Ask the expert: I’d like to sell my home to pay off my granddaughter’s college debt but want to be fair to everyone
I have a granddaughter who lives in America with my son and daughter-in-law. My other two grandchildren live in Ireland and obviously I get to see them more often, and this is a source of great joy to me as I lost my wife some years ago. However, I feel guilt over this girl as a result and was shocked recently to learn that she is carrying college loans of well over €25,000 (even after President Biden’s recent intervention on student debt) which may not permit her to carry on her education. I would like to help. My home is my only real asset but it is valued at around €800,000. If I were to sell it, something I have been long considering, what would I be permitted to offer this girl now, and can I leave a similar amount after I’m gone to the others who are not yet teenagers? I want to be fair.
Sinead replies: What a lovely grandfather you sound. In the US student debt is a way of life, accompanying many into their middle life, compared to here where it tends to be shorter lived at least.
In reality, the choices you outline are entirely yours to make and you can really gift or leave any amount to anybody you choose, legally. From a tax perspective however, the rules in Ireland are that a bequest to a Group B recipient (into which grand-children fall) can be made tax free to a limit of €32,500, as long as they have received no other gifts or inheritances within that group. You can also gift anybody up to €3,000 each year under the Small Gift Exemption, without impacting on this threshold.
I’m no expert on US tax code, but my cursory understanding is that an individual can receive an annual gift of US$16,000 without tax implications or make direct payments toward a grandchild’s educational expenses to a higher limit (this must be to the educational institution rather than the person, and it might be an option for you to pay for the further education her finances deny her). You could ask your son to investigate how this gift might be best made without involving your granddaughter initially.
To be honest, I would not take any action until you have spoken to a specialist tax adviser and, indeed, a solicitor, lest your generous gesture causes more problems than it solves. Broadly speaking, you can make what decisions you wish (including willing or gifting your other grandchildren a similar amount), but do think carefully about selling up, certainly if this is the only reason for doing so.
While you won’t pay any Capital Gains Tax on your principal private residence, finding suitable alternative accommodation won’t be easy. Without full plans in place, my advice would be to park the gift conversation until after you have made your other decisions as they may take longer than you think, or not work out for you at all.
Our 30-year-old daughter, who is a qualified nurse, currently rents a bedsit in Dublin. Her monthly rent is €1,200 plus utilities. She has no problem keeping up with her rent. She also has a small amount of savings.
If she were to purchase a small property with some assistance from us, would her rental record stand for anything at a mortgage company? We would appreciate any advice.
Sinead replies: What will stand to her more than anything is a permanent pensionable job, which if she has a full-time contract with the HSE, she can prove. The Central Bank permits a first-time buyer to borrow up to 3.5 times their income (you don’t mention whether or not she has a partner or is buying alone), and Joey Sheahan, author of The Mortgage Coach adds, “Her rental income will show that she has sufficient proven repayment capacity to borrow up to say, €400,000. If she has regular monthly savings this will further increase the loan amount”.
There’s no problem with gifting your daughter money; Revenue will permit tax free gifts up to €335,000 from parents, although this is a cumulative amount based on all gifts and inheritances to her. Banks are happy enough with that too, as long as they can see the transparent transaction. It’s likely you will need to sign a letter to the effect that it is a gift, or effect a Deed of Gift, to prove it’s not a secondary loan to her.
In addition, she might be able to qualify for a Central Bank exemption, allowing her borrow up to 4.5 times her annual income; my advice is generally to apply through a mortgage broker as they’ll have a much better steer on who’s offering what.
Other than that, I’d advise her to keep her financial accounts ‘tidy’, as in to be able to show her income/spending habits for at least the last six months, and no errant behaviour such as missing loan repayments or skipping her rent.
All in all, she’s a good prospect for a mortgage, if she can find a property!
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