buying parents house

F

Fistfulls

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We are planning on buying my parents house, but are hoping to pay less than the actual market value of the house. We estimate it would be worth around 1mil and we were hoping to give them 300k.

Basically, we will be moving in to one section of the house and we want to make sure that the house is signed over to us before we move in and that it isn't left to another sibling down the road.

What are the tax implications either for us or my parents of something like this?
 

sounds like you intend to con your family
 

Don't know what the tax implications are here, but you should think long and
hard about the way you purchase this house from your parents.

For instance, it may make more sense for you to give your parents a lump sum
"gift" and then get them to draw up a long-term lease for you guy's and also
have their will changed so that you get the house if (God forbid) anything
should happen them.

I know this may sound like a long winded solution but it would mean you never
pay the bank a cent in interest. If you get a mortgage of 300k you will prob end
up paying close to 200k for the priviledge.

Anyway, just think about it. I'm sure there are even more cost effective
methods of buying your parents house that this without doing anything illegal.

Re the tax question. Your parents will probably need to pay capital gains tax
on any profit from the sale.

Edit: The above answer is based on your parents still being alive and well and in
ownership of the house.
 
I concur with Barryl....doesn't sound like your parents are getting a very fair deal + plus you get to pocket the proceeds from the sale of your own house. Be prepared for sibling uproar....unless you are leaving some important information (such as 24/7 full time care for sick parent + paying for ALL future expense etc)
 
In principal i think it's a great idea for kids to buy a parents house. Too many old people with no money rattling round big houses not able to maintain themselves or the houses. In most cases the kids inherit the house anyway, seems fair to look after the parents in some way for this. It's also way better than having to resort to equity release schemes.

Stamp duty will be based on market value not price paid and as stated above it could lead to sibling issues
 
Leaving aside any moral issues and dealing just with your specific query about tax some of the issues you may encounter:

If you purchase a house worth € 1 mill regardless of what you actually pay stamp duty will be assessed on the market value. If you are both FTBs no issue may arise but if not you will incur a stamp duty liability

Assuming you mean your spouse or significant other when you say"we" then you will not get the benefit of reduced stamp duty due to the blood relationship i.e consanquinity relief as both of you must be related to your parents for this to apply.

Also you will incur a gift tax liability. You as a child of your parents are entitled to approx €520,000 tax free by way of gift but your partner as a stranger in blood is entitled to less than €30,000 with the rest being taxable. E.g gift of €700,000 to you both(taking into a/c payment of €300,000) partner pays tax on circa €320,000 @ 20 % = €64,000

I would imagine,assuming your parents want to sell/gift the house to you(and there may be valid reasons for this) they will want to protect themselves by retaining a life interest or right of residence. In any event they need to go to their solicitor and you need to go to yours. This is particularly the case where it is likely that another family member will have serious issues (as suggested by you in your first post) at what is proposed.
 
Thank you very much for your replies. I appreciate the different options people mentioned. Obviously it is going to be a very delicate situation. Dreamerb, thank you for bringing up my mother, yes she is dead. It's actually my in-laws but I thought it would be simpler to say parents. Thank you for helping me clarify.

In our initial conversation about moving in, my parents in law made it clear that we would live with them without paying and they have previously expressed that they plan to leave the house to us. By giving them money, we were thinking that they could stop working completely and enjoy their lives. Neither are very well and they will appreciate company around the place. I do take the point on board that some people will see it as us conning them. I never thought of it like that before. I should also say that they have been asking us to move in for the last two years.

DerKaiser, you have summed up our situation exactly. After raising 5 kids, they have a big empty house that is totally unsuitable for them (ie bathrooms only upstairs, bedrooms only upstairs etc). We plan to completely renovate it to make it more suitable for them. We estimate the renovation costs at about 150-200k.

Nacho_libre, the long term lease sounds fine, but if the house is left to us in the will, will there be a high inheritance tax?

Madangan, yes, we are both FTB. We have been renting since we got married. Also, if the property is not in my name, will we still incur the gift tax?
 
Fistfulls said:
Madangan, yes, we are both FTB. We have been renting since we got married. Also, if the property is not in my name, will we still incur the gift tax?
Click to expand...

Your partner will by then have exceeded his/her tax free threshold and therefore so there will still be a significant liability although somewhat reduced.

I would take the view if all in agreement with this course of action that while you incur a significant tax liability you are still doing very well out of the deal. IN any event the best thing is for your in laws to discuss this with their own solicitors before you do anything else.

BTW I dont see how the suggested long lease makes sense at all. To give a lump sum " gift" to your inlaws would incur a gift tax liability for them and simply postponing your inheritance tax until they pass away.
 
ive just inherited my grandparents home with a sis and recently sold it... with regard to the tax we had to pay alot(96,000 each) as grandchildren but were told if we had of resided in the property 3yrs prior to inheriting it and 6years after we would not have had to pay the tax... the 6 yrs includes being able to sell it and live in another ppr with the all proceeds of the inheirited sale goin into it....i think it is very good to discuss alot of these issues prior to passing away because my grandad would have been very upset if he knew we had to sell the house to pay such high tax... but he was not very open to discussing it and we wouldnt like to disrespect him by bringing it up... it has all worked out fine in the end,after i got over the initial shock of the tax im emensely greatful for what i did get.
 
Thank you so much for that input oilpainting. I never heard of
that residency exception before. I wonder if that just applies to grandchildren or children as well. I totally agree with you that as much transparency as possible is helpful in these matters. I think that in would be very important to my in-laws that their house remain intact and in the family and not be sold to pay off each child.


Thanks for that Madangan. This is obviously a big step for us as well, and while I agree that we will benefit enormously from the move (primarily in terms of more space for the kids) we will certainly be taking a lot on as well. I think it's prudent to explore all of our financial options.
 
hey yes it does apply to children i just found this....

There is an exemption from inheritance tax where a person inherits the home in which he or she resides from a deceased provided the inheritor;-
a) has no ownership rights in any other dwelling at the date of the inheritance
b) has occupied the property continuously as his/her only or main residence for three years up to the deceased’s death and
c) either retains ownership of and resides in the property as his/her only or main residence for six years after the deceased’s death or during the six year period sells the property and uses the entire proceeds of sale for the acquisition of an alternative home. Where someone over 55 years of age inherits such a property, there is greater flexibility with regard to the use of such proceeds of sale.
This exemption applies to both relations and non relations.

[broken link removed]


its really worth talking to a solititor about it all because i felt really in the loop about the complexities of many different things about going through this experience because i sought some legal advice,we had 4 months to pay the tax from date of probate which we didnt meet because it was quite complicated to sort out,and sell the house in the current climate....but the revenue were kind enough to allow us the close of sale of house as the final date as after the 4 months we were suppossed to uncur something like 0.257% per day interest to the revenue with outstanding tax .... so if we had a property we couldnt sell we would be handing over more and more as time went by... we were lucky we sold the property 2 weeks after it went on the market in jan there for a fair price... thank god and its all worked out now.... all the red tape was very complex and i have extra solicitors fees but after a year of dealing with the excutor who was a solicitor in the country,the revenue and what else,im happy to say its all coming to an end now,but i think if communication was more open with my grandparents prior to their passing we could have been a lot more organised and saved on alot of time and money,but i suppose it was their right to handel it their way and the fact i was getting such a gift didnt really bother me too much in thre grand scheme of things.. xxx
 
The residency exemption will apply if you inherit from the parents in law on their death. It doesnt now apply if you receive house by way of gift( i.e when they are living )in your particular circumstances.

They can of cousre will the property to you but other children may object and bring a s117 application to the High Court.
Equally the in laws can change their minds before they die
House may need to be sold to pay for nursing home fees etc...

You have options such as buying a percentage of the house now, but their and your solicitors can help you work through this.
 
I presume 'buying' a house for well under market value now could lead to capital gains tax issues later should you sell (I understand at present it would be your PPR and thus exempt from CGT but you never know what will happen, it may not always be your PPR).
 
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