Gift tax implication on Free use of property

R

Red wood

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Hi,

My wife and I will be moving into a new house in January. At the moment we live in a small one bedroom house which I inherited from my father. There is no outstanding mortgage on this property. Once we move out we plan to allow my sister stay in the one bedroom house rent free for two years max. I believe this would be treated as a gift under the ‘CAT consolidation Act Section 40 Free use of property’. Is that correct ?

I estimate that the value of this gift to my sister would be approx €6K per year based on that I could rent out the house for €500/month.
I know my sister would be entitled to take a gift to the value of €3K tax exempt from any individual in a year.
I am the sole owner of the house, but since I am now married my wife would say she has a 50:50 ownership right on this house :)
Could my wife and I combine our small tax exemption allowance of €3K each ? meaning my sister would be taking a gift value of €3K from me and another €3K from my wife ?


Thanks.

 
As far as I understand it, the 3k exemption applies to your sister's total gifts received, not to the individual donors, so you can't do what you propose.

If it was me, I wouldn't me fretting about the arrangement. I am squeaky clean in all my tax dealings but I think there is a limit when it comes to doing someone a good turn. If you insist on being that scrupulous, how about charging rent at a level that could be justified to Revenue, e.g. 250/month as a justifiable discount for guaranteed occupation by someone who will look after the place and not make unreasonable demands on you as the landlord. That puts the rent at 3k/year which you can gift back to her under the exemption.
 
dub_nerd said:
As far as I understand it, the 3k exemption applies to your sister's total gifts received, not to the individual donors, so you can't do what you propose.

If it was me, I wouldn't me fretting about the arrangement. I am squeaky clean in all my tax dealings but I think there is a limit when it comes to doing someone a good turn. If you insist on being that scrupulous, how about charging rent at a level that could be justified to Revenue, e.g. 250/month as a justifiable discount for guaranteed occupation by someone who will look after the place and not make unreasonable demands on you as the landlord. That puts the rent at 3k/year which you can gift back to her under the exemption.
Click to expand...

+1
(Nice one dub_nerd!)
 
The exemption is, as OP wrote, €3000 from each donor per year. I can't see there being an investigation over this level of gift. You could justify it by saying the husband (house owner) gifted €3000 to his wife (no gift tax) and she then gifted €3000 to your sister.
 
The €3000 gift per year is from each person. In this case and instance, the wife and husband are classed as two separate individuals.
 
Thanks dub nerd, with your proposal my sister would be paying me rent which would be income I would have to pay tax on. My only intention is to let her stay in the house rent free. I guess the revenue would consider it as a gift to the approximate value of €6K per year of which the first €3K would be exempt and the other €3K would reduce my sisters gift tax threshold ?
 
Hi Red_wood, sorry for confusing the matter but Gervan and mercman above have it right, I was wrong. You and your wife can each give €3k as a gift tax free.

There are no partial exemptions by the way -- for a single gift of €6k (or anything over €3k) the whole amount would count for gift tax whereas for under €3k none of it would. But in your case two separate gifts of €3k each can be exempted, as Gervan said. (Again, sorry for confusing it -- I'm in a similar situation of gifting €3k to a sister, but hadn't realised she could get multiple gifts from different donors exempted).
 
dub_nerd said:
There are no partial exemptions by the way -- for a single gift of €6k (or anything over €3k) the whole amount would count for gift tax whereas for under €3k none of it would.
Click to expand...

The revenue manual 'Capital Acquisitions Tax part 23' explains with an example how it works

The exemption works as follows:
CATCA 2003 S69 provides an exemption for gifts of up to €3,000 taken by a donee from any disponer in a calendar year.
Any gifts within this limit are not taken into account in computing tax and are not included in any future aggregation.
Where a gift exceeds this limit only the excess will be taken into account for the purposes of calculating CAT.
This small gift exemption applies only to gifts and not to inheritances.

Example:
Tom makes a cash gift of €30,000 to his granddaughter Joan in 2013. Tom has made no other gifts to Joan in 2013.
The taxable value of the gift taken by Joan is €27,000 after the small gift exemption of €3,000 is deducted.
 
My sister and her husband would be living in the house rent free for approximately two years.
The market value if I were to rent out this property would be €6,000 per year.
Would this be seen as a €3K gift from me to my sister plus a €3K gift from me to her husband ?
 
Red_wood,
For the avoidance of doubt in all the cross-communications above, you can do either of your suggestions above: (1) you and your wife each gift your sister 3K tax free so no tax implication or (2) you gift both your sister and her husband 3K taxfree each - again no tax implication.

One couple can actually give another couple 12K tax free each year: husband A 3K to each of husband B and wife B PLUS wife A 3K to each of husband B and wife B.
 
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