Allowing a child to live rent free in investment property

Trying to figure this one out after seeing the post below:


If a parent owns a investment property, and allows their child in full time education and <25 years to live rent free, CAT is not due by the child under the below until they graduate/turn 26:

The property is then genuinely the child's PPR, so can the child then claim rent a room relief if they rent a room to a stranger and keep that rent below the applicable 14k? Is there a tax implication for the owner in that notional market rent from their child is then taxable/PRSIable etc?

Rental income would be retained by the child to cover their living and all education expenses eg registration fees, books etc.

Assuming in the above scenario the property is a two bed apartment, would this cause an issue as it would be considered too generous for a parent to de facto pay rent for a two bed apartment for a student?

What elements am I missing? Thanks!

The rental income belongs to the owner of the apartment (i.e. you) and not your child. If you transfer the rental income to your child this, of itself, is a taxable event. I wouldn't be doing this without getting some very specific tax advice on it.

misemoi said:

Assuming in the above scenario the property is a two bed apartment, would this cause an issue as it would be considered too generous for a parent to de facto pay rent for a two bed apartment for a student?

Click to expand...

You could provide a 5-bed house for your child to reside in whilst in college and it would be fine (Page 5 of this Revenue guide):

Your Questions: Can we claim rent-a-room relief on flat used by child?​

Leeann O'Kelly, Press Manager with the Revenue Commissioners (revenue.ie)

Q. We bought an apartment in Dublin last year as our child is living and studying there and student accommodation rates are astronomical. The plan is that our child will use one bedroom and that we will rent out the second bedroom to help cover the mortgage and annual expenses. Can we let the spare room out under the rent-a-room scheme if the apartment is our child's main residence?

Our child now lives there all year round, is not the owner but is our dependant while studying. Would the apartment have to be in our child's name too, or can our child sub-let the spare room under the rent-a-room scheme and make the tax return in her name? Margaret, Co Kerry

A. An individual does not have to own the property to claim rent-a-room relief. However, the property must be the individual's sole or main residence during the tax year. Sole or main residence is best described as an individual's home during the year of tax assessment.
Based on the information provided, if you as the parent rented out the spare room, you could not claim rent-a-room relief because the apartment is not your sole or main residence. As such, you would be taxable on the rental income and required to make a declaration of this income in your annual tax return.

If your child was renting out part of the property to another person, your child would have to be legally entitled to receive the rent - for example, your child would have to have the freehold interest or a formal leasehold interest in the property.

To qualify for rent-a-room relief, your child would also have to establish that the property was her sole or main residence. As long as your child continues to live there all year around, this should not be an issue - but if it arose that your child only occupied the apartment during the academic year and not year-round, it might be the case that the property is no longer your child's main residence and so she would not be eligible to claim rent-a-room relief.

As long as all of the qualifying conditions for rent-a-room relief are met, the person renting the room or rooms can claim rent-a-room relief by entering the amount of exempt income on their tax return for the relevant tax year. It is important to note there may also be Capital Acquisitions Tax (CAT) matters to consider here, depending on how the apartment is provided to your child - that is, is the property being gifted to your child or is use of the property being provided rent-free to your child? The facts and circumstances of that arrangement will determine whether or not there are CAT matters to consider.

Thanks for replies. So my understanding is by giving the child a proper lease, albiet with 0 rent, it does seem possible that there's a window to give a tax free benefit which the child can then use to earn tax free income.

misemoi said:

Thanks for replies. So my understanding is by giving the child a proper lease, albiet with 0 rent, it does seem possible that there's a window to give a tax free benefit which the child can then use to earn tax free income.

Click to expand...

I think that's highly debatable. I would consider it very dangerous for anyone to try to take advantage of such a possibility, unless they are fully prepared to take on the Revenue at the Tax Appeals Commission and perhaps further afield.

It's suspect alright.

2022 tax return of parent declares taxable rental income for the investment property.

2023 tax return of parent declares zero taxable income for the investment property.

2023 tax return of the child declares tax free income for the investment property under rent-a-room relief.

Hardly in the spirit of the relief. Alarm bells would have to go off in Revenue you'd imagine.

misemoi said:
Thanks for replies. So my understanding is by giving the child a proper lease, albiet with 0 rent, it does seem possible that there's a window to give a tax free benefit which the child can then use to earn tax free income.

I'd say this would be a minefield. For a start - if you child were to have any income incl possibly €xx from the rent a room scheme then I'd say they would also be liable for CAT as they are themselves paying €0 rent. Also the revenue response refers to your child having the freehold interest or a formal leasehold interest in the property. Most apartments are 'owned' on a very long leasehold in the apartment owners name. Is this the formal leasehold that the revenue response refers to rather than a regular landlord /tenant lease

I agree it does seem too good to be true ! Was just curious when I saw the details of the support a parent can provide to a student without triggering tax or utilisation of gift thresholds.