CAT - Principal Residence Exemption & Living Rent Free

J

Jimjobjim

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Hi Folks,

Take this scenario, an uncle is in hospital in very poor health, will be unable to return to his only home and will be going into full time care, uncle has no children but has nephews, one nephew had been staying with uncle on occasion and helping with affairs as he was getting on, uncle wants this nephew to take care of the home and eventually move in, uncle does not wish to sell. Uncle was advised of dwelling house exemption if timelines work out as three years of nephew residing and 6 years after passing of uncle. Basically nephew residing for rest of life. The fact that uncle is considered as residing at same time in the home if he was unable to due to being in a nursing home so exemption should apply.

However, nephew reluctant to move in as will have to invest lot of his own money to make the house habitable as it had fallen into disrepair and the other Big Crux of this thread will the nephew be chased by revenue for living rent free as the nephew will not be paying rent rather acting as a caretaker? This is where it gets very confusing as if revenue deemed that the nephew would be charged for living rent free then my understanding is they would then look at the rental yield on house, the problem is the house is in a very bad state which means it's not rentable, how would that circle be squared? What could revenue charge on if house wasn’t in a condition to be rented?

If the house was in a good state, the rental yield would be very high however cost of full repair to property would be enormous, if nephew moved in now that would mean just repairing three rooms and trying to keep costs low. Any thoughts on this situation, basically would nephew be charged for living rent free? Would it be deemed as a gift?

If nephew was going to be charged for living rent free then he will not move in as too much risk in terms of repair costs then also getting hit with an unknown tax bill with no real way of calculating that bill. House will then gather dust until sold which is not wish of uncle but again nephew would be exposed to high risk financial situation.

Any thoughts would be much appreciated
 
Well CAT is a self assessment Tax in the first instance.

So if the house is uninhabitable then the rent would be minimal. If the nephew spends money on his uncle's house while the uncle still owns it, then either the uncle owes the nephew the money or the money is spent on the understanding that the nephew can stay in the house rent free.

So its not rent free it is in return for consideration (lets not argue about whether its taxable as rent or not).

So nephew moves in at the rent of this shack is only €100 per month cos no-one would live there but he spends €50k getting it up to spec and not the rent is €500 per month. If nephew and Mrs are staying there rent free then the can get a gift each year of €3,000 so at €6k per annum there is no taxable gift. So thats fine.

I would be more concerned about the thought that the house would pass CAT free on the death of the uncle in this scenario. The relief was changed a number of years ago to restrict it to cases where people were living in a property with the owner, as was the original intention, this was relaxed as I understand it to cater for situations where the owner has to go into hospital. I don't think that moving into the house after the owner goes into hospital would qualify for that relief.
 
Thanks for the reply, much appreciated. Yes I would have thought the same however the act doesn’t explicitly state that they must live together, this is what it states

A successor must have lived in a dwelling house as his or her only or main residence for the 3 years immediately preceding the date of the inheritance (see example 6.3 below). Combined with the requirement for a disponer to have lived in the dwelling house as his or her only or main residence at the date of death, this means that, in effect, the disponer and successor will have lived together in the house for some or all of that 3-year period. An exception to the residency requirement is made where a disponer is absent from his or her only or main residence because of physical or mental ill health at the date of death; for example, if the person has moved into a nursing home. In this situation, the disponer is deemed to have lived in the dwelling house at that time (section 86(3)

Nephew has sought advice from tax advisor and advisor believes exemption will apply in this case, however I am not convinced either, should a query to revenue be the next step here?

Thanks again
 
Why make things complicated if the house is run down. Why not get the property valued and see what the property is actually worth. Say its worth 45k and none of the nephews group b threshold is used as yet that would mean that 45k - 3k - 32.5K = 9.5K is taxable at 33%. That will give a tax liability of 3.2k. No CGT as PPR Relief should apply I assume. If Nephew has a wife it could be given 1 third 2 thirds to the nephew. Thereby using her stranger threshold and leaving no CAT liability. IMHO CAT of up to 10k wouldn't even be worth the planning for the reliefs. If its a done deal that the nephew is getting the property into his name get it done asap.
 
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