If you don't think you will come near the lifetime threshold limits of 335,000 you can do that and nothing else to worry about.

Your father could gift you €3000 and your wife another €3000 and you would then "inherit" a reduced amount of €104,000. If your mother is alive and co-owner of the house, she can do likewise an reduce the "inheritance" further again to €98,000.

Alternative, your father could gift ye the house and ye repay interest free loan over the coming years. The interest that he could've earned from 170,000 would probably be below the €3000 tax free limit anyway, so ye could do that and keep your lifetime inheritance limit of 335,000 if required for the future.

Your father may have CGT liability if the house is worth 170,000 at the time of its transfer (regardless of what he actually sells it to you for). CGT would be liable at 33% after costs and expenses after an annual allowance of 1270 euro. It depends what the house was valued at the time of your fathers inheriting it 15 years ago.
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Ok so just to clarify, the price of the house will only impact me by reducing x amount from 335,000. No tax implication. For my father he will have to pay CGT on market value at time of inheritance - market value now. Just speaking to him it seems it was valued at far lower at the time ~€80,000, (a lot of renovation & small extension done since). Then it would be in his best interest to sell for more right to avoid CGT which would still only impact me by reducing my lifetime threshold limit?

I don't understand the second paragraph, with my mother/father gifting €3000
 
Small gift allowance permitted of 3000 euros per year tax free. Your father could give you 3000 euro a year tax free. So could your mother. And both could give you wife 3000 euro a year tax free. So that would be 12,000 euros in total tax free a year. If you have 3 kids, your parents could each gift eah child 3000 euros which would be another 18000.
 
PebbleBeach2020 said:
Small gift allowance permitted of 3000 euros per year tax free. Your father could give you 3000 euro a year tax free. So could your mother. And both could give you wife 3000 euro a year tax free. So that would be 12,000 euros in total tax free a year. If you have 3 kids, your parents could each gift eah child 3000 euros which would be another 18000.
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Ok sorry I understand now. Yes I have three kids too so that would mean an extra 30,000 that would not be taken off my lifetime threshold limit. So then the only issue is the CGT my father would need to pay.
 
kevin306 said:
Ok sorry I understand now. Yes I have three kids too so that would mean an extra 30,000 that would not be taken off my lifetime threshold limit. So then the only issue is the CGT my father would need to pay.
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no the kids would have to be named on the house for that to work. I meant as a general piece of information.

If your father is giving you the house and it's an interest free loan. If the house is in your name and your wife, then once the interest that could've been earned by your father with the sale proceeds (instead of gifting you the house) is less than the 6000 euro annual small gift allowance (3000 for you and 3000 for your wife) then you are fine. You can repay the loan over time.
 
PebbleBeach2020 said:
If your father is giving you the house and it's an interest free loan. If the house is in your name and your wife, then once the interest that could've been earned by your father with the sale proceeds (instead of gifting you the house) is less than the 6000 euro annual small gift allowance (3000 for you and 3000 for your wife) then you are fine. You can repay the loan over time.
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OK, this would be the bank of mum and dad scheme then right? How does that work in practice? My parents sign over the house to me and my wife and this is repaid how specifically? Directly into their bank account. Are their set amounts to be paid over time or is it ad-hoc?
 
Without knowing your fathers age, if you are likely to be applying for Fair Deal in the next 5 years, bear in mind they can also look back at any asset disposal in that period.
 
On other thing. We will be looking to do a renovation to the house too with an extension. We had in mind to do this further down the line.. But would there be an issue with the bank if we wanted to do this all together. i.e. 100,000 for renovation/extension and the 60,000 for the house. If we were to take out a mortgage for whole amount. Does this change anything with what was said earlier in thread. The alternative is to just buy the house first and pay off interest free loan to parents but it would delay any potential refurbishment
 
Given that it was inherited in 2007/2008, there may be no capital gain. But any loss would be restricted to gains on other disposals from father to child.

I’d transfer it at market value (€170k?) in exchange for an ‘IOU’ and then use the Small Gift Exemption to write-off the IOU over time.

Unless the entirety of the Group A threshold will never be used, in which case just make the €170k a gift and move on with your lives.
 
I have one further query though. If we wanted to purchase the house and build extension/renovation at the same time. Rather than applying for a mortgage for the extension and paying off the 60,000 to my parents concurrently. Is it possible to apply for a mortgage to cover purchasing the house and the extension. Not sure this would be above ove board from the banks point of view.
i.e. using 60,000 of the mortgage to periodically transfer over to my parents to cover the house.
 
kevin306 said:
I thought I could only pay x amount each year (small gift allowance)
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No.

You've taken something very simple, and made it complicated.

You could give your parents 170k for the property today. Absolutely no gift tax issues. The tax issue for your parents is Capital Gains Tax (CGT). The CGT position for your parents has nothing to do with when or if you pay them, as it's based on the market value of the property.

The small gift allowance is only if your parents were gifting YOU an amount per year.

1 way they can do that is to legally sell the house to you for 170k, but you owe them the money. And each year they 'write off' 6k or 12k as a gift, reducing the amount you owe them.
 
RedOnion said:
1 way they can do that is to legally sell the house to you for 170k, but you owe them the money. And each year they 'write off' 6k or 12k as a gift, reducing the amount you owe them.
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That way would be quite drawn out though wouldn't it.
PebbleBeach2020 said:
Alternative, your father could gift ye the house and ye repay interest free loan over the coming years. The interest that he could've earned from 170,000 would probably be below the €3000 tax free limit anyway, so ye could do that and keep your lifetime inheritance limit of 335,000 if required for the future.
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If we were to do this, could the 60,000 from 170,000 mortgage be repaid swiftly?
 
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