# buying a house to rent to sister: tax implications



## paddytheape (28 Feb 2014)

I intend buying a house in my hometown so someone can be near my elderly parents (unfortunately I live in dublin and cannot afford a house here) 
My sister, partner and their two kids would like to move home but would have to give up their jobs and then obviously they could not get a mortgage of their own so I propose they live in the house and pay rent with the option of buying the house back from me over time. (or pay me back with a lump sum)
The house I propose to buy is 130k for which I have 100k in savings, my sister has 30k and pooling our resources, I would like to buy the house mortgage free so they could move home and then look for jobs for themselves.

What are the tax implications for both me and my sister?

Any help greatly appreciated as I have researched and am still none the wiser.
Thanks for reading, 
Paddy.


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## Bronte (28 Feb 2014)

If she is putting in 30K you should split the ownership 100/30.  Otherwise the 30K could be seen as a gift, but it also good because she intends to buy the house.  

If she is renting from you, that isn't a problem, you then are a landlord and should declare the rent as a normal owner, I don't advise the you pretend you live there and it's the rent a room option.

It is not at all clear that she is renting or buying from you?  She can of course buy it out, kinda like you are the mortgage bank.  You'll have to agree an interest rate.

Having said all that, I think with our solicitor you need to come to a legally binding agreement on exactly what is going on here. 

What's the benefit to you of all this, what happens if in 2 years she decides she's off to Oz.  By her having an actual share in the house, she is more likely to behave correctly.


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## STEINER (28 Feb 2014)

If you and your sister buy the house for €130k using your €100k and her €30k, there will be no mortgage.  You own 10/13 of it and she owns 3/13 share of the house.  This is the cheapest way to actually buy the house, if you are willing to use all your savings.

Your sister can gift you €30,150 without any tax liability.  You could then purchase the €130k house solely in your name, then draw up a formal lease agreement to rent it out to her.  Your rental income is taxable. This also depletes your savings, but there is no mortgage involved.


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## 44brendan (28 Feb 2014)

In purchasing the house the solicitor can draw up a "Tenancy in Common" agreement. In effect legal ownership will be in the ratio as stated by Steiner above with no need for any gifts! legal agreement can then be drawn up for her to purchase your share over an agreed period similar to a mortgage. despite the fact that this is your sister, you should still formalise all agreements with a solicitor as this will give you both the protection you need!


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## paddytheape (28 Feb 2014)

Thanks very much guys.
As I work a 4 day week in Dublin and am renting up here, I spend most of my weekends (3-4 nights) down the country at home, so the new house could be my PPR and I could use the rent a room scheme? Is this legal and possible?  
If I didn't charge any rent, is there any tax exemptions on an annual gift to a sibling, eg, can she give me 3-5k/yr tax free even after 'gifting' me 30k for house purchase? 
My motivation here is purely to enable someone to move home to look after my folks, It has to be above board and legit or my Da will stress
and worry and make the whole exercise pointless.  i appreciate any feedback.


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## Brendan Burgess (1 Mar 2014)

Hi paddy 

This sounds all wrong to me. 

You have €100k but you can't afford to buy a house in Dublin? Things change. Maybe your income will improve to allow you to get a mortgage in Dublin. Maybe you will buy a house jointly with someone else. 

Hold onto your €100k.  If you tie it up in a house in which you are not living, you will probably never be able to buy in Dublin.  

I don't think you should buy a house jointly. Just look at the forum where people have fallen out after buying a house together. They are probably the most difficult problems to solve.  Either you buy the house outright and rent it to them or you lend them the money to buy the house. 

Consider lending the money to your sister and her partner. Presumably, in time, they will be able to get jobs and a mortgage in the country.  When they do, they can remortgage and repay you. 

But why can't your sister and her family simply rent a house in the area? You keep your money and your potential to buy a house in Dublin.


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## paddytheape (4 Mar 2014)

Thanks very much Brendan, many options there to be considered, however, the preferred option is to lend her the 100k and she buy the house in her name.  This would satisfy all our requirements if it could be done legally and tax compliant.  Is is as simple as I transfer the money to her and she gives me a postdated cheque, say for jan 1st, 2024.

Would revenue accept this and neither of us be subject to any tax?
Thanks for any input here,
Paddy


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## 44brendan (4 Mar 2014)

No Revenue issues if the loan is genuine and repayable. Interest free loan could potentialy raise a tax issue. However, your main concern would be if/when you need these funds yourself!! despite her best intentions your sister may not be in a position to pay you back. Why not draw up a legal agreement with regular repayment schedule, which would suit her and give you some degree of comfort in getting your money back! If you are not relying on the return of the funds fine. However many family disputes have arisen over arrangements such as this falling down!


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## dereko1969 (4 Mar 2014)

Seriously, have a look through previous threads where friends, siblings, partners and married couples made similar decisions and then came back on here years afterwards looking to get themselves out of very (both emotionally and financially) complicated situations.

Keep your money for yourself.


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## RainyDay (4 Mar 2014)

With all due respect Paddy, I think this is a crazy proposal. Your plan to support your family is admirable. Would you think about a different approach?

Why don't you give your sister a straightforward gift - say €5k or €10k or €20k to help her settle back down and get over any relocation issues. 

Keep the bulk of your capital to yourself, and use it to buy a house wherever you intend to live. Planning to travel 'back home' every weekend is not really a sustainable lifestyle.


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