PROBLEM
My grandfather is willing to sell us a plot to build on in his garden in exchange for a monthly payment of €800 (amounting to €50,000 over five years). Is this legally doable?
Mr CB, email
ADVICE
Family arrangements to ease housing difficulties are increasingly popular. It’s natural for parents, or grandparents, to want to help younger family members get started in life. And, with the cost of housing accelerating all the time, it’s hardly surprising that older family members with more substantial properties will look at the sort of arrangement you are suggesting.
The problem in most cases arises because relatives are looking to give a hand up as a gift. While that’s a natural inclination for those who are able to afford it, it does raise issues with the Revenue – especially following a recent clampdown on what it perceived as abuses of previous latitude in providing financial support to adult children.
Your grandfather’s suggestion gets around this problem because he is essentially looking to advance you a loan for the purchase of the site.
So are there any issues? The main thing is to make sure the site he is selling you is properly valued. If he is charging €50,000 and the site is actually worth, say, €80,000, then the Revenue would consider the balance of €30,000 as a gift and that could have capital acquisitions tax issues for you, especially if you have received substantial inheritances or gifts from close relatives other than your parents in the past.
The best advice is to get a professional valuer in to value the site. It doesn’t mean your grandfather has to charge you more but you will at least know if the transaction involves an element of gifting as well as the purchase.
The second issue with any intra-family loan is to ensure that there is a “market interest” rate applied. If the loan is interest-free, or at just a nominal rate of interest, Revenue will consider the difference between the market interest rate and the rate paid (or not) as a gift in itself.
Those two issues aside, and assuming title to the land is correctly transferred (for which you’ll need a solicitor), there is nothing in legal or tax terms to stop your grandfather and you agreeing this transaction.
- Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
