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HiI'm trying to buy my wife's parents house with her.The…

Customer Question

Hi I'm trying to buy my...

Hi
I'm trying to buy my wife's parents house with her.
The house is worth €600,000
We can get a mortgage for 300,000
We're thinking we can account for the 300,000 that the mortgage doesnt cover by her parents giving my wife a gift of 225,000 and then 6,000 yearly as a sort of loan to cover the final 75,000
The bank are fine with this.
Our real concern is when or if we need to sell.
My wife has 3 brothers.
Let's say we want to sell when the house is worth 1,000,000
Legally speaking, my wife and I would get the full 1,000,000
But we'd like to give the 500,000 back to her parents and or 3 brothers
This is where we get stuck, how can we gift that sort of money back to the family without incurring large taxes?
Thank you
Jack

Submitted: 6 years ago.Category: UK Tax

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11/8/2014

UK Tax Professional: taxadvisor.uk, Chartered Certified Accountant replied 6 years ago

taxadvisor.uk, Chartered Certified Accountant

Category: UK Tax

Satisfied Customers: 7,522

Experience: FCCA - over 40 years experience as a qualified accountant (UK based Practitioner)

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Hello and welcome to the site. Thank you for your question.

Please clarify for me...

Would you make this property your main residence once you buy it or will it be an investment property/second home?

Confirm it is your intention to meet the difference between your mortgage and the buying price (i.e. £300k) in the form of a gift and a loan from your wife's parents and pay them back after eventual sale of this property at a future date.

Many thanks

Customer reply replied 6 years ago

Yes this would be our primary residence

And yes, our intention would be to either one day 'gift' back 300K to the parents or brothers in order to fully own the house in the families eye's. Or if we can not afford to do that, upon selling the house at least 5 years down the road, we would aim to 'gift' 50% of the sale value back to the parents / brothers.

The bank only care about the initial purchase of the house and that we/the bank would legally own the house outright.

For the sake of tax, my understanding is that we have to show how we got the piece of the house the mortgage doesnt cover, hence the gift of 225K from my in laws to my wife, and an unsecured loan of 75K to be paid back from my wife to each of her parents at 3K per year each.

The only 'issue' I am left with is when we come to sell the house and give back 50% of the houses value to her brothers / parents, or if we want to stay in the house for the long term, we would like to still give the brothers/parents 50% of the houses value, but we don't know how to do this legally and my wife ends up with most of her families inheritance without away to share it out.

We would love to know if this is at all possible, even if it means sending the funds over seas, or investing in a business to share out amongst the family etc

Thanks

Please let me know if you have any more questions

Jack

UK Tax Professional: taxadvisor.uk, Chartered Certified Accountant replied 6 years ago

Jack, thank you for your comprehensive reply.

I do not see receiving a significant gift as an issue. It would be regarded as a potentially exempt transfer for inheritance tax purposes as far as personal wealth of your wife's parents is concerned and the seven year rule would apply to 225k. The seven years rule means if you survive for 7 years after making a gift to someone, the gift is generally exempt from Inheritance Tax, no matter what the value.

You as a recipient of the gift would receive the funds free of tax as there is no tax on gifted money. You don't have to report it to HMRC on your tax return.

This being your main residence once you buy it then any gain on sale of it would be exempt from capital gains tax as the gain would be covered by private residence relief irrespective of how the purchase of property was funded in the first place.

Giving back 50% of the value of the property on sale would also be regarded as a potentially exempt transfer - this time for your (you and your wife's) inheritance tax purposes.

To safeguard all parties concerned, it would be advisable to have a statutory document in place confirming the monies to be received is an unconditional gift. Likewise, prepare a statutory document when you wish to gift 50% of the value of the property at a future date.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer reply replied 6 years ago

Hi again

Just in case, this is the Irish tax system I'm enquiring about. I don't know if my question has ended up in a UK queue or something has it?

If your answer applies to Irish tax law, I'm still a little unclear as to how I can give the money back tax free.

My understanding was that My wife can receive a tax free gift of 225K from her parents, but if she wants to gift a parent or sibling money, the tax free threshold is only about 30K

Thanks

Jack

UK Tax Professional: taxadvisor.uk, Chartered Certified Accountant replied 6 years ago

I have opted out as I am not an expert on Irish Law and tax.

Many thanks

Customer reply replied 6 years ago

Thanks anyway.

Is there a way to transfer my question to the correct queue or advisor?

Jack

UK Tax Professional: taxadvisor.uk, Chartered Certified Accountant replied 6 years ago

Jack...as I have opted out, the question is on the floor for another expert to answer.

If you don't hear from another expert, please come back and request a refund if your question remains unanswered.

Many thanks and best wishes.

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