If you have guaranteed your son or daughter’s mortgage and they default on their repayments, they may become liable for CAT (Capital Acquisitions Tax) if you pay their loan to the bank. This is according to an article by David Clerkin in The Sunday Business Post.
Defaulting mortgage borrowers will face substantial tax liabilities if their banks invoke parental guarantees to get their money back or minimise losses.
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.
The buy-to-let investment market has been decimated by the recession and landlords are grappling with the financial consequences. The difficulties they face have also been compounded by increased government levies and taxes.
Previously they were enticed to invest by the government with hefty tax reliefs – such as Section 23 and Section 50 tax incentive properties – but now landlords are dealing with increased taxes, following a series of measures introduced in recent budgets.
And it is the amateur buyers who invested during the boom years that have been hit the hardest.
The 29th September 2010 is fast approaching, and the question arises are my savings guaranteed after that date?
The Government is yet to make a firm decision on the matter, but in the interim period, your savings are fully guaranteed.
There are a few schools of thought out there on the matter, most probable outcome is the blanket guarantee will be withdrawn, and the original deposit guarantee scheme will be reinstated whereby your deposits up to €100K per individual per institution will be guaranteed. This guarantee also applies to Credit Union movement.
Blanket guarantee has been extended for amounts of greater than €100K if your funds are in a fixed account which must be opened prior to 29th September 2010, and guarantee in this instance is extended to 2015.