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Home Economics: Our property finance expert answers your questions

 

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Sinead Ryan

Sinead Ryan

Sinead Ryan

Q Our mother died in February, just before Covid-19 hit. Her house, which is worth around €250,000, is to be split when it is sold between four of us, her children. She had little or no other assets, so we don't expect a bill for tax. I am executor of her will and have applied for a Grant of Probate. Is there any issue if we let the property out while we wait for the market to recover? One of my sisters lives on the same road and can organise viewings, etc, or will this create a tax problem? 

A The parent-to-child tax free thresholds for inheritance tax available for each of the four of you is €335,000 each, if there are no other gifts or inheritances received previously, so you are right that no capital acquisition tax will be charged.

Probate can take a long time, but you might want to get your solicitor to chase it up now that offices are open again. 

"Once you have the property, you have to decide what you want to do with it", says Joanna Murphy, CEO of Taxback.com. "If you decide to sell or rent it, you will have to pay taxes on your profits. Even if you wait to sell for any length of time, you will have to pay a capital gains tax when you do". This is charged at 33pc on the gain, less an annual exemption of the first €1,270.

"If you decide to keep the property as a rental, you will have to split the rental income between all four of you, and declare the equal part of the total received rental income to the tax office and pay Income tax on it" she adds.

"If the rental income per person exceeds the €5,000 threshold per year, you become a chargeable person and must register for income tax self-assessment and file Form 11 tax return".

For my part, I wouldn't overthink the market. There's no evidence selling now or waiting will make a difference, although there is some research to suggest house prices may take a hit, there will also be pent-up demand for property among those unable to purchase up to now. 

Anybody who has tried to second-guess property in Ireland in the past often became a cropper, so perhaps regroup once you have Probate, and sit down together to consider what it involves to let. Not only is there the likely tax issues, but you must register with the Tenancies Board, follow all their rules of letting, and you may not make any kind of a profit split four ways at the end of it. 

Q I availed of the mortgage moratorium for three months with Bank of Ireland. I'm now going back to work, thankfully on full salary and had planned to top up my mortgage to build an extension before Covid-19. Is it going to be more of a problem now? I owe around €185,000 with 14 years left on the loan and my house is valued at €345,000.

A No, is the short answer, but a lot depends on what you haven't said. The mortgage moratorium, which will end in September anyway, was a short-term financial prop to get people over the initial stages of the Covid-19 pandemic. If you're back at work, don't extend the moratorium when you are asked, but re-commence your normal payments now, with the addition of the new amount to cover the credit.

You'll be assessed for any loan on the same basis as ever - your income, ability to repay and most importantly, loan to value ratio, which for you is a favourable 53pc. The less of a risk you present to the bank, the better.

The fact you were in receipt of the moratorium isn't itself the issue; the why is. Is your job unstable now? Could you face a pay-cut later? You now owe more than you did before on your current property - will that skew the financials? It might be no harm to have a mortgage broker look over everything before you apply; you might find it's a good time to shift the entire loan elsewhere and save overall.

 

The Ryan Review

There's great speculation about how Covid-19 will affect house prices. Nobody knows for sure and much depends on whether there's a second wave, a protracted recession or a contraction of credit. Or, ominously, all three.

Research from the ESRI points to differences between the last recovery after the 2007 crash, and this one. Then, it was a 'cash-led' housing boom where almost half of all house sales were not mortgaged, skewing both the market and the reporting of the market (cash property transfers are not recorded in the same way).

This time round, it's going to be mortgage-led with banks anxious to pump out money, and interest rates remaining static. But economists, for all their number-crunching analysis often under-emphasise the amorphous concept of consumer 'sentiment'.

In the UK, Nationwide, one of the biggest lenders, has tripled the minimum deposit for first-time buyers (now 15pc), bracing itself for falling prices and the possible return of negative equity. Is it possible that across the water they know something we don't?

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