Home economics... answering your property questions
Our property expert on capital acquisition tax when buying the family home and transferring shares and the possible consequences of dry rot.
Question: My mother died earlier this year, leaving the family home to me and my two siblings. I have decided to buy it from them. However, there is disagreement and we are getting three separate valuations. There is considerable work needed to make it comfortable; they argue it is merely cosmetic. I don't want to fall out, but I'll have a lot of money to put into it also. Is there a tax implication when I hand them over the money (around €130,000 each)?
Sinead replies: You have two distinct issues. The first is about the valuation. You are going about it in the right way by using three agents to price. It needs to be agreed upon by all parties, but any work needing to be done will be taken into account in any event, so I'm not sure you should have a particular concern here.
As to your tax query, Barry Flanagan of Taxback.com says: "Any decision regarding transfer of shares in the property will have to be deemed to have taken place on an arm's length basis once an independent valuation is agreed by all.
"If the offer of €130,000 for each respective share is accepted, then there are no Capital Acquisitions Tax (CAT) implications as all will be receiving full market value for their share, i.e. no deemed gift.
However, there may be a Capital Gains Tax (CGT) implication for your siblings as there has been an uplift in the value of the property from the date it was inherited to the date of the deemed disposal. The valuation date is taken as the day it was inherited, and if there is a difference with that and the current value, then in selling their share to you, your siblings will be deemed to have made a gain. CGT is 33pc."
Question: I'm buying an old house which has some dry rot. The vendor has been upfront about it and even got an estimate for the repairs, which I'm happy to undertake as the price reflects this defect. However, my surveyor tells me the bank may not now give me the mortgage, even though it was approved in principle. Why so and what can I do?
Sinead replies: Your surveyor may well be right. Banks lend money on a range of measures which obviously include things like your income, ability to repay and outstanding debt.
However, even if you meet all of these (which you have, since you have secured approval in principle), they still need to be certain that the asset they are taking on board isn't, in reality, a liability.
At its purest, the house itself needs to be able to be sold off and the debt repaid should this become necessary due to circumstances which might lead you to be unable to pay. Any damage, especially on older houses, can be considered an added risk by lenders.
In addition, they might also be mindful that you will be incurring extra costs (sometimes these can be unpredictable, especially in the case of repairs), which may leave you in a financially less secure position, putting your repayment ability in jeopardy.
You won't know until you ask, and certainly a fully comprehensive surveyor's report, together with a plan, and written estimates of the work to be undertaken will help make your case.
Banks like certainty, and your taking this seriously with back up data will be of assistance to them.
The Ryan Review
The Insolvency Service of Ireland has ramped up both its activity and public relations. Issuing a glossy press release (complete with 'debtor testimonials' including single mum 'Donna', widow 'Siobhan' and electrician 'Lee'), they show that last October's campaign to educate people about their options, which include Debtor Relief Notices for those really on their uppers at the lower end of the scale (of which 117 were issued in the second quarter of the year), up to Bankruptcy - there were 92 in the same period - has been successful.
Has the ISI finally found its mojo? Goodness knows it's been a drawn out process, hampered by ill thought out legislation, a stymieing of resolutions due to the three year bankruptcy requirement and the reluctance of those in debt to engage with the system, being distrustful of its purpose and wary of the banks' veto. So say all of us. Good luck to it if it continues in this vein, but the biggest stumbling block remains finding an affordable Personal Insolvency Practitioner (PIP).
The big reason for so many DRNs being issued, is that MABS, the State money advice and budgeting service, can do the paperwork for free. Not so those with mortgage debt - they need to find a professional to put their case forward and unless they have an income stream, they'll need a strong wind behind them. The ISI is still lacking a State-sponsored PIP panel. A group of financial/legal experts, paid a set rate who cannot refuse business, much like legal aid. Do that, and the Donnas, Siobhans and Lees will respond.