How can I minimise tax implications/costs when buying the second half of my house?

[bob_bob]

I bought a property with my partner in 2006 as "Tenants in Common"(for 435,000). We were then both first time buyers and the property was new and not subject to stamp duty. We have a tracker mortgage with 220000 left on it and the property is currently being valued at about 340000.
We have subsequently broken up and I now want to buy the other half of the property. My parents are willing to help me with this financially but it will be very tight.

What is the best way for me to buy the other portion of the property with the least tax implications and me/him to accept a gift from my parents to help pay for his share? I would prefer to keep the existing mortgage since the rate is ok and it is not possible to take out new tracker mortgages these days. Will there be capital gains tax/inheritance tax or stamp duty implications?

Also, I think this means he would lose his First Time buyers status with respect to stamp duty when he goes to buy another property but will still have 5 more years mortgage interest relief status in his own name. Is this correct?

I realise we will need lawyers to hash this out properly but we need to get a handle on what expenses we will incur short and long term to figure out if I can afford to buy it at all.

Thanks for your help

 

[brenda24]

Re: How can I minimise tax implications/costs when buying the second half of my house

You should check out www.revenue.com
http://www.revenue.ie/en/tax/stamp-duty/leaflets/section-92b.html#section6

Two of your questions are dealt with there.

You can accept a gift from your parents towards buying out your ex's share without incurring a Stamp Duty liability but that gift must be unconditional.

Regarding stamp duty, the Revenue allow a person buying out the share of another (where both parties availed of first time buyer's exemption on the purchase) to be treated as a first time buyer i.e. no stamp duty liability. You are correct in stating that your ex will not be entitled to claim first time buyer's relief in the future. He will likely use this factor as a bargaining tool.

Regarding Capital Gains Tax, no liability will arise on the transfer if you have lived in the property as your principal private residence.

Regarding Capital Acquisitions Tax, different thresholds above which CAT is payable apply depending on your relationship to the disponer. Since the disponer is your parents, group (a) threshold of €434,000 (2009) applies. This means that you would not be liable to CAT if the gift received is below this threshold. However, if you received any other gifts from your parents during your lifetime , these would be aggregated with the current gift i.e. the threshold is a lifetime one. A liability could arise if the current benefit when added to prior benefits received by you from your parents, exceeds the threshold.

In relation to you keeping your existing mortgage, you would have to get the consent of your lending institution to you taking over the mortgage. The bank if they were agreeable would be a party to the Deed of Transfer whereby you buy your ex's share. This basically means that the bank release your ex from his liability to pay the mortgage and consent to you being the sole borrower.

Whether or not the bank will consent will depend on your financial circumstances i.e. are you in a position to discharge the monthly repayments on your own? Could you rent out a room to supplement your income and provide the bank with evidence of such an arrangement? Your parents could help you by making a lump sum payment off the mortgage. In that event, the bank would require them to make a declaration that it was a gift, that they would have no claim on the property.

You mention that the current valuation of the property is 340,000. How much is your ex prepared to accept in respect of his share? The agreement you reach will depend on such factors as your respective contributions to the purchase price, division of contents, whether he has moved out and you have been making the repayments by yourself etc..

This is quite a complicated proposal. You should consult a solicitor asap and he should get independent legal advice.
If you have any further queries regarding tax, the Revenue can actually be contacted these days (an upside of the recession). You should ring their helplines.