Buying in-laws out of family home

In relation to rent free properties and the annual 3K tax free, this is of course doubled if it's 'rent free' from mum and dad to son and girlfriend. Giving 12K rent free.

As per this articleL

www.independent.ie

Will son and his girlfriend face a tax bill if we let them live rent-free in our second home?

We have a three-bedroomed semi-detached property which we have rented out for the past 18 years. The lease to the most recent tenants has now expired and we have decided to allow our son and his girlfriend move into the house.
www.independent.ie www.independent.ie
 
Going back to livign rent free in the family home there is this thread where 2 of us posted on before.

Tax due if lived rent free in mothers house

Can anyone advise if there are tax implications if the beneficiary of a will has lived rent free in the house for a number of years? In this case the property was left in equal share to a number of family members. However one of them who was not working or claiming social welfare lived in the...
www.askaboutmoney.com

See post 10
 
The Law

www.irishtimes.com

‘How does Revenue view adults living rent-free in parents’ property?’

Q&A: ‘Our daughter is living in an apartment we own’
www.irishtimes.com www.irishtimes.com

The 2014 Finance Act tightened the rules and now the only support parents are allowed offer adult children tax-free is the option of living in the family home, funding a child's wedding costs (but not the honeymoon) and providing accommodation away from home rent-free to a child under the age of 25 in recognised full-time education.

Everything else is seen as a taxable gift and will reduce her inheritance tax threshold.

The above applies to the OP, so there is no tax liability for living rent free in the family home it would seem to me.
 
Bronte said:
That doesn't sound right to me. I think the standard is 3 valuations and you add them up and divide by 3 to arrive at a fair valuation.
Click to expand...
I queried it because I've never seen it done this way before, and I've worked in the area of tax for over 30 years.
 
Brendan Burgess said:
Hi John

All you had to do was to clarify your original post which was wrong.

You said that they could not sell the property for the lower price. That was wrong.

You should have immediately clarified...

"You can sell the property for any price you like, but from a Revenue point of view, it is the market value which matters."

It is entirely up to you whether you continue posting or not. But if you or anyone else posts incorrect or unclear information, then it will be corrected.

Brendan
Click to expand...
Dear Brendan,

All you had to do, as the most experienced poster and site owner was to accept that my point is actually correct - see link - how about you do that? OF COURSE she could buy it at ANY price she likes, however pointing this out as you did confuses the matter . The reality is that IF she did she would be in bigger trouble than she already is. I can CHOOSE not to pay income tax, but the consequence of that will catch up with me. Thats what I was pointing out, thats correct and it still stands. You could have outlined that of course when you corrected me but you chose not to. The correct position is my position plus the informatin in the link I posted. You chose to ignore that and be pedantic. So yes, She can of course buy it for €1 if she wants but Revenue wont see it that way and thats what I was pointing out.
Also, your solution as proposed ignored the gift/ benefit of living in the house for this long which taken into account would have substantially altered your solution by negating the savings of transferring because the cost of free use would be greater. There is a difference between fact, opinion, the law and Revenue treatment, most posters on here need a hand negotating these.
 
Bronte said:
This is pretty significant so I had a look at it and found this:

www.independent.ie

Ask an expert: ‘Our son is living rent-free in our second house. What are the tax implications?’

Sinead Ryan answers your property finance questions.
www.independent.ie www.independent.ie

In case of a house rented to a child for free/reduced rent, the difference between the rent charged (if any) and the market rent is regarded as a taxable gift for capital acquisition tax, except where your son is either under 18 or under 25 and in third-level education.

“The first €3,000 of the total value of all gifts received from any one person in any calendar year is exempt. As your property is jointly owned by you and your wife, your son can benefit from €6,000 tax free gifts. So, if the annual market rent is €6,000 or less, your son will face no tax bill.


"If the amount of the deemed gift exceeds the annual exemption of €6,000, then the relationship between the person who is giving the gift and the person who is taking the gift is essential for determining the capital acquisition tax liability. The Group A threshold (gifts/inheritances from parents to children) currently amounts to €335,000.

“This threshold is a lifetime threshold and any gifts or inheritances received within the same group must be aggregated. Where the amount of gift or inheritance exceeds 80pc of the group threshold, your son will be required to deliver a CAT return called IT38. The tax implications for you could be more complicated.

“If no rent is charged, there will be no further tax obligations. However, if a reduced rent is charged you will be subject to tax at your marginal rate (up to 52pc) on your rental profit (gross rental income less allowable expenditure). Rental profit must be reported on your annual tax return(s) which could be either Form 12 or Form 11. People whose total net non-PAYE income is less than €5,000 (but not nil) can file a tax return Form 12.

“However, if your non-PAYE income exceeds the amount of €5,000, you will have to register for self-assessment and deliver a self-assessed tax return Form 11 each year. In case of jointly assessed couples the €5,000 threshold is applied to the joint non-PAYE income of both spouses.

“In addition, if you cannot make a profit from the rent received, this will be considered an uneconomical letting. You cannot offset losses you make from uneconomical rentals against other rental profits.”
Click to expand...
What was your point with this? They are both over 25 and treating it as their PPR with no formal carers relationship laid out.
From a rental benefit point of view:

Lets say the rent at market rate is €1000.
Thats €12,000 a year x 15 years. (would have to adjust for lower rent in earlier years etc. inflation)
Thats €180,000 in 'gifted' free use.
They can both get €3,000 each a year from the MIL - €6000 x 15 - €90,000 ( Revenue prefer to have this formally arranged so it goes to a bank account monthly etc so it can be demonstrated - but there is no filing obligation on Small Gifts Allowance)
So their joint gift of free use is now €90,000.
Either way there is a free gift here.
Thats seperate to the house transaction which would be assesed by value at the market valuation currently.
Bear in mind that the gift was not declared so interest and penalties would apply plus legal and specialist tax advice. (My tax advice cost me €16k)
 
Bronte said:
That doesn't sound right to me. I think the standard is 3 valuations and you add them up and divide by 3 to arrive at a fair valuation.
Click to expand...
That is the case. In fact you can submit just one valuation and Revenue can have their own valuation done if they require.
 
Hi John

I think you misunderstand the advice you have been given and so you are advising her incorrectly.

JohnDoyle1973 said:
OF COURSE she could buy it at ANY price she likes,
Click to expand...

JohnDoyle1973 said:
I can CHOOSE not to pay income tax,
Click to expand...

This is a completely false comparison. Choosing not to pay income tax is tax evasion. It is illegal. The penalties are severe.

There is nothing illegal or wrong with someone selling their home to someone else at more or less than the market value. It's done all the time. It would be wrong to declare the value at €90k if it's worth €300k. But I have made that absolutely clear.

Brendan
 
Last edited:
JohnDoyle1973 said:
There is no formal carer relationship there. THere would need to be one in place.
Click to expand...
I don't believe you need a formal carer relationship at all. It's enough it's the elderly mother in her own home. All that matters is they are in the family home, which is treated differently to giving your spare home in D4 to your son or daughter rent free.
 
JohnDoyle1973 said:
There is no formal carer relationship there. THere would need to be one in place.
Click to expand...
If if what you say were true, and you've not backed that up with any link, (we are only talking about family home and parent living in it with adult children) then you could anyway get around it under Rent a Room.

There is no way revenue is going to open up charging adult children for staying in the elderly parents home. Can you imagine Joe Duffy !
 
Bronte said:
If if what you say were true, and you've not backed that up with any link, (we are only talking about family home and parent living in it with adult children) then you could anyway get around it under Rent a Room.

There is no way revenue is going to open up charging adult children for staying in the elderly parents home. Can you imagine Joe Duffy !
Click to expand...
No you would have to have a licence for rent a room for each year and it would have to be declared as income by the mother yearly. (even though not taxed) Also the max would be €14k per year - fine if the market value of rent was €14k or less.
 
Bronte said:
In relation to rent free properties and the annual 3K tax free, this is of course doubled if it's 'rent free' from mum and dad to son and girlfriend. Giving 12K rent free.

As per this articleL

www.independent.ie

Will son and his girlfriend face a tax bill if we let them live rent-free in our second home?

We have a three-bedroomed semi-detached property which we have rented out for the past 18 years. The lease to the most recent tenants has now expired and we have decided to allow our son and his girlfriend move into the house.
www.independent.ie www.independent.ie
Click to expand...
Yes it is but the MIL is a widow so they can get 6K per year.
 
JohnDoyle1973 said:
Dear Brendan,

All you had to do, as the most experienced poster and site owner was to accept that my point is actually correct - see link - how about you do that? OF COURSE she could buy it at ANY price she likes, however pointing this out as you did confuses the matter . The reality is that IF she did she would be in bigger trouble than she already is. I can CHOOSE not to pay income tax, but the consequence of that will catch up with me. Thats what I was pointing out, thats correct and it still stands. You could have outlined that of course when you corrected me but you chose not to. The correct position is my position plus the informatin in the link I posted. You chose to ignore that and be pedantic. So yes, She can of course buy it for €1 if she wants but Revenue wont see it that way and thats what I was pointing out.
Also, your solution as proposed ignored the gift/ benefit of living in the house for this long which taken into account would have substantially altered your solution by negating the savings of transferring because the cost of free use would be greater. There is a difference between fact, opinion, the law and Revenue treatment, most posters on here need a hand negotating these.
Click to expand...
But your post is wrong. You can sell a house for €1, but the buyer will be assessed for CAT on the difference between the sale price and the market value. It's perfectly legal to do this and is cheaper than paying market price.
 
JohnDoyle1973 said:
Brendan Burgess said:
You must have misunderstood them so. A person can sell their property to someone else at whatever price they both agree.

The tax will be based on the market value not on the price.

Brendan
Click to expand...

No. Its perfectly clear. A Non arms length transaction is deemed market value. So no, in the context of this scenario, within a family, a valuation at the market rate will apply. Thats the legal and tax view. The difference between gifted value and the market value is seen as a taxable gift. So if this house gift value is €90k and the real market value is €200k the gift given is valued at €110K.

I have a link to outline this but I'm not allowed to post links.
Click to expand...

You are both saying the same thing here @JohnDoyle1973, why do you think Brendan is wrong?

JohnDoyle1973 said:
Dear Brendan,

All you had to do, as the most experienced poster and site owner was to accept that my point is actually correct - see link - how about you do that? OF COURSE she could buy it at ANY price she likes, however pointing this out as you did confuses the matter . The reality is that IF she did she would be in bigger trouble than she already is. I can CHOOSE not to pay income tax, but the consequence of that will catch up with me. Thats what I was pointing out, thats correct and it still stands. You could have outlined that of course when you corrected me but you chose not to. The correct position is my position plus the informatin in the link I posted. You chose to ignore that and be pedantic. So yes, She can of course buy it for €1 if she wants but Revenue wont see it that way and thats what I was pointing out.
Also, your solution as proposed ignored the gift/ benefit of living in the house for this long which taken into account would have substantially altered your solution by negating the savings of transferring because the cost of free use would be greater. There is a difference between fact, opinion, the law and Revenue treatment, most posters on here need a hand negotating these.
Click to expand...

She would not be in any trouble at all, she (and/or OP) would have a potential tax liabilty.

Hmmm. Thats a bit sharp tbf. Of course anyone can do anything they like, however....there are consequences. So quoting part of my post to prove a point while ignoring the consequences is not great. I was previously a user on this site and left because of this sort of 'in house' pedantic stuff. The facts are yes she can get the house at any price she wants IF she wants to pay the consequences of that down the line. Maybe its time for me to leave again?
Click to expand...

There does not appear to be any question of ignoring the consequences (in this instance a potential tax liability) or letting them go "down the line"

Also, to reiterate, an adult living in a "spare" property belonging to their parent is taxable. An adult living in the family home with the parent is not.
 
You must log in or register to reply here.
Back
Top