Jill Kerby

With Mortgage relief comes responsibility

MF writes from Limerick: In 2007 I purchased a house for my daughter. The house was legally transferred to her and I have continued to pay the mortgage. I have a house of my own and it is mortgage free. Would I be able to claim mortgage relief from the Revenue for her house?

I’m afraid not. This property is not your principal private residence so you are not entitled to claim any mortgage interest relief; nor is it an investment property that you own that you could have offset up to 75% of any mortgage interest paid against the rental income (along with other qualifying expenses).  Instead, this is a second property that you bought with a mortgage only to put your daughter’s name on the deed of ownership.

I asked tax advisor Sandra Gannon of TAB Taxation Services in Dublin to comment on your letter and she raised an interesting point: “From the information provided it appears that a separate mortgage was taken out in order for your reader to buy this property for his daughter. He says that his own home is mortgage free, but perhaps it was never mortgaged.

“Either way, it would have been very unusual for the bank to allow the ownership of this second property to be transferred to the daughter while the mortgage remained with him, unless it was secured against his own home.

The only way mortgage relief can be claimed on this property is if your daughter becomes the legal owner of the mortgage, says Gannon. “However, the lender would need to be satisfied that she had sufficient income and independent means to pay the loan herself; only then would the father’s home be released from acting as security, if that is how the loan was arranged.”

Assuming the transfer of the mortgage to her is possible, there would be nothing stopping you from continuing to pay this mortgage for your daughter if you so wished. 

But it might be a nice gesture for your daughter to at least refund you the annual mortgage relief to which she would now be entitled as a first-time buyer in 2012. The relief could be worth up to 25% of the interest paid up to €3,000 reducing thereafter to 22.5% and 20% until it is abolished for everyone in 2017.

Finally, you may want to ask your own tax advisor about the fact that you have gifted her this property and continue to gift her the cost of the annual mortgage payments.

CAT free gift exemptions between a parent and child have fallen by half in the last few years and the annual CAT gift threshold is just €3,000. Depending on the value of these gifts, and any other inheritances or gifts she may receive from you or other sources she may have a potential CAT liability to pay.

Separate issue

Terry L writes from Dublin:  On the death of my parents some years ago, I recieved a sum of money close to the then maximum tax-free threshold for parent-child inheritance.  

My spouse's elderly parent is in poor health and, when she passes away, my spouse will inherit a sum in the region of €150,000.  What is our tax position on this second inheritance, given that we are jointly assessed?  Will the value of both inheritances be added together to calculate the tax payable, or is the tax-free threshold separate for each partner's parental inheritance?   

Also, if both inheritances are added together for tax purposes, would it be better for us to opt to be assessed separately for tax for the next few years?

Inheritances and gifts are the individual's alone and liability is that of the beneficiary, even if the person is jointly assessed with a spouse for income tax purposes.

The €150,000 inheritance your wife may receive will therefore be capital acquisition tax (CAT) free, assuming the tax free threshold between a parent and child does not fall below that amount when the inheritance is received and if your spouse has not previously received inheritances or gifts that would trigger a CAT lifetime threshold being exceeded.

Calculating aggregated sums for CAT purposes can be complicated and a tax advisor should be consulted.

Seeking relief

AB writes from Dublin: I purchased our home in 2004 jointly with my wife for €500,000. It was not my first mortgage but my wife was a first time buyer. Does she qualify for the relief announced in the December budget to help people who bought during the peak?

The December budget introduced enhanced mortgage relief for people who bought their homes as first time buyers between 2004 and 2008. Your wife, as the first time buyer during this period, is now entitled to claim 30% mortgage tax relief on her half of the mortgage repayment for the next five years to 2017 when it will be abolished for everyone.

Safe for Summer 

PW writes from Navan: My son is returning to the same summer job at a hotel in America that he had last year under the student visa programme. However, he is pretty sure that another, better paying job will be available a month later.  It took nearly a month last year for the hotel to sort out getting him off emergency tax and his worry is that he’ll be gone to the next job before that happens. First, is there anything he can do to avoid emergency tax or get it back quickly before the summer is out? (Otherwise his father and I will have to send him the money.)

Students are often put on emergency tax rates when they take up summer employment, though most employers, here and in the US or Canada, will try to sort it out quickly.

It might be worth you or your son contacting Taxback.com before he goes to the States this year to find out what he might be able to do himself to avoid being put on emergency tax or at least to know what will be involved in claiming the tax refund when he gets home at the end of the summer. There is a section devoted to tax refunds for students: http://www.taxback.com/usa-tax-refund-j1.asp