"Gift" from parent

Don't know if this post should be here or in Mortgages. Feel free to move if necessary.

Basically, I am hoping to buy an apartment for approx €450K. Unfortunately, 'cos I am only a young FTB, the most that I can get sanctioned is €300K (Parental Mortgage). A while back, the bank advised that my parents, who own a second property, could mortgage that to release the extra €150K that I need. I would be making the repayments on this mortgage as well as my own (but this mortgage would be in my parents name).

Now that I have found an apartment, my Bank are asking my parents for a letter stating that they are giving me the €150K as a "gift" before they give me my letter of offer.

My question is, if my parents give the bank a letter stating that it is a gift, does this open up any Tax liabilities?

As far as I'm concerned, I am only borrowing this money (indirectly from the bank through my parents), therefore, have no desire to be taxed on this.

It doesn't open a liabilty to tax (Capital Acquisitions Tax) immediately, unless you have previously received gifts totalling more than €350,000.

You can receive up to €497,000 over your lifetime (under current rules) without a tax liability from parents.

See the [broken link removed]for more details.

(I've rounded some of the figures)

If your parents gift you the money and you have not taken any previous gifts from them then you will not be subject to CAT on the gift (as it is beneath the threshold for gift from parents to children). This may affect any future tax liabilites on gift received from your parents.

Is it possible for your parents to release equity in their property without mentioning that they want to give it to you. Maybe some of the mortgage guys on AAM could help you with what sort fo documentation might be required in that situation. If that happened your parents could loan you the money (ala Bertie!) and you could pay them back (who in turn pay the bank back).

Thanks for the link CCOVICH. No I haven't received any gifts from them before (I hope pocket money as a kid doesn't count!)

What Newby said at the end is exactly how I see the situation. I am only borrowing the money from them (and paying the mortgage interest on it) with the view to repaying it as soon as I can get a bank to take me on for the full amount (will be earning more in a few year's time - and might (god forbid) have settled down with a wife/gf who can join the mortgage by then), or upon selling the property (whichever comes first).

Will Revenue see it this way? Or will they accept that it is only a loan?

I don't think its a case of Revenue seeing it that way or not. It either is or isn't a loan. I think that if your parents bank want your parents to gift you the money (and require them to sign a letter saying that it is a gift) otherwise they won't lend the money to your parents then clearly it will be a gift.

If they will lend to your parents without the required letter then your parents may loan you the money. HOWEVER, if it is a loan you must be paying them the money back plus the interest they borrowed otherwise it may still be viewed as a gift. Talk to an advisor before doing this.

I know this is a very obvious question but what about the affordability of paying back the two mortgages are you very confident you can cope with this. The tax relief on the mortgage interest on the investment property can be offset against rental income by your parents thus reducing their tax liability but this does not benefit you unless you come to some arrangement with them to pay this saving towards the mortgage.

Madilla said:

The tax relief on the mortgage interest on the investment property can be offset against rental income by your parents thus reducing their tax liability but this does not benefit you unless you come to some arrangement with them to pay this saving towards the mortgage.

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I'm not sure that this is strictly true. If parents remortgaged with a view to gifting / loaning the money to a child I can't see how the interest on the remortgaged part wouldbe tax deductible against their rental income. The Remortgaged element of the loan would not have been used in the purchase repair or improvement of their property and in my view not deductible.

Where the remortgaged part of the parents loan is gifted to the child then there would be no interest deduction as there would be no loan.

Where the remortgaged part of the parents loan is loaned to the child there may be an interest deduction available. Speak to an advisor!

The money my parents will be giving me is definitely a loan. I will be repaying the interest and will repay the full sum upon either selling the apartment or finding a bank that will grant me the full mortgage (when I am on a higher salary or have a partner etc). My bank were in favour of this (and were the people who originally suggested this approach last Autumn when I was first asking for a sanction in principle). However, now that I have found an apartment and am about to sign the contracts, they have suddenly come up with this request (the first time anybody mentioned the word "gift").

The letter is not preventing my parents from getting the loan (they are financially secure and this is only a small amount compare to the value of the investment property they are remortgaging), it is preventing me! The bank is only willing to sanction 300K to me (due to multiplication of salary), but the property is worth 445K. But the bank require this letter as proof that I can actually afford the apartment (the same as if I had the 150K in savings, they would be asking me for proof/statements etc). The issue is that, while they know that my parents are only intending this as a loan, they want my parents to state that it is a "gift". Unfortunately, my dad is away on business at the moment and won't be back until early next week (and my mum can't use an ATM, let alone deal with this!). By the time he talks to his solicitor and the then the bank, it could be another 2 weeks before I get my Letter of Offer, whereas the the contracts are due to be signed next Wednesday. (I guess what I'm really annoyed about is that they have dropped this bomb in the 11th hour, despite having had several meetings with them last Autumn).

For the record, both myself and my parents are dealing with the same Mortgage advisor in the same bank.

As regards affordability. I can afford the repayments on both mortgages myself, and have taken into account possible future interest rate hikes. My salary will grow at a steady rate over the next few years and will be letting out the second room to help with the repayments (bank won't take this into account when calculating my limit).

Although I have not received gifts in the past from my parents, and therefore will not need to pay tax on this now, it will ultimately someday come back and bit me in the a$$ (to the tune of 30K) as it pushes me closer to the tax-free limit.

I think I will contact the bank asking if the wording could be changed to my parents granting me an "open-ended loan" and that the bank take full priority in the event of sale/remortgage etc (i.e. anything but describing as a "gift" because it's not!).