My young family and I are renting a property off my parents for the last year. They would like to gift it to us as our chances of getting a mortgage are non-existent. We can still pay rent as if it were mortgaged.
Ms GA, email
This is a position that an increasing number of families find themselves in – and they know, even then, that they are lucky given the rapid rise in commercial rents over recent years.
As it stands at the moment, everything is fine. You are renting from your parents and you paid that rent with difficulty even though there is no way you think you would be cleared for a mortgage – or at least the sort of mortgage you would require to own a home.
Changing that status is going to have an impact, regardless of how it is done.
There are strong rules in place to stop parents providing financial support for their adult children. This used to be quite common until – as always seems to happen – it became more of a device for very wealthy families to pass wealth on to younger generations while sidestepping the tax bills that such transfers would normally attract.
Revenue might have turned a blind-ish eye when it was a case of parents supporting adult children who found themselves on their uppers in the last crash but tax advisers were quick to bring it to the attention of those for whom the crash was more an inconvenience than a crisis. As a result, in 2014, Revenue moved to dramatically tighten the rules.
If your parents gift you the house, whether you have a tax bill will depend on the value of the property. Your parents could gift you up to €335,000 in assets without any worries over tax. It would mean that you would have to pay tax on any subsequent inheritance from them but that is not such an issue. If your greatest need is now and they are in a position to help, then that is the priority.
But what if the property is worth more than €335,000?
Either you will have to find the money – from borrowings or savings – to pay tax of 33 per cent on anything above this figure, or it will need to be constituted as a loan on which you will pay interest. This is more complicated certainly, and would need to involve a solicitor comfortable in such transactions.
Effectively your continuing rent payments would go to service the loan element of the property, allowing you to pay it piece by piece over a number of years.
The interest would need to be at a commercial rate – although that is less of an issue in these low interest times.
It is not a straightforward arrangement and Revenue will want to be reassured that anything over your lifetime gift and inheritance tax threshold limit of €335,000 is indeed a valid loan.
You do suggest a reason why your father might want to get the property out of his own name just now. That, too, might mean that Revenue is paying his affairs a healthy degree of interest.
Don’t cut corners, get proper legal advice and make sure any arrangement agreed for the transfer is watertight and does not overly stress your own finances.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.
