Helping son buy house

I'll be meeting my accountant this month and will ask him if this is legal. Or how I can make sure it is legal. I have major costs for college looming. Accommodation being the costliest. Unfortunately with property in two university cities my child doesn't want to study in Ireland!

Daddy Ireland said:

No doubt there are some taking this approach

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Yes, people do it.

Few things to consider:
Do you have any younger children that might end up going to same university?
Does it actually make sense before looking at tax aspect?
You daughter will lose FTB status which will affect her depending on what rules are when she wants to buy in future.

Do post back Bronte later on what your accountant says.
No younger children.
I think it makes a lot of sense.
Even if the property was to drop in value after 4 years to 170k the other two renting students will have paid my daughter's 4 years uni costs. That should be worse case scenario and would result in a breakeven situation, With property not likely to be falling in value abd interest rates likely to remain low I think I srptand a good chance of at least seeing my 200k in 4 years.
Take your point Red Onion on FTB status but is that really all that important I wonder.

Apologies for typos. Early morning thoughts,.

Daddy Ireland said:

Just exploring an idea. Could my wife and I loan our daughte 200k to purchase fully a 3 bed property interest free. Our daughter is 19 and commencing a 4 year undergrad. The property would be in her name. Could she then rent out 2 rooms under rent a room relief scheme. Plan would be to sell the property after 4 years, pay and CGT due and daughter repay us our 200k.

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There would be no issue whatsoever with this. As Brendan has pointed out, there would be no CGT. I’m amazed at how few people avail of “Rent a Room” relief; it’s a superb relief. Yes, perhaps people with money don’t want strangers living with them, but in this case it’s a neat angle.

Thanks Gordon.

I will come back to you DI.

I don't think there is FTB anymore.

Gordon Gekko said:

There would be no issue whatsoever with this. As Brendan has pointed out, there would be no CGT. I’m amazed at how few people avail of “Rent a Room” relief; it’s a superb relief. Yes, perhaps people with money don’t want strangers living with them, but in this case it’s a neat angle.

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This is a no brainier. You also could possible have two students in a double bedroom. Just as long as you keep the rent to the limit. Student year is about 8 months.

Bronte said:

I don't think there is FTB anymore.

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there is, but the benefits have changed over the years.

There used to be 2 different stamp duty rates, which was the big difference, but that's gone. Currently the main difference is the 'help to buy' scheme which is only available to FTB's. This can be worth up to 20k.

Depending on political changes there might it might not be a benefit in a few years when the daughter is buying their permanent home.

As I understand it, Help to Buy is only for new properties, which is reasonably restrictive.

The BIK point is a non issue as no income tax consequences when relationship isn't an employer employee relationship. What would be an issue is the annual benefit foregone by the parents as a result of the loan i.e. the interest income the parents could have earned by putting the funds on deposit e.g. probably 0.5% in the current environment. This benefit is potentially subject to CAT. However unless the loaned amount is substantial or deposit rates increase probably going to be covered by the small gift exemption

Just another angle on this idea please. I lend my 19 year old daughter the said 200k interest free to purchase a house in which she will not live in but rent out for the next 4 years. As a 3rd level student commencing a 4 year course the idea would be that the rent from the property would cover her accommodation elsewhere and 3rd level fees. Any uplift when selling in 4 years would be subject to CGT as not used as a PPR. She would have no other income in them 4 years. Her rental income lets say is 10k per annum.
What is her taxable position on the rental income ?

That doesn’t make a whole lot of sense as the rental income is taxable, albeit at the 20% rate with some exempt. She’d just be taxed on the rental income as normal.

So Gordon having no other income her tax credits don't mean a jot.

The first 8250 for income tax purposes would be covered by the single person tax credit. The balance of 1750 would be subject to income tax at 20%. Prsi of 4% payable on the full 10k. Shouldn't be any usc as below the threshold.

Thanks for that so it does make some sense. 750 out of 10k isn't too bad in the overall scheme of things.

I will choose either of the following so based on replies.

Option 1 : Post 18 - 200k interest free loan. Rent to 2 pals approx 8k per year for 4 years. Sell after 4 years. Any uplift no CGT as PPR. Assuming no price increase in property for this comparison.

One drawback is daughter will feel obliged that she must take care of place as opposed to living a normal student life and she may not thank me for that or may feel she would like to be elsewhere in the city.

Outlay 200k
Income 32k (8k x 4 years)
Uni Costs 24k (6k per annum being 3k student contribution and 3k living/travel costs)
Landlord costs 2k over 4 years
Net position assuming no increase in property price over 4 years 206k.
So a gain of 6k over initial 200k outlay.

Option 2: Post 32 - Actually have my eye on a property all in costing 170k. Net rental income of approx 11.5k. Tax at 20% on 11.5k less 8,750 plus 4% PRSI on full 11.5k and no USC. So taxes total 1,010 giving net 10,490. Daughters costs in Uni assumed at 10k p.a being 6k as in option 1 plus 4k accommodation costs.
Outlay 170k
Income 46k
Uni costs 4 years 40k
Taxes 4k
Net position assuming no increase in property price over 4 years 172k.
So a gain of 2k over initial 170k outlay.

Taking everything into account, any thoughts on which you would choose would be appreciated.

I have a concern. I think Revenue could say you would be the real beneficial owner of the property albeit that you would put your daughters name forward as legal owner for the purposes of amongst other things avoiding tax. Revenue has the power under the general anti tax avoidance rules where they suspect artificial structures are put in place to avoid tax to look through such schemes and apply the tax rules as if such schemes did not exist. I would seek professional tax advice before proceeding.

Daddy Ireland said:

One drawback is daughter will feel obliged that she must take care of place as opposed to living a normal student life and she may not thank me for that or may feel she would like to be elsewhere in the city.

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em... surely this consideration shouldn't exist; she's getting accommodation for free and I would expect that she would take care of any other property if she was renting it.

Dintelligentinv said:

I have a concern. I think Revenue could say you would be the real beneficial owner of the property albeit that you would put your daughters name forward for the purposes of amongst other things avoiding tax. Revenue has the power under the general anti tax avoidance rules where they suspect artificial structures are put in place to avoid tax to look through such schemes and apply the tax rules as if such schemes did not exist. I would seek professional tax advice before proceeding.

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That just wouldn’t be the case.

It’s a real transaction; the daughter would actually be buying the property.

General Anti Avoidance isn’t relevant here.