Shared ownership Scenario

What do you think of this scenario?
Bought as an investment property for €250,000 in 2008.
Rented out all this time well below market rent. €900.00 pcm
Tax paid on the rental.
Current house worth €250,000
Mortgage €95,000
tracker 1.9%
16years remaining.



Family member approached us for help.
Family member can only get a mortgage for 15years due to retirement but would like to buy a property to live in. They are worried that when they retire they will have to rent. They have €25,000 saved

They have asked to buy half the house for €150,000 so they will own 50% share in the house. We still own the other half.
Agreement would be they could not sell unless both parties agree.
When they die the house has to be sold at market rate and the estate pay €150,000 to us on the sale and their estate takes the balance.
Alternatively they can buy out our share for €150,000 at any time thus giving us €300,000.
We assume they will be in the house for at least the next 20years. Also assume inflation will bring the house up the the value of €300,000.

All maintenance to be carried by them . We still pay half insurance and property tax.
No rent to be paid. No tax involved as the house will not be rented out.
We never lived in the house.
We we will have to pay capital gains tax on the €50,000.
Also there will be solicitors fees on part transfer and on sale of the house.
We will still continue to pay the mortgage.

Can you foresee any problems with this? Thanks for your input good or bad.

Where does the capital gains on € 50,000 come from?

It sounds complicated and could give rise to a lot of problems.

Join ownership is not a good idea unless there is no alternative.

I presume that this is an investment property which you own?

I suggest that they buy the property from you for €250k funded as follows:

Mortgage from bank: €100k (or as much as he can get)
Cash deposit : €25k
Loan from you : €125k
Total : €250k

You get €100k and repay the mortgage.

He still owes you €125k and you charge him interest on this.

But is this the house he really wants?

If not, then why don't you sell the house and lend him the €125k to buy the house he wants?

Brendan

You have a tracker at 1.9% on €95,000 so it's not particularly valuable. You shouldn't worry too much about giving this up.

Brendan

Gave a bit more information in the original post.

jpd said:

Where does the capital gains on € 50,000 come from?

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Purchase price €250,000 we get €300,000 all in after sale of the house.
Half of the house bought from us €150,000 now and when the house is sold when the people die we get €150,000 at that time. Balance of sale of the house goes to estate.

Brendan Burgess said:

You have a tracker at 1.9% on €95,000 so it's not particularly valuable. You shouldn't worry too much about giving this up.

Brendan

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Low interest so could replay slowly and we have €150,000 we could use now.

Brendan Burgess said:

But is this the house he really wants?

If not, then why don't you sell the house and lend him the €125k to buy the house he wants?

Brendan

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We could do with some of the money ourselves.

Sconeandjam said:

Purchase price €250,000 we get €300,000 all in after sale of the house.
Half of the house bought from us €150,000 now and when the house is sold when the people die we get €150,000 at that time. Balance of sale of the house goes to estate

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You are really confusing and complicating things with your figure of €300k. You already said that the value of the house today us €250k, therefore 50% is €125k. If your agreement is €150k today for half then you are valuing the property at €300k today so you will be liable for CGT on the €25k gain. Just forget about what value it may or may not be in 20 years time. It's irrelevant.

Sconeandjam said:

Low interest so could replay slowly and we have €150,000 we could use now.

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I don't think you have thought this through at all. No bank would allow you to keep your tracker for your "half" while another mortgage is registered for the other half. That's madness.

Even if your family member could buy from you in cash, there is no way the bank would allow you to keep it without first clearing your mortgage.

If you want to give him half ownership of the house and retain the tracker, then you will have to do a complicated side agreement.

You sell half the house to him now.
He gives you €25k cash.
He owes you €100k - he can repay that to you over time or he might get a short term Credit Union loan.

But this is very messy. I don't know how the CGT would work out. He occupies it and you own half as an investment.

If you need cash, you have to get rid of the tracker. But if he can borrow only €100k, then after you pay off the tracker you won't have any cash - well €25k.

Brendan

Brendan Burgess said:

You sell half the house to him now.
He gives you €25k cash.
He owes you €100k - he can repay that to you over time or he might get a short term Credit Union loan.

But this is very messy.

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Agreed. There is so much potential for this to go sour, personally and legally.

_OkGo_ said:

You are really confusing and complicating things with your figure of €300k. You already said that the value of the house today us €250k, therefore 50% is €125k. If your agreement is €150k today for half then you are valuing the property at €300k today so you will be liable for CGT on the €25k gain. Just forget about what value it may or may not be in 20 years time. It's irrelevant.



I don't think you have thought this through at all. No bank would allow you to keep your tracker for your "half" while another mortgage is registered for the other half. That's madness.

Even if your family member could buy from you in cash, there is no way the bank would allow you to keep it without first clearing your mortgage.

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Mortgage side, I never thought of that.

Thanks for making me rethink this idea and for all your input. Definately a no go.