Daughter moving from abroad into our rental home

Our tenant moved out of our rental property in March. Since then we have been doing it up as our daughter and her family, returning from abroad and will live there.

We have been conversations around whether we should pass on the house now and allow our daughter make use of her inheritance allowance ( house is worth about €350k), or sell the house to her at a sum below the market value. This would be her first time to buy a house as she rented when abroad. Is there a formula for reaching such a figure if selling at below market value and does
Revenue accept the figure reached when considering inheritance.

The other alternative we are considering is renting the house to her and her family again at a lower rent than our previous tenant paid.
Can she claim the €500 per year available to tenants?

Difficult to know how best to deal with the situation so any advice would be appreciated.

I don't think you should rent it to her at less than the market rate. If she moves on and you try to let it again, you will be stuck with the lower rent for the next tenant. (Unless there is some exemption for renting cheaply to family members?)

Yet if you charge her the market rent, then you will be paying tax on it and she will be getting very little relief.

It's impossible to advise on what to do unless you tell us why you want to do it and also how it would leave you and your wife financially. So a lot more detail. Is daughter an only child, is she married, has she children. Age etc.

Why would this house be good for her. Does she work. Has she savings. Is she independent financially. Who is driving this idea.

Does she want to live in the house as her home for the foreseeable future?

If you gift it to her, she will be receiving a gift of €350k and so the CAT will be minimal - probably zero.

You will pay CGT on the difference between €350k and the price you paid.

As the CGT and CAT arise from the same transaction, she can set your CGT payment against her CAT liability.

Probably best to gift it to her alone and not jointly to her and her partner/spouse as they would have a CAT liability. But if you have a substantial CGT liability, her spouse may use this against his CAT liability. You would have to crunch the numbers to see if it's worth doing it this way.

The advantage would be that you daughter would use up only half her CAT lifetime exemption.

If you don't need the house as part of your assets and she wants to live in it, then selling/gifting it to her makes sense. While you will have a CGT liability now, any gain while she lives there as the owner will be exempt as its her principal private residence.

You can sell it to her for the full market price of €350k and give her an interest-free mortgage of the same amount. She would be deemed to be getting a gift of the interest on the €350k so around €7k a year. So her Lifetime CAT threshold would be reduced by€4k a year after the small gift exemption.

You would do this if you could not afford to gift her the house outright. Or if you have other children who might want their inheritance sooner. Or if you want to protect your/her interest if she splits up from her spouse.

Thanks Brendan and Bronte for your very useful responses. Just a few answers to questions posed.
Yes, she intends living in this house for the foreseeable future.
she is married and has two children 2yr and 5 yrs.
Has a good job, as does her husband so earnings are fine.

We have two children and the other has his own home plus we have enough to ensure he also gains eventually to the same extend.

Not a question of anyone "driving" the idea. We don't need the house as such so rather than renting somewhere else, why not use it.
So this is about weighing up the options and making a decision taking tax, CGT, CAT etc into account.

Just wondering what the situation is with selling at lower than the market rate and if there are any rules around same.
I assume CGT applies to the market rate?

Thanks again.

You can sell it for any price you like.

The CGT will be on the market value.

the gift will be the difference between the market value and the price.

Be careful about gifting it to them jointly or selling it to them at a discount jointly.

He will be receiving a gift from you of half the amount.

It is better to gift/sell it to her and then she transfers to him.

Slightly stepping back, first I would just let her stay on a caretaker basis for 6 months or a year before making any decision. She may not like it, may not be suitable, change jobs, want to go abroad again etc.

On the information you provided,

My guess is, Your probably early to mid 60s.. and happy enough to off load the property in some form now the tenancy is coming to an end.
Your daughter knows the house well, and is quite happy to move in...long term

You as a Parent, already know your daughters relation ship status with her husband, the quality of their marriage and his relationship to you.

Selling the house is the better option, and sell below market value to them, I'm thinking approx €40k below market value. I'm using €40k reduction as I'm sure it need updating since its been rented for a while.. That's a great help to them in obtaining a Mortgage.

If that were not to work out at this time, Id rent to them at well below the market value, again, its helping them out in the short time until they can muster up the funds to purchase. I wouldn't have concerns about being stuck in RPZ as, its your own flesh and blood, and that conversation would be had with them from the very beginning, and also, our gut feeling about them as a person is what would trump any horror stories.

Answers on the forum, while correct, are totally removed from family relations, ie, sign this, sign that. I know with my family, I wouldn't dream of putting paperwork in front of them to sign.

You know the right thing to do, your gut feeling is shouting it to you.

LS400 said:

I know with my family, I wouldn't dream of putting paperwork in front of them to sign.

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Just look at all the rows over wills and other family disputes.

Most could have been avoided if informal arrangements had been formalised.

In this case, if the OP decides to gift the property to his daughter, it should be noted that it was a gift. If it is sold at undervalue, the difference should be noted as a gift.

After the OP is gone, the son and daughter who get on great now, may well fall out if things are not clear.

Most couples who buy a house together are madly in love and are horrified at the suggestion that they should have an agreement in writing. Then when the break up happens, the acrimony is magnified by the lack of any formal agreement

brendan

LS400 said:

That's a great help to them in obtaining a Mortgage.

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They don't need a mortgage from a bank. The father can either gift them the house or sell it to them for an amount which they will owe him.

Brendan

Brendan Burgess said:

father can either

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Unless the OP is using the Royal 'we'; I think there are two parents in the case.

So each parent can gift their daughter & spouse 3k; 12k a year all told.

Brendan Burgess said:

Be careful about gifting it to them jointly or selling it to them at a discount jointly.

He will be receiving a gift from you of half the amount.

It is better to gift/sell it to her and then she transfers to him.

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And he will have a greater chance of claiming half of it in event of separation. One never knows how things turn out ( especially after an upheavel like moving country) so give to your own blood entirely.

Thanks for all the very useful replies.
To answer the questions, yes, there are two of us and both now hitting the 70 mark.

Just to clarify, if we sell the house to my daughter and she uses her €335k inheritance against the market value of the house is €350k then she is liable for 33% tax on the difference i.e. €15k - almost €5k. tax. If we sell at under the market value ...say €300k, are we also liable for CGT on that amount or is the tax on the difference between what we paid for the house initially and the amount we sell it for? Sorry if I haven't laid that out very well.

No, the CGT will be calculated on the Market Value, not the reduced price

I don't understand your question about your daughter using her taxfree inheritance threshold of € 335k

If she buys the house, it is not a gift so no CAT is due

Hi, I'm back again with a follow up query. Daughter's has been living in the house now for 6 months and the decision is to remain in this house. With that in mind, we'd like give her a loan on the house with an interest of just 1%. I know we will then be liable for tax on that interest but what I don't understand is how to calculate this in subsequent years for tax return purposes. Would it be more simple to provide an interest free loan and if so does Revenue decide how much interest would have been earned by us on the value of the property and charge my daughter the tax on that. I'm assuming interest is considered at the rate a demand account would pay currently which appears quite low. Also can such interest be delayed until the loan is repaid? Is it possible in such cases to write off a loan at any stage?
Nothing straight forward in these cases anyway.

Broadcaster said:

With that in mind, we'd like give her a loan on the house with an interest of just 1%. I know we will then be liable for tax on that interest but what I don't understand is how to calculate this in subsequent years for tax return purposes.

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What's the complication in calculating 1% of the outstanding balance?