rent to buy - parents house - pitfalls?

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rolypoly1

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Hi all,

My parents have a 2nd house which I currently rent from them (which they pay tax on, everything is above board). The agreement is that myself and my partner buy it from them, we're saving for a deposit but as second time buyers this will take a while. There is no mortgage on the house and lately the discussion has come up of how to buy the house without us having to get a bank mortgage. Our current plan is outlined below, but sounds too good to be true. Basically I know there has to be a catch - tax implications etc so would love some advice on whether or not it's wise to proceed.

House was purchased for €150,000 - agreed sale price to us is €160,000.
I propose that they sell it to us for €180,000 over 15 years at rent of €1000 per month. We also give them a deposit of €10,000, that way they make a profit of €40,000 on the sale and have an income for 15 years and we don't have to go jumping through hoops with a bank only to watch them get all the interest from our loan.

Obviously this would all be done through solicitors and I know stamp duty still has to be paid.

Any positive/negative input welcome!

Thanks!
 
First tax issue is that regardless of the price you agree on, they will be deemed to have sold it to you at its open market value for the purposes of capital gains tax. Likewise for gift tax purposes.

So if the actual OMV of the house is 225k, they will have made a gain of 75k, and you will have received a gift of 65k, based on the figures you have quoted above.

Stamp duty is also payable based on the OMV.
 
Thanks Jon, knew there had to be something! If this is a private sale between 2 parties, do we need to get an estate agent in to value the house prior to the sale for revenue purposes or how does this work? I'm wondering because the house was only bought recently, therefore the current OMV would be near enough 160/170 max...

Sorry, do you mean that the OMV will be decided on at the time of the actual sale in 15 years time or is it prior to the sale as in the same way you purchase with a mortgage?
 
Agree with Jon Market value applies.

Personally I'd imagine that you what to buy it from them now. Ie it's your house and then you pay back the loan over 15 years with the appropriate legal agreements.

Any surplus paid over the market value could be treated as interest.

You need to be careful of inheritance issues. If one dies then the debt goes to the other, if both die will the estate (other siblings) seek repayment?

Are you aware of dwelling house relief?
 
Thanks Joe. Did a quick google of dwelling house relief - does this mean that if we live in the house for 3 years then we are exempt from the capital aquisitions tax?

We're a pretty close family so if this was going ahead I could talk openly with my siblings re worst case senario to see how they feel. As things stand I'd be confident that they'd probably be happy to take rent until the loan is paid as per original agreement.
 
Won't the parents have to declare/explain the extra income or gifts to them of 12k per year, and pay tax on that? As would siblings or the Estate in the event of the parents death.
You are saying this is Rent but it's not really Rent is it, as you own the house, and your parents have no further hold over the property.
If something happened to you and your partner who would the house go to if you have no children? Your siblings or your partners siblings?
No matter how close a family you are, situations over money can cause awful rifts sometimes.
The talk of you paying 'Rent' and paying them 'A Deposit' are just words really.
(1) Your parents are transferring a house into your names.
Then seperately (2) you are going to give them a sum of 160k over a certain number of years in some arrangement or other.
 
Oh sorry I may have got it wrong! Are they only going to sell it to you in 15yrs time? Not in the near future. If so ignore my last post!
 
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