Holiday Home inheritance

J

JohnBoy

Registered User
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Hi all,

I am looking for advice on how to help my parents with the mortgage on their holiday home and the associated gifting/inheritance issues.

They have a PPR with no debt and an Irish holiday home with a mortgage of €200k. My parents are in their early 70s and have a pretty good pension but this mortgage is proving to be a burden and they are looking to transfer it to their 4 children. They have been very generous to their children over the years and we knew that we would be on the hook for this mortgage so we are are going to split it 4 ways.

We are seeking professional advice but I was wondering if anyone on this site has delt with inheritance issues of this kind.

There are four children but only one lives in Ireland so getting a 4 way mortgage will be difficult but one of us might borrow the lot and let the other 3 repay them. Ultimately, the financing of this is not the major issue as I see it.

The real issue is what is the most tax-efficient way to help my parents out?

If we are due to inherit the house eventually are we better accepting it as a gift now (and paying stamp etc)? Or does this create a potential CGT liability in the future?

Or are we better off just taking the mortgage on without accepting a gift of the house and waiting for the inevitable and inheriting it in the normal fashion.

If I understand correctly there is an inheritance threshold of €460k per head. The total value of my parent's estate would probably not breach this x 4 so it would appear to me that we would face a lower tax bill in the future but not buying or accepting as a gift the house now.

Thanks in advance.
 
If your parents dispose of the house now, there will be an exposure to CGT. Even if they give it to you, you will have to put an open market value on it.

You won't have a CAT liability on it.

If you subsequently dispose of the property, you will be faced with a CGT bill on the increase in value.

If your parents leave the property to you in their will, they will have no CGT as disposal on death is not subject to CGT. I don't think it's subject to stamp duty either.

So the problem is that your parents are short of cash at the moment.

Have you spoken to the lender? They might switch it to an interest only loan so it would only cost them around €6k each year. You might be able to switch the loan to another lender if the exisiting lender does not agree.

Why don't you lend your parents cash to be repaid out of the proceeds of the estate? This preserves the property in their name and so avoids the CGT problems.

If you wanted added security, you could buy a portion of the property now - say 10%.
 
+1 on Brendans comments...

However also look at a Deed of Covenant for the mortgage which would make the Irish based contributors contributions more tax efficient.

This would depend on your parents income.
Watch out for not only the Revenue thresholds but also the Medical Card income limits - not a problem whilst both are still alive but may be a problem if one of them dies.

One minor note .... following the mini-budget the CAT threshold is now reduced to €434,000 for a Parent to Child inheritance.
 
Thanks for the the replies guys. So there is no CGT liability on a second home if it is sold or gifted within the family?

We are speaking to the lender and an independent mortgage broker. We are not too sure whether to go interest only or full repayment when we take over the mortgage - none of us are keen on having a large mortgage outstanding but when my parents do pass away I reckon the sale of their PPR will more than cover this debt.

On the interest only route - this is not really an option for my old man as this has all come to a head because the bank in question is pressuring him to repay part of the capital.

Disposing of the house is not an option now. It is used a lot and it is sort of our gift to our parents in their retirement. They made sacrifices for us and we are now doing so for them.

So it seems as if the most efficient solution is for us to take on the mortgage (in effect lend them the cash).

Thanks again.
 
"So there is no CGT liability on a second home if it is sold or gifted within the family?"

Yes there is.

See Brendans post

"If your parents dispose of the house now, there will be an exposure to CGT. Even if they give it to you, you will have to put an open market value on it."

And it will be treated as a disposal to you at full market value.

mf
 
Ok, thanks for clarifying that, I read the post too quickly.

Can the house be gifted subject to personal allowances? I understand that there could be a tax clawback on part of the value of the gift if the parent passes away within a certain time period?

Separately, do you know how to calculate the potential CGT liability given that the house was built in the early 1970s for less than 10k punts? Would we index the house from then in order to calculate today's cost vs today's market value to arrive at the CGT liability?

Thanks in advance

PS - Has anyone ever dealt with the ownership of a holiday home when it is split between siblings? It must be a common enough occurance in Ireland I would have thought. We need a legal agreement governing usage and rights. Would a trust be a way to deal with this?
 
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