Case study Separating, buying-out in positive equity: tax ramifications & keeping tracker?

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rr3046

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Personal and income details
Income self: 70k, public servant, permanent.
Income history: continuous, 15+ years.
Income partner/spouse: N/A
Income history: left permanent employment several years ago.
number of children: 0
Amount of Mortgage Interest Supplement received: 0

Home loan
Lender: NIB (Danske)
Amount outstanding: 130k
Value of home: 220k
Interest rate: ECB+0.5% tracker
Monthly repayment: 600
Amount in arrears: 0
No discussion with the bank yet.

Other savings and investments

Savings: 45k (to buy out ex-); another 5k.

How important is retaining the family home to you?

Ideally, I'd like to keep it.

My ex-girlfriend and I, who weren't married and were first time buyers, have come to an agreement about me buying her out of her half of the house, which we both find acceptable (given the circumstances). I have two questions on which I'd appreciate input:

(1) is there any tax ramification for either of us in me buying her out of her half of the house?

(2) as the mortgage is a good tracker, ideally I'd like have her removed off the mortgage & keep it; I was wondering if there's any hope of this?

With the latter, we borrowed 300k in 2005 and got it down to 130k by consistently overpaying the mortgage. Bank records with the lender would establish that I've been continuing to overpay the mortgage, albeit not at the same rate, from my income for the last five years whilst also saving that other money for the last three.
 
@rr3046

Will you clarify:

- who is on title?
- both are on loan?
- Is all this amicable as in is there any dispute?
- Whats value of property now?
- Did g/f pay any of this - at start - and continuous?
 
Sorry for any lack of clarity:

- who is on title? Both of us.
- both are on loan? Both of us.
- Is all this amicable as in is there any dispute? Amicable, no dispute.
- Whats value of property now? The 220k mentioned above (it was 380k when bought + 40k renovations).
- Did g/f pay any of this - at start - and continuous? Yes. The sum total of each of our contributions, from start and over the lifetime of the mortgage so far including renovation, results in (as near as makes no difference) a 50-50 split between me and her of whatever part of the house the bank does not own. She had contributed more originally and I made up the difference in the intervening time. It was coincidental, really, as it had to do with her leaving full time employment, but explains why the mortgage has been paid by me alone for the last four or five years.
 
From Danske's point of view

1) They prefer to have two people on the mortgage as you will both be liable for it and so their loan is more secure.
2) They would like you off the tracker.

So, initially, I think that they will refuse, claiming that their risk will be increasing.

But ask and see what happens. They might agree as long as you take out a new SVR mortage. Or they might agree if you pay down some of the loan.

If they don't agree, you should keep the mortgage and property in both names and do up a side agreement. She renounces her rights to the property. You undertake full responsibility for the mortgage. The downside for her is that having a mortgage may limit her ability to borrow for another house if that is what she wants to do.

There are risks that she might later dispute the renouncing of her share of the property. However, if you both take separate legal advice, you will minimise the chances of this happening.
 
Thank you for the opinion Brendan.

I'll have a chat with the bank and see what they say. I wouldn't have a spare lump-sum contribution to make to the mortgage after I buy her out, but it has been massively over-paid so far: from 2005 to now it was taken from 300k to 130k, whereas it should be well above 200k. Of course, I expect that won't sway them.

Keeping the mortgage in both names, we would organise a formal agreement, although I wouldn't be worried about her attempting to renege. Her needing a loan before I discharge the mortgage is more of a concern.

With the taxation question, does anyone know if there are ramifications for her, if I pay her now, and for me, if she signs over the deeds several years from now?

Many thanks.
 
rr3046 said:
My ex-girlfriend and I have come to an agreement about me buying her out of her half of the house, which we both find acceptable (given the circumstances).
Click to expand...

This is a very refreshing approach.

You've been advised to do a separate legal agreement if the bank does not play ball. I'd be very surprised if they would agree to take her off the mortgage.

You mentioned tax. I don't see any tax, you're not giving her a gift. She is in essence taking out her equity in the property. And you are merely paying her for that. Think of it like this, if you sold and divided the proceeds there would be no tax either.
 
If you are allowed to do the deal now, the only tax implication is that you will be buying her share of the house. As such, you will have to pay 1% stamp duty on €110k or €1,100.

It could be complicated for her if you have to do a side-deal, in that she could be charged capital gains on any increase in the value of what might be regarded as an investment property for her. I wouldn't worry too much about this as the property would have to increase beyond what you paid for it originally for any liability to materialise. Even if it does rise above the purchase price, as she would not have a beneficial interest, I think you could well argue that she has no CGT liability.

Brendan
 
Thank you Bronte and Brendan for the further information.

I guess I can separate the two matters:

(1) I can buy her out of her half, pay the stamp duty, and have a clear legal agreement where she doesn't stand to gain if the property increases in value beyond what we paid for it (which seems massively unlikely anyway) so she wouldn't be liable for CGT (and I could get a mortgage on my own if property prices start to soar).

(2) For now, I could keep the mortgage as is, avail of the lower rate, pay off as much as possible and then if she needs her name removed before the mortgage is discharged, renegotiate a new mortgage on my own.

Thanks for the input.
 
Should property prices soar you'd want your legal agreement watertight that she could not come after that. This area of law, a separate legal agreement has not been tested in the courts as far as I know so you should be aware of that.
 
From what you said:
Value now is 220 so 50% is 110.
Loan is 130 so half this is 65
Which values g/f portion at 45.

So on that basis - and note she has a low threshold vis a vis CAT then by paying her 45 there is no CAT. If you paid more, there could be implications. (No love lost there is there?)

If the Bank play hard ball on the change in loan and title, and wont let you retain your tracker, then I would leave it and keep tracker.

There is a concept of equitable ownership - so what I would do is draw up a legal agreement that absolves your g/f going forward and that you retain ownership. I would get legal advice, but my own instinct is to retain the tracker. If the Bank see reason and common sense then fair enough. To be honest, I think they may have intellectual difficulty on equitable ownership, as I am sure the Danish would never have heard of the concept.
 
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