House share / parents - Adult son

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deco87

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After divorce settlement , and both parties went their separate ways. Parents helped out their newly divorced sibling by helping to purchase a house with them.
House say cost 300k
Sibling leftover from divorce 100k
Parents add 200 k - house purchased.
House now owned in 3 equal shares.
Legal owners - 1. Sibling 2. Mother 3 Father.
Sibling , pays rent to parents to cover off any tax liability annually. Amount 6 k . (House if rented would realise 18 k approx annual rent)
Parents intend to Will the 200 k to the sibling at some stage in the future.
Is there any tax liability issues, if for example the parents decided to pass their shares over to the sibling , for example next year?
Presently , there is a tax liability on the 6 k paid in rent as it’s “ income” to the parents which is not ideal.
It is preferable that this further tax liability matter is avoided, with that in mind , it is under consideration to pass the 2 parent shares over sooner rather than later.
I am seeking any advice / guidance , in respect of this arrangement, specifically, in relation to the possible, liability on the part of the parents , primarily, and indeed the sibling , should this possibility be progressed and the house owned outright by the sibling.
 
You refer to parents and siblings & I'm not sure if thats what you mean?

Mary and John are married to each other.

Mary's brother Joe is divorced.

Mary and John jointly puchase house with Joe.

Joe owns 1/3, Mary and John own 2/3

Joe pays a nominal rent of €6k per annum to Mary & John.

Mary & John pay tax of €3k (say) on the rental income.

Is that correct?
 
Thanks.
parents.
One of their siblings.
that’s the parties to the arrangement.

no brothers sisters involved.
Yes. 2 parents own - one third each.
sibling owns, one third.
Nominal rent 6 k paid by sibling to parents annually. ( on professional advice to ensure no tax liability)

the issue now , (unforeseen initially) is it appears that the 6 k rent given to the parents attracts a tax liability as its “income”

it is now hoped to avoid any further and recurring Tax liability , by perhaps Transferring the parents share now to the sibling.
This is an unfortunate oversight and the parents are elderly and only wished to assist one of their siblings who had to sell 50 per cent of their assets in order to get divorced.

I did out the original list on my phone. must be very confusing , sorry ,I hope this clarifies it.
thks
 
Sibling means brother or sister. I assume you don't mean that when referring to the 'sibling of the parents' in the scenario above but are referring to a (adult) child of the couple. Also, for clarity, there are only 3 individuals involved here - the parents and Child A? Continued references to siblings is unclear, might be worth a re-write.
 
Yap. Adult child A and the parents own three equal shares.
my error “ sibling” apologies for confusion !
thanks
Substitute “sibling” for “ Adult Child A”
 
rob oyle said:
Sibling means brother or sister. I assume you don't mean that when referring to the 'sibling of the parents' in the scenario above but are referring to a (adult) child of the couple. Also, for clarity, there are only 3 individuals involved here - the parents and Child A? Continued references to siblings is unclear, might be worth a re-write.
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Spot on , thanks
 
So to be clear:

Mary and John are married to each other.

Their adult child, Joe is divorced.

Mary and John jointly purchase house with Joe.

Joe owns 1/3, Mary and John own 2/3

Joe pays a nominal rent of €6k per annum to Mary & John.

Mary & John are liable to pay tax of €3k (say) on the rental income.

And your question is what's the most tax efficient way for Mary & John to dispose of this asset in favour of Joe?
 
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That is it precisely. The tax liability as you described wasn’t flagged initially. Parents elderly.thanks
 
Pugmister said:
Parents can gift the sibling 3k annually each in order to cover the nominal rent value
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Yes but I think that won't cover the fact that there is a market rent on the house which is liable for income tax. The taxman wants his tax due on the 6k rental income. It's a tricky one as my first thought was that the sibling can gift each parent 3k a year rather than pay rent but then the taxman will query why they don't rent it out.
 
Thirsty said:
So to be clear:

Mary and John are married to each other.

Their adult child, Joe is divorced.

Mary and John jointly purchase house with Joe.

Joe owns 1/3, Mary and John own 2/3

Joe pays a nominal rent of €6k per annum to Mary & John.

Mary & John are liable to pay tax of €3k (say) on the rental income.

And your question is what's the most tax efficient way for Mary & John to dispose of this asset in favour of Joe?
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Rental income is 6000 gross
 
elcato said:
Yes but I think that won't cover the fact that there is a market rent on the house which is liable for income tax. The taxman wants his tax due on the 6k rental income. It's a tricky one as my first thought was that the sibling can gift each parent 3k a year rather than pay rent but then the taxman will query why they don't rent it out.
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Thanks , if it was to be passed to adult son now , as part of a future inheritance , what would happen as regards liability Re , tax etc I wonder . (Sign it over now , 2/3 shares to adult son , would either party have / incur liability) thanks
 
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deco87 said:
if it was to be passed to adult son now , as part of a future inheritance , what would happen as regards liability Re , tax etc I wonder . (Sign it over now , 2/3 shares to adult son , would either party have / incur liability) thanks
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It can be handed over now and the same rules of inheritance tax apply as if it were given later so he would probably be below the parent/child threshold which is about 300k. This seems the best solution and he gifts them 6k annually. Bear in mind though that if they save this for 20 years to leave him later it would be liable for tax depending on the threshold at that time so they should be encouraged to spend it.
 
Oh ok. So if the 2/3 shares are legally in the name of the adult son , therefore he is full owner
1. He still had to pay 6000 a year ? Is there any need to Gift anything ? Why ?
2./ 335 k, is threshold so adult child will have utilised 200 k of the 335 threshold ? Thks

so no liabilities for any of the parties after house is in full ownership of adult son ?
 
deco87 said:
so no liabilities for any of the parties after house is in full ownership of adult son ?
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Yes. I only mentioned the gifting if the parents wanted a return on the money. If they are happy to give him a pre-inheritance then he is happy out living in his own house. You will need a solicitor to go through the changing of title etc. and the son will need to declare the inheritance to the taxman on a form so they are aware of it.
 
Pre - inheritance ?
super thanks a mill.
So , as far as you are concerned, once the title is in adult child A full name , there is NO liability re tax , for him , and none for the parents ?
just that the funds are to be declared to the tax man at some time into the future ..
 
That is my belief except that the tax man needs to be informed within a year of the per-inheritance value (for future calculations if any). To be clear, my only knowledge of this was when the parents of someone I know gave their children lump sums, as oppose to a property, as per-inheritance a few years ago but it sounds the same. They declared the amount to revenue but had no liability as it was less than the threshold.
 
Can't the adult son be classed as a lodger? Or does his 33% ownership cancel this out?
 
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