I own a property since 2009. I lived in it till 2014 when I had a family and out grew it. At the time it was in negative equity and I could not sell it so I became a landlord not by choice. It’s been successfully rented out ever since.
I wish to sell the house as I have debt to be paid and the house is at a good value. My parents have offered to buy a one-third share of the house. That way I can pay off my debt but can keep the appreciating asset. In turn, they receive a third of the rent and make some income on money sitting in their bank. They will pay a third of tax owed and any issues that come with being a landlord.
My question is what are the complications of doing this? Would I be better off selling the house or considering this option.
It will be written in our respective wills but I have four siblings who will be entitled to a share when my parents die and also my husband and 3 children who are entitled to my two-thirds share if anything happened.
Ms C.W., email
This is an innovative solution to your particular financial headache and there is no reason why it cannot work. It doesn’t necessarily come with additional complications but you will need to make sure that all procedures are followed with none of the “short-cuts” that all too often bedevil intra-family financial arrangements in Ireland.
To be fair, there is no suggestion here that you intend to operate anything other than by the book.
You found yourself an accidental landlord like so many people over the past 10 or 15 years as the slow recovery of the housing market meant properties they had outgrown for one reason or another were in negative equity and could not be sold. You have been fortunate in that you have found willing tenants throughout that time.
Now, almost 10 years on in what is a strong property market, you’re looking to finally settle the mortgage on the property. The plan to sell certainly does that. So too should the alternative of selling a stake in the property to your parents.
As you say, the advantage of selling a share in the property to your parents means you settle the debt, continue to derive some sort of income from it and also enjoy any further upside in property values.
For your parents, you expect it will supplement their income and, eventually, their pensions. And, as you say, it will provide a return on money currently earning nothing as inflation rises sharply. The main thing for them is that they do not leave themselves short of access to “rainy day” cash should anything arise for them.
You and they need to be sure you are confident that the burden of investment property ownership – in terms of tax returns etc – does not outweigh any benefit to them in their minds. It sounds as if they are young enough to be able to confidently handle issues like tax returns and other issues that might arise but people who have never been in this business before can find it intimidating, as you may remember when you first had to let your former home out.
They’ll also need to register with the Residential Tenancies Board and, if you don’t have an agent in place, adapt to the cycle of calls over maintenance, faults etc.
For you, there is a tax issue to consider. While you still own two-thirds of the property, you are making a transfer of one-third and this will crystallise a capital gain for you.
You’ll need to assess the capital gain over the last 13 or so years since the property was first acquired in 2009, then take a third of that and then work out what for fraction of the period of ownership the house was rented. In bald terms, it is eight years but you will need to calculate the figure depending on when it 2009 it was bought, when in 2014 it was first rented and when you transfer the third to your parents.
As the last year of ownership is considered to be owner occupied regardless, you will face a capital gains tax bill for roughly 55 per cent of one-third of the gain in price of your former home.
You can allow for a third of the costs incurred buying the house and for costs – mostly the required legal work – in selling this stake. You then reduce the liability by the €1,270 annual capital gains tax exemption and pay 33 per cent on the balance.
At the end of the day, you now have a debt free investment property and a partner owner with whom you clearly feel you can work with on the investment.
Impact on inheritance
You note that “it will be written in our respective wills” and that you have four siblings. You also have a spouse and three children. You suggest all of these will be “entitled” to a share should either of the shared owners die.
I’m not sure why you think they necessarily would.
I’d certainly expect the property to be mentioned in any wills as it is an asset of each of the owners. But how you and your parents choose to allocate your assets in your wills is purely a matter for you.
Your parents four other presumably adult children likely have zero “entitlement” on assets in their will any more than you have.
In your case, yes, your husband does have entitlement to what is called a “legal right share” of your assets should you predecease him. Where there are children, this legal right share is one third of your estate (it would be one half where there were no children). You could still allocate your two-thirds ownership of this property elsewhere as long as there were sufficient other assets t satisfy his one-third right.
Your children are entitled to be provided and cared for as minors but once they are adults, they will have no more entitlement to your assets in a will than you or your siblings have in regard to your parents’ will.
At least there are wills. If there weren’t, intestacy would apply and then everyone would be entitled to a share of the estate, including this property which could be messy.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice