Monday, May 17, 2010

Parent bailouts to trigger CAT mortgage bill

From the SBP, a story which will cause a lot of difficulty over the next few months, unless Revenue take a lenient approach.

"Revenue has confirmed that parents or other third parties that have guaranteed a borrower's loans will be deemed to have given them a gift and triggered a corresponding liability to capital acquisitions tax (CAT).

CAT is applied at a rate of 25 per cent of the value of the gift or donation. Tax rules dictate that a borrower would face a CAT liability of €25,000, for example, if his or her parent is pursued by a bank on foot of a guarantee of €100,000."

Lots of mortgages taken out as prices peaked had Parental guarantees.

The house buyers could not afford the house they wanted to buy.

They still wanted to buy it.

The Lender wanted to give them the money.

If, even using the most lax of qualifiers, the applicant could not achieve the required security, they were asked to get their parents to go guarantor.

This was totally reckless on behalf of the lender.

It put the parent in a difficult position.

They sometimes had a charge put on their own mortgage-free home.

This after 20 years of paying off their own mortgage!

Will anyone in the banks see any censure for this?

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