Sale of house to family member via family loan

We have an old rural house in need of major work we'd like to transfer ownership of to a niece at the current market value so she can do the work and apply for the available grants etc. CGT is minimal on our end.

She is not in a position to get a mortgage and we'd prefer to keep the arrangement within the family. Gifting is not option so we're trying to be creative.

We're thinking family loan paid back in installments probably with the first payment not due for at least a couple of years and paid back over 25-30 years. There would be a signed contract but in effect an unsecured loan.

Would such a deal pose problems with the conveyancing/solicitors or revenue?

I understand that if no interest were charged on the loan revenue would see that as a benefit to my niece and she would be liable on that on a yearly basis.

If there was to be an interest rate charged at well below market rates would revenue also see that as being a benefit?

Thanks.

Wagtail said:

There would be a signed contract but in effect an unsecured loan.

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No need for an unsecured loan.

Your solicitor can do up a formal mortgage so that if she ever sells the house, the loan will be repaid.

This is important as you might fall out, or she might die and her estate says it was a gift.

So do up a formal mortgage.

Wagtail said:

Would such a deal pose problems with the conveyancing/solicitors or revenue?

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No, it would not be a problem for anyone.

You and your spouse (you say we) can gift her 2 x €3,000 Small Gift Exemption every year.

So, if the value of the property is €200k with a BIK rate of say 2% or €4,000, you won't be using up even the Small Gift Exemption.

How much is the property worth now?

There really is no point in charging interest.

She gets very little tax relief, if any, and you pay tax at your top rate on the interest received. It's "leakage" from the family to Revenue.

Brendan

There is no such thing as BIK outside an employment situation.

T McGibney said:

There is no such thing as BIK outside an employment situation.

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Thanks. Wrong term so but I presume my answer is otherwise correct?

Brendan Burgess said:

There really is no point in charging interest.

She gets very little tax relief, if any, and you pay tax at your top rate on the interest received. It's "leakage" from the family to Revenue.

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Well, except, if you don't charge interest, isn't she treated as getting a gift each year equal to the value of the interest foregone, and isn't she liable to CAT on that (subject to the small gift exemption)?

Hi Brendan

There is a world of difference between BIK, which triggers an income tax liability in almost every situation where it arises, and small gifts which don't,

TomEdison said:

Well, except, if you don't charge interest, isn't she treated as getting a gift each year equal to the value of the interest foregone, and isn't she liable to CAT on that (subject to the small gift exemption)?

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Yes, but the loan would have to be around €300k to use up the Small Gift Exemption.

If you do charge interest, the lender pays 50% tax and PRSI on it as their income.

Brendan