Gift a house to a child

[sidzer]

Hi all,

Just seeking some opinions / ideas / clarity here please.

Our two children received money from a car accident for personal injuries.

Child 1: Just gone 18 years old got €70k - she is due to get this money this week.
Child 2: 16 years old got €130K - will get the money when she is 18.


We have some worries how they will spend the money. Child 2 in particular is very good at spending any money she gets for birthdays etc. Child 1 is going to college next year and will no doubt want to do what most students do but will have more money than most to do it.

We have 4 houses including the one we live in. I have an idea to give / gift a house to each if they pay us the money they have got from the accident.

We have a 3 bed semi in Dundalk - probably worth @ €250K
We have a 3 bed apartment in Dublin - probably worth @€400K

The houses are fully paid for - and we currently rent these out and are paying @ half of the rent in taxes etc. We both work so we can afford to give over the houses. The children could collect the rent and in future they have a house to use or sell etc. Most importantly - they won't have a large sum of money to squander!

Would this be a straight forward signing over? Or is it a lot more complicated? The solicitor seemed to sense that it would not be a good idea - not sure why - he advised us to seek financial advice.

Any opinions would be most welcome.

 

[jpd]

Well, if you gift the house to the 18 year old, she could just sell it and pocket the cash - there is not much you could do to stop her, as she is over 18

I think you need to sit down with them and treat them as adults, ok young adults, and have a proper conversation

 

[sidzer]

Well, if you gift the house to the 18 year old, she could just sell it and pocket the cash - there is not much you could do to stop her, as she is over 18

I think you need to sit down with them and treat them as adults, ok young adults, and have a proper conversation

Yes - but she would be getting a monthly rent payment of @ €1000 so won't be stuck.

And selling a house is not a straight forward

 

[ClubMan]

Would this be a straight forward signing over? Or is it a lot more complicated? The solicitor seemed to sense that it would not be a good idea - not sure why - he advised us to seek financial advice.

You would need a solicitor to deal with the transfer of the property from parents to child.
You would be liable for CGT as if you had sold it at the fair market value.
Your child should be exempt from gift tax by using up most or all of their Capital Acquisitions Tax group A exemption (€400K) but that means that they will not have it for any eventual inheritance from you.
The child would presumably lose their first time buyer status going forward which may or may not be a concern.
They would also be assessable for income tax etc. on the rental income assuming it's not their PPR and availing of the rent a room scheme.
This income may also impact eligibility for SUSI grant support.
There are probably other financial and non-financial implications but these are a few obvious ones.
To be fair to your solicitor their job in all this would mainly be the conveyancing and they're not responsible for giving overarching financial and tax advice.
If you don't trust your adult child with €70K then it seems a bit odd to me to trust them with the gift of a €400K rental property.

 

[Brendan Burgess]

The children could collect the rent and in future they have a house to use or sell etc. Most importantly - they won't have a large sum of money to squander!

I have an idea to give / gift a house to each if they pay us the money they have got from the accident.

Child 1 is going to college next year and will no doubt want to do what most students do but will have more money than most to do it.

Do I understand this correctly?

You are proposing to sell an 18 year old a house worth €250k for €70k because they are not very good with money?

Let them blow the €70k and learn their lesson.

Brendan

 

[Steven Barrett]

Giving children houses is a terrible idea. There was an article about a mess a couple got into through their loose arrangement on a property they gave their son in The Irish Times today.

But back to your situation and why it is a bad idea:

1. We spend years rearing our children with the ultimate goal of them being independent. Gifting them a house is not teaching them how to be independent. A house is the biggest purchase most people make. It requires saving, budgeting and going without to get the money to buy it.
2. Young people have to learn the responsibility of working for their money and budgeting on their low wages. You are just giving them a rented property and €1,000 a month that goes with it.
3. If they are bad with money, they will also have to do their own tax returns, learn about tax deductible expenses, realise that not all that money is theirs, some of it has to go on taxes and repairs. Too much too soon, let them budget on a salary from working in retail.
4. They will lose their first time buyer status.
5. They may not want to live there, they may want to move elsewhere.

Then there is the rationale that you think that they might spend their compensation so you are going to give them a house?!!! Stick it in fixed term account or an investment bond with a life company with early exit penalties and tell them the money is for their future. If it is in an account that they don't have sight of, they will probably just leave it until they are older.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[ClubMan]

Stick it in fixed term account or an investment bond with a life company with early exit penalties and tell them the money is for their future. If it is in an account that they don't have sight of, they will probably just leave it until they are older.

I fully agree with your post other than this. They're 18 and, as such, at least technically an adult and entitled to do what they want with their own money (assuming there are no restrictions attaching to the compensation payment). By all means the parents should offer their advice and opinions but, as far as I can see they cannot and should not dictate. At least not in relation to the 18 year old's €70K.

 

[Bluefin]

Giving children houses is a terrible idea. There was an article about a mess a couple got into through their loose arrangement on a property they gave their son in The Irish Times today.

But back to your situation and why it is a bad idea:

1. We spend years rearing our children with the ultimate goal of them being independent. Gifting them a house is not teaching them how to be independent. A house is the biggest purchase most people make. It requires saving, budgeting and going without to get the money to buy it.
2. Young people have to learn the responsibility of working for their money and budgeting on their low wages. You are just giving them a rented property and €1,000 a month that goes with it.
3. If they are bad with money, they will also have to do their own tax returns, learn about tax deductible expenses, realise that not all that money is theirs, some of it has to go on taxes and repairs. Too much too soon, let them budget on a salary from working in retail.
4. They will lose their first time buyer status.
5. They may not want to live there, they may want to move elsewhere.

Then there is the rationale that you think that they might spend their compensation so you are going to give them a house?!!! Stick it in fixed term account or an investment bond with a life company with early exit penalties and tell them the money is for their future. If it is in an account that they don't have sight of, they will probably just leave it until they are older.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

I read this with interest over the weekend. It’s very much applicable to Ireland as well.

Bank of Mum and Dad: why we all now live in an ‘inheritocracy’

Family wealth dictates our life choices. So is the Bank of Mum and Dad now behind so many of society’s growing inequalities?

www.theguardian.com

 

[sidzer]

You would need a solicitor to deal with the transfer of the property from parents to child.
You would be liable for CGT as if you had sold it at the fair market value.
Your child should be exempt from gift tax by using up most or all of their Capital Acquisitions Tax group A exemption (€400K) but that means that they will not have it for any eventual inheritance from you.
The child would presumably lose their first time buyer status going forward which may or may not be a concern.
They would also be assessable for income tax etc. on the rental income assuming it's not their PPR and availing of the rent a room scheme.
This income may also impact eligibility for SUSI grant support.
There are probably other financial and non-financial implications but these are a few obvious ones.
To be fair to your solicitor their job in all this would mainly be the conveyancing and they're not responsible for giving overarching financial and tax advice.
If you don't trust your adult child with €70K then it seems a bit odd to me to trust them with the gift of a €400K rental property.

Thanks for the reply Clubman:

I didn't know that I would be liable for CGT - that certainly makes it a much less attractive option.
I appreciate the inheritance issues but they will be getting these properties at some time in the future.
The first time buyers grant is an issue alright - but houses seem to be rising faster eroding any gains made by grants.
During their college years they wouldn't be working or would only be part time so the tax part would be small until they start work proper and at that stage they may move into the houses themselves.
They won't qualify for SUSI grants.

It is not that I don't trust my children. But this generation are far more free with money than my generation. I work with lot of young people who go to the local deli for their lunch every day and spend @€50 per week - and then complain about not being able to buy a house etc. I am also working with people in their 30's 40's who can't afford to buy a house. And my thinking was about helping my children with these massive problems and also making sure they didn't flitter away the money over a few years.

 

[sidzer]

Do I understand this correctly?

You are proposing to sell an 18 year old a house worth €250k for €70k because they are not very good with money?

Let them blow the €70k and learn their lesson.

Brendan

My belief is that younger people have a very different outlook to life in general. I work in a DEIS school and a local company came in looking for workers for the summer last May. They struggled to get enough and most of the ones they did get did not want to work 5 days a week. My daughter worked all summer and one week took home €700 after putting in 7 days including the bank holiday in August - they were paying good rates. The company allowed them to come and go as they pleased and a lot of them worked the odd day here and there.

The younger teachers in the school are constantly doing coffee runs to the local artisan bakery - they charge €5 a coffee and Dublin prices for food. We have a coffee machine in the school the same as the ones in a garage and it's €1 into an honesty box or it's free coffee out of a tin.

I am working with a number of 30's 40's who are still living at home with their parents - they can't afford to buy on a teachers wage and we are in a rural area.

So my thinking is along the backdrop of the above issues. I am all on for life's lessons and standing on your own two feet but no matter how honest you are and how hard you work and save you wont be able to buy in this country for the foreseeable future.

Thanks

 

[sidzer]

Giving children houses is a terrible idea. There was an article about a mess a couple got into through their loose arrangement on a property they gave their son in The Irish Times today.

But back to your situation and why it is a bad idea:

1. We spend years rearing our children with the ultimate goal of them being independent. Gifting them a house is not teaching them how to be independent. A house is the biggest purchase most people make. It requires saving, budgeting and going without to get the money to buy it.
2. Young people have to learn the responsibility of working for their money and budgeting on their low wages. You are just giving them a rented property and €1,000 a month that goes with it.
3. If they are bad with money, they will also have to do their own tax returns, learn about tax deductible expenses, realise that not all that money is theirs, some of it has to go on taxes and repairs. Too much too soon, let them budget on a salary from working in retail.
4. They will lose their first time buyer status.
5. They may not want to live there, they may want to move elsewhere.

Then there is the rationale that you think that they might spend their compensation so you are going to give them a house?!!! Stick it in fixed term account or an investment bond with a life company with early exit penalties and tell them the money is for their future. If it is in an account that they don't have sight of, they will probably just leave it until they are older.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

Thanks for taking the time to reply Steven.

I bought my first house - a 2 bed cottage on 2 acres for £13,600 (1993) - the house was rough but I managed to get on the property ladder with a credit union loan!

My daughter is hoping to become a nurse. She won't be able to buy a house on a nurses wage - so the lessons of life and being responsible are well and good but in a sense the social contract has broken down for this generation.

I will have a read of the article above.

Thanks

 

[Premos]

Your children don't actually need the houses now.
Yes it is tough at the moment to buy a house. However, plenty of people on decent wages also do. Your children have already the deposit. If they are responsible in the coming years, they should be able to buy. And even if they don't, then surely you can help at that point instead of now.

In some way, I also feel that you are disempowering your children providing for a goal they don't have yet because you feel they will never be able to reach it by themselves.

 

[Steven Barrett]

I fully agree with your post other than this. They're 18 and, as such, at least technically an adult and entitled to do what they want with their own money (assuming there are no restrictions attaching to the compensation payment). By all means the parents should offer their advice and opinions but, as far as I can see they cannot and should not dictate. At least not in relation to the 18 year old's €70K.

While legally an adult, an 18 year old is still a child. They have just finished school and have a lot more freedom than before. Giving an 18 year old €70,000 is a recipe for disaster. Giving them access to that amount of money will be wasted. It would be an expensive lesson for them. Putting the money in an investment account out of the way with the intention of drawing it down in 7-10 years time is what I would do. An 18 year old can still be easily manipulated by their parents

My daughter is hoping to become a nurse. She won't be able to buy a house on a nurses wage - so the lessons of life and being responsible are well and good but in a sense the social contract has broken down for this generation.

Help her out financially with a deposit then. You don't have to give her a whole house!!

 

[misemoi]

Can you come to an agreement with them that they get to spend a certain amount of it on something useful or fun eg a car, have a nice holiday, something that was previously out of reach? They did after all get this as the result of a trauma, so can they get something positive from it? Can they take a chunk of it and invest it and mange the investment, to give them a sense of control and to take ownership of the ups and downs?

Then get their agreement to lock it away until needed for eg a house deposit. Tell them otherwise you won't fund their education and they will need to fund it from the 70k. Ask to see regular statements before funding their education. And teach them to watch out for anyone trying to take advantage of their wealth...18yo can be immature and boastful and bad actors might try to help them spend it!

 

[Laughahalla]

I would tell the children that they're not going to inherit anything from you so they will need keep the money invested so that they can put a deposit on a house in a few years time. You won't be doing them any favors letting them think they have your money/ property to fall back on.

Young adults their age don't know the value of money and will think money will always come to them.

 

[messyleo]

The best gift you can give your children is teaching them how to be responsible with money and manage it themselves - and not prevent them learning how to do this by controlling things for them.

I also think they're 18 and if they want to spend a bit of money on summer holidays, J1 visas and the like so be it if you've helped them develop responsible attitude to money they can and easily set aside 50k for the deposit and maybe 15k as spending money for holidays etc throughout their four years of college and this strikes a balance.

I would say the emphasis in this forum is sometimes too "sensible" and many would recommend starting your pension with your first part time job at 16 Your children will never be 18, 19, 20 etc again without the pressure of full time work, kids, families, caring responsibilities etc. Life is for living so make sure you do that too.

 

[Dr Strangelove]

There are 2.5m dwellings in Ireland and I'm certain that many of them are more suitable for your children than the rental properties you own.

My mother tried to talk me into buying a part share in my late grandmother's house when I was in my mid-20s. I asked: "Why this particular house?" She had no good answer.

Don't be sentimental. Rental properties are just another financial asset. Sell up and let the kids buy a property suited to their needs and where they work.

 

[sidzer]

Thanks to everyone for taking the time to give their wisdom / expertise on my question above - much appreciated.

I am now leaning at encouraging her to invest some of the money and keep some for college.

Thanks - S