Buying home off parents at below market value
- Thread starter kevin306
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To summarize.
Father inherits house in 2010 from uncle valued at €80,000. He spent ~30,000 in an extension and renovation to the house.
We now want to buy the house off him. He is happy to transfer the house over to us for €60,000 to use for his retirement fund.
We also want to renovate and build a further extension to the home, potentially looking at a mortgage of €180,000 (60,000 + 120,000).
Now we need to get the house valued. The lower the house is valued at will be a benefit to my father for CGT, however the higher the house is valued at will benefit me getting a mortgage. My father could leverage the €30,000 to help with lowering CGT but he would be struggling to prove this if an audit was to happen (used his savings, local builders lack of receipts etc.) How common are audits in this scenario?
I guess I just want to reach the optimal solution for the two possible scenarios:
1. We postpone the renovation until we have paid off the 60,000 (no mortgage).
2. We try for a mortgage to cover the cost of purchase & renovation.
Yes have meeting with solicitor next week. Just wanted to get some form of knowledge on the subject prior to.
@Gordon Gekko
Sorry to bring up and old post. But could you elaborate a bit on this.
Paying back the IOU over time?? We don't intend on paying the full 170,000 in this case though, just the 60,000 that they asked for.
And regarding the Group A, that definitely is not something we will come close to reaching.
Maybe just to add a bit of closure to this as I have sought solicitors advice and now going through with the purchase. There was actually no issue at all. Because my father is selling the house (60,000) for less than when than the value he inherited it at (70,000) there is no tax at play here. It is actually very straight forward and not complex at all.
T McGibney
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This is a mile wrong.
Based on your own figures, he's assessable to tax on €170,000 - €70,000, the current market value vs the market value when he came into ownership.
Beware of tax advice from solicitors, and legal advice from accountants.
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T McGibney
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It's such an obvious, simple mistake.
They spent 3-4 years in uni, plus did legal training apprenticeship, plus the type of person who is a sol should know these things!!
I have no tax training, just an interest in personal finances, and even I know that there may be a CGT liability if an owner of a non-PPR house disposes of it at a market value greater than the value at acquisition.
They spent 3-4 years in uni, plus did legal training apprenticeship, plus the type of person who is a sol should know these things!!
I have no tax training, just an interest in personal finances, and even I know that there may be a CGT liability if an owner of a non-PPR house disposes of it at a market value greater than the value at acquisition.
Ok slightly worried now. I must admit I went over it a few times with the solicitor because it was my understanding too that there was CGT at play here. But they were quite firm that because it is being sold for less than what it was inherited for that it does not come into force. It seems from the replies that this is categorically wrong. And the CGT will be taxed at (market value - market value at time of inheritance) ?????
The logic they said was; from revenues point my father is making a loss as he inherited the house worth 70,000 at the time and is now selling it for 60,000.
The logic they said was; from revenues point my father is making a loss as he inherited the house worth 70,000 at the time and is now selling it for 60,000.
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CGT is based on the market value of the house at disposal.
If the house is disposed of as a gift, below the market value, the CGT is still based on the market value.
This is extremely basic stuff.
You say that the house is worth 170k today.
You say that your father inherited it at a base value of 70k.
There is possiible CGT due on the 100k gain in value, less any of the normal deductions.
The fact that he kindly choose to sell it at 60k does not reduce the possible CGT bill.
If the house is disposed of as a gift, below the market value, the CGT is still based on the market value.
This is extremely basic stuff.
You say that the house is worth 170k today.
You say that your father inherited it at a base value of 70k.
There is possiible CGT due on the 100k gain in value, less any of the normal deductions.
The fact that he kindly choose to sell it at 60k does not reduce the possible CGT bill.
A question to ask the solicitor is how they calculate the stamp duty due, as it is they who pay it over to Revenue Commissioners....it should be on 170k regardless of the sale price. With something as basic as this, I would probably look for a different solicitor. They are by no means tax experts but at the very least need to be able to calculate stamp duty and should have seen below market sales at some stage before.
Yes they said the stamp duty would be calculated at current market value. So that would be on 170/180k. At least that much was correct.
Ya I guess I will have to look elsewhere for advice.
What's worse is they said they have had similar situations in the past so obviously have gave similar advice to others.
This does make the sale for my father really difficult, looks like he could be hit with a CGT bill of ~33k which seems so unfair after already paying inheritance tax on the property.
Is this for sure the house for you? If it has a large cash cost to your father is it worth it to purchase it or are there other options, ie him sell on the open market to fund the tax and gift you the balance less the 60K?
He inherited it for 60k, paid x amount of inheritance tax, now must pay x amount of CGT but is able to gift you the increase in value, and presumably you have lived there for a reasonable rent or no rent for some time? So that is the benefit of it to him, rather than the cash amount.
He inherited it for 60k, paid x amount of inheritance tax, now must pay x amount of CGT but is able to gift you the increase in value, and presumably you have lived there for a reasonable rent or no rent for some time? So that is the benefit of it to him, rather than the cash amount.
We have made this practically our family home and love it. Looking on daft the current house market, we would get nothing similar unless spending much more.
Just seems crazy that a parent doing a good deed such as selling the house to his son for much less than market value is hit with such a tax after already paying an inheritance tax on the house already.
It seems there is no way of him selling the house at the much reduced rate and avoiding the CGT tax. That much is 100% even though my solicitor explicitly told me that was not the case
I have a scheduled call with them tomorrow so will bring this up. Seems like such a basic error on their behalf. Especially when I brought up this specific concern regarding CGT. So not like just something they let slip. They specifically said it is not at play because it would be seen as a loss on my fathers behalf. Anyway should make for an interesting call tomorrow
Thanks for the clarification guys
Thanks for the clarification guys
It seems there is no way of him selling the house at the much reduced rate and avoiding the CGT tax. That much is 100% even though my solicitor explicitly told me that was not the case
Correct. Of course if you don't believe the advice that you've given here, then why not give Revenue a shout and ask them!
EDIT: It's explained rather well in this link https://www.gintax.ie/irishinsights/family-property
T McGibney
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Please don't, @kevin306 . My name is on it.
T McGibney
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This would be a crazy thing to do.
Revenue are not in the tax advice business and routinely disclaim all responsibility for "advice", guidance, opinions or tips given by their staff.