Gift of Investment Property from parent

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paulpd

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I need a little advice regarding a potential gift / transfer of a property from a parent to a daughter.

My friends mother wishes to transfer a house to her. She has had the house rented out since the 1970's. There is approx E200k owed on the house due a the purchase of some apartments a few years ago by my friends mother. The house is realistically valued at E650k. (Was worth E900k to E1M about 2 years ago). So say the "net" value of the "gift" would be E450k as the mortgage would go with the house.

My questions are :

1. I presume there would be a substantial CGT liability for my friends mother on the transfer?

2. My friend and her husband want to move into this house as their PPR and renovate it. They need to borrow approx E150k to do this. Is there any way that by NOT doing the transfer (and therefore avoiding her mothers CGT bill) that a bank would lend these funds to my friend and use the property as collateral, eventhough her mother would remain on the deeds?

Basically they want to transfer the house without the issue of CGT coming up. Either way, the house will be willed to my friend. It's just that they have decided to move into it asap as opposed to waiting years.

It's a bit messy but thanks a lot!
 
1. If the house is valued at 650k then this is the deemed consideration (not 450k). It doesn't matter if there is a mortgage on the house or not. As the house is a rental property and not a PPR then CGT would be payable.

2. If you friends mother agrees to this then its really up to whether or not the bank will lend the money. However, it will not be their PPR as your friends mother's name will still be on the house?
 
Thanks for the reply. I understand that E650k wold be the deemed consideration, but from a gift tax point of view I assumed that E450k would be the figure.

I see what you mean regarding the PPR. Their plan is to move into this house, take over the existing mortgage, and get a further secured loan to renovate the house. (It's an old Edwardian redbrick). They're worried that any bank might run a mile from giving them a loan secured on an asset owed by their mother! It's her mothers CGT that they couldn't afford to pay. Maybe going down the route whereby a solicitor draws something up might give more comfort to the bank.

Thanks again.
 
paulpd said:
...1. I presume there would be a substantial CGT liability for my friends mother on the transfer?...
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Yes, once the existing €200k mortgage is satisfied, the owner will be assessed for CGT liability on disposal. The recipients (daughter and husband) may also be liable to CAT (gift / inheritence tax) on receipt of the house, based on the €650k figure
paulpd said:
... 2. ... Is there any way that by NOT doing the transfer (and therefore avoiding her mothers CGT bill) that a bank would lend these funds to my friend and use the property as collateral, eventhough her mother would remain on the deeds?...
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No - how can a bank extend a mortgage on a property to someone who doesn't own it?
 
I thought there might be a chance that if her mother kept the house and maybe got the loan herself and used the house as collateral. Maybe in some way like where the banks were offering older people (she's mid '60's) some equity release and this is then repaid apon their death. With the existing loan of E200k and a new loan of E150 we're looking at a LTV of approx 55%)

Looks like it's going to be difficult for them either way!
 
There is of course always the possibility of simply

A. Selling the house, paying the CGT and gifting the balance to the daughter who can buy another house or
B. Taking the hit on the CGT, gifting(or selling) the house with the daughter taking on a mortgage to discharge the current mortgage, CGT etc.

The upside of both is that there is movement on the property. The downside is the tax issue but I don't see how it is at all possible to achieve the after death tax free scenario on an intervivos (i.e. during lifetime) transfer.


mf
 
Why doesn't the friends mother simply gift the property to the daughter, using the allowance amount from parent to child of approx €450k. the additional value would then be treated for CAT. Any further inheritance from a parent would be fully taxable at the CAT rate.
 
I see all your points.

What would be the chance of her mother getting a loan (c.E150k) in order to renovate the house. Her daughter and son-in-law would obviously repay both loans, with both loans being secured on the house? Altogether the loans would be E350k which would be very manageable as they both have secure jobs with good income.

They won't sell the house as it's 400 yards from my friends place of work, in the area she grew up, and where she also has a free childminder 5 mins drive away!
 
Surely if the daughter and son-in-law take out a new mortgage to replace that which is in the mother's name will complete the transaction. What would be the point of the mother trying to get a new loan for renovation purposes and the daughter etc to pay it. Firstly there would be massive Tax implications and secondly what is the point of trying to embark on the entire transaction to keep it squeaky clean and then to leave the mother with a pile of debt.
 
mercman said:
Why doesn't the friends mother simply gift the property to the daughter, using the allowance amount from parent to child of approx €450k. the additional value would then be treated for CAT. Any further inheritance from a parent would be fully taxable at the CAT rate.
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The problem is with the mothers CGT liability

mf
 
Well then either increase the mortgage or decrease the renovation to pay the CGT for the mother. It all will depend on the amount and time of the original purchase.
 
Wild Rover said:
1. If the house is valued at 650k then this is the deemed consideration (not 450k). It doesn't matter if there is a mortgage on the house or not. As the house is a rental property and not a PPR then CGT would be payable.
quote]


Surely if the mortgage is taken over with the house or the daughter pays it off, this would be an allowable deduction for CGT & CAT purposes and the 450k is a relevant figure?
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Scrambler said:
... Surely if the mortgage is taken over with the house or the daughter pays it off, this would be an allowable deduction for CGT & CAT purposes and the 450k is a relevant figure?
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What reasoning / precedent are you using as the basis for this argument?
 
Sorry I see I'm wrong on the CGT.
With CAt though, if the recipient of the gift worth 650k effectively pays consideration of 200k, will the taxable amount be reduced by that amount?
 
From Revenue's website:

"Gift & Inheritance
Gift tax is charged on taxable gifts taken on or after 28 February, 1974, and Inheritance Tax is charged on taxable inheritances taken on or after 1 April, 1975. An inheritance is a gratuitous benefit taken on a death and a gift is a gratuitous benefit taken otherwise than on a death.
The tax is charged on the taxable value of the gift or inheritance. The taxable value is arrived at by deducting from the market value of the property comprised in the gift or inheritance permissible debts and incumbrances and any consideration paid by the beneficiary."


From this, it looks as though you can deduct the 200k if paid by the recipient, but check it with a tax advisor.
 
1 - CAT gift tax on the transfer of the property - the daughter could move in to the house and live there for a period of 3 years. After that period the house could be transferred to the daughter free of tax (under current rules) and so long as the daughter has no other property in her name or beneficailly entitled to same

2 - CGT for mum - could wait until death to have the house actually transferred to the daughter - thereby avoiding any CGT and indeed Stamp Duty (not mentioned as yet).

3- Loan - herein lies the biggest problem. You mention the property is worth 650 with 200 owing at moment. Why not see if mum can borrow the extra 150 with daughter and hubby going as gaurantors on that loan? would that work? i think it might - the problem is - does any bank have 150 to give!!!!
 
Ned_ie said:
1 - CAT gift tax on the transfer of the property - the daughter could move in to the house and live there for a period of 3 years. After that period the house could be transferred to the daughter free of tax (under current rules) and so long as the daughter has no other property in her name or beneficailly entitled to same

2 - CGT for mum - could wait until death to have the house actually transferred to the daughter - thereby avoiding any CGT and indeed Stamp Duty (not mentioned as yet).

3- Loan - herein lies the biggest problem. You mention the property is worth 650 with 200 owing at moment. Why not see if mum can borrow the extra 150 with daughter and hubby going as gaurantors on that loan? would that work? i think it might - the problem is - does any bank have
150 to give!!!!
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I would think that would be the best bet, ie your last point with the daughter & husband going as guarantors. There is no doubt that the property will be passed onto the daughter on her mothers death. It's all about trying to avoid triggerig a CGT liability and also getting finance to renovate the property.

Thanks!
 
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