GET A HANDOUT
Many children have turned to their parents for help with the house deposit. “The vast majority of first-time buyers are getting gifts [of money] from their parents towards the deposit,” said Grant. “I’ve seen cases where some of the gifts are for the full deposit.”
Should you be getting a gift of money towards your deposit, all lenders now require you to have a gift letter from the donor. That letter specifies the sum of money being gifted, the name of the donor, and a signature from the donor confirming that you do not need to repay the money gifted — and that the donor has no recourse to the property.
There may be tax implications if you receive a handout from your parents towards your deposit. You must typically pay gift or inheritance tax at a rate of 33pc on the value of any gifts or inheritances received — though there are cases where there are exemptions from the tax. Under the parent-tochild tax-free threshold for inheritance and gift tax, a child can get gifts or inheritances worth up to €310,000 tax-free from their parents over their lifetime. A handout received from your parents towards your deposit could therefore trigger a tax bill for you if that handout pushes the total value of the gifts and inheritances received from your parents over that threshold.
To avoid having a handout trigger a tax bill, ask your parents to work within the small gift exemption. With that exemption, each parent can give a gift to a value of €3,000 to a child (or to anyone else) each year without triggering gift tax. So two parents can make tax-free gifts to a child to the value of €6,000 in any year. Indeed, two parents could gift €12,000 in total each year to each son or daughter and their respective partner (such as a fiancee, fiance, daughter-in-law or sonin-law) without triggering tax. So should you be buying a home with a partner or husband, under the small gift exemption, you and your partner could receive €12,000 in total a year tax-free from your parents towards the deposit on your home.
Gifts which qualify for the small gifts exemption do not eat into the parent-to-child tax-free threshold. Furthermore, there is no obligation to spend the gift received under the small gift exemption in the year it is received. You could therefore save that gift until you need it for the deposit. Should your parents wish to give you a large handout towards your deposit (such as €20,000 or more), it would be wise for them to drip-feed that handout over a number of years so that the small gift exemption could be fully taken advantage of and no tax bill would be triggered. pays better interest than normal. Regular savings accounts typically pay better interest than lump sum deposit accounts — as long as you choose an account which pays more than 1pc interest.
Some of the best regular savings accounts are EBS’S Family Savings (which pays 1.75pc interest in the first year), KBC’S Bonus Regular Saver (1.5pc interest on up to €50,000 of savings) and Bank of Ireland’s Mortgage Saver (1.35pc interest on up to €14,999 of savings). The Mortgage Saver account also pays bonus interest of €2,000 once the buyer has more than €5,000 saved into their account, though there is a catch: the mortgage must be drawn down with Bank of Ireland within 30 months of opening the account. You could find a cheaper mortgage with another lender.
Should you plan to save for more than five years for your deposit, do so through a life assurance savings account rather than a traditional deposit account as returns are likely to be higher, according to Eoin Mcgee, principal of Kildare-based financial advisers Prosperous Financial Planning.
Some of the life assurance savings plans recommended by Mcgee include Zurich Life’s Easy Access Savings, Aviva’s Regular Saver and Irish Life’s Pinnacle. Be sure to understand the charges on a life assurance plan before signing up to one, though.