Mortgage Transfer - Gift Tax

C

chica_dub

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Would really appreciate some advice here.

I bought a house almost 4 years ago with my now ex. We broke up 2 and a half years ago, he moved out and I stayed in the property. We both continued to contribute equally to the mortgage. However, late last year he missed a payment and informed me that he no longer intended in contributing to the mortgage,

I contacted the bank who advised me to make the repayments myself for 6 months and then apply for a mortgage transfer to remove his name from the deeds.

I am at the stage now where the bank have approved the transfer and am now dealing with the solicitor to finalise the paperwork.

Thing is, the solicitor has now informed me that I will have to pay gift tax as the revenue consider my ex to be "gifting" me half of the property.
I would understand if the house was worth something but it is in negative equity so it is not like I am going to be able to sell any time soon and profit from it. If anything, I would have thought I was the one "gifting" him as he will have his financial freedom back ( and has had it back since he stopped paying his share).

We took out a mortgage of €250K, the house is now worth around €150K so there is €100K negative equity.

I guess I am just frustrated that neither the bank or the solicitor made me aware of this before all of the proceedings started.
I have already had to clear my car loan which took a lot of saving and sacrificing. I am scared now that I am going to get another huge bill for this gift tax.

Surely taking on somebody's negative equity is not seen as a gift????
 
by you taking over the mortgage you are receiving his half of the house BUT in return for you taking over his half of the mortgage, therefore as the house is in negative equity he is in effect receving a gift from you of his half of the negative equity of €50 (he is realised from his obligation to the bank), therefore you should have no gift tax liability. the relevant forms will still need to be completed regarding this.

from you ex partners point of view he has received a gift from you being release from his share of the negative equity, it could be argued that this gift is in fact a gain on his disposal of his share of his PPR and therefore would be exempt from CGT. (I would be interested to hear have any accountants/tax advisers come across this issue in practice and the outcome with Revenue)

request your solicitor to consult an accountant/tax advisor on the above issues.
 
Is your boyfriend consenting to this or are you just going off on your own. Just curious because I didn't think it was that easy to get someone off the deeds. (Ignoring tax issues)
 
Thanks for your replies, Sunny my ex partner has consented to this.
The bank were very accommodating to me once I approached them and outlined the situation. I am not in a position to move due to work commitments. The breakdown of our relationship has been difficult and it is in both our interests to do things this way so that we can cut all ties with eachother.

However, I do not see how I am accepting a gift by taking on his debt??
 
Has your solicitor indicated the amount of gift tax you allegedly would be liable for or just informed you in general that you may be liable to gift tax?

Has the house been officially valued now, for the purposes of mortgage transfer? If so, the gift tax calculation should be based on that, and show that there is in fact no gift tax liability. Just for you own peace of mind you might want to consult a tax adviser/accountant.
 
Thank you Greta, I am in the process of arranging a valuation at the moment. The solicitor said she will calculate the amount of tax based on that.

This might seem like a silly question but how do I go about speaking to a tax advisor? Should I just call the revenue and ask them?

Appreciate all of your advice, thanks again
 
You could ask the Revenue, certainly. But if you want to speak to a tax adviser, you could just look them up in yellow pages/do a search on the internet. tab.ie publish a very good tax guide every year, you could try getting a consultation with them.
 
There is a section in the Taxes Consolidation Act 1997 which means a house's value for CGT purposes is its value if sold, ignoring any attaching mortgage liability.

I think its something similar for CAT.

I think the transaction must be broken down into its constituent components.

Re the mortgage - I disagree with previous posters but will admit not full certainty. The bank is effectively granting you a full fresh mortgage to purchase his half - he's not transferring anything.

Negative equity has no part to play in any of this - except in so far as you should only agree a mortgage to cover 1/2 of what the property is worth now, not what his outstanding mortgage is. (Otherwise he's skipping away having played a fast one - and the bank obviously thinks you're also a softer and surer touch than your ex.)

To reiterate - you should only seek a mortgage for 1/2 of what the property is worth now. The NE build-up is your ex'es (or the banks) problem.
 
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breaking the transaction down ( and ignoring fact that OP already owns 1/2 of property) it is effectively:

1. The purchase of 1/2 share in a property @ half of the current market value paid for by the clearing of other parties 1/2 share of mortgage therefore there is no gift. OP is in reality purchasing the remaining 1/2 of the property.

2. Sale of 1/2 share in property. Therefore potential for CGT to arise depending on original purchase & current selling price, but as sale of PPR could claim relief from CGT
 
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