Renting out my home while moving into mother's house

Hi all,

I'm sure this has been covered before but Id appreciate anyones take on this that may have found themselves in a similar situation before me.

I lost my dad last year and my Mom isn't doing great health-wise, following a lot of discussions it has been decided between her, myself and my husband that we are going to move into their house with our 5 year old in order to be able to give her a hand as her mobility deteriorates and also to be in residence there before inheriting down the line. Her agenda, not mine.

We are lucky enough to own our home since paying it off last year (Small bungalow, Current market value approx 235k) . Their home is considerably larger, recently valued at 700-750k and has always been intended as mine down the line as their only living child.

I know that time is the main factor in claiming the larger home as a primary residence and that one option in order to avoid a larger tax bill is to not own any other property which would mean selling our current house. As it is, I would have to sell it anyway to cover the inheritance of the larger property since I don't have the means to meet that kind of figure and their home is the one we plan on keeping due to its proximity to schools, work, history as a family home and its value.

Given the way property has gone around here and the rest of the country I would rather keep a hold of the bungalow and be able to use it to help younger family members get their start for nominal rent while they try and save for deposits/ work on builds etc and eventually have it as a general long term rental to other applicants. I had family do this for me, it made all the dinfference and I want to do the same for the younger ones below me.

Has anyone experience of this? Looking into it, I can't see if setting up a property rental company, registering with the prtb etc , operating above board and moving the bungalow over into that and out of our names personally will do the job. Its in both mine and my husbands names and we are in agreement about signing it over to a business if thats the best way to go

Any and all help appreciated!

VioletCoyne said:

As it is, I would have to sell it anyway to cover the inheritance of the larger property since I don't have the means to meet that kind of figure

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Your future inheritance tax bill is going to be ≈€100k for which you can surely mortgage a property for.

Don’t let the tax tail wag the investment dog.

It is never right for a company to buy a residential property and it's certainly not right in this case.

It's an interesting dilemma though. If you don't own any other residential property when you eventually inherit your mother's house, will it be free of CAT?

Will the rules be the same when your mother dies? We just don't know.

VioletCoyne said:

I would rather keep a hold of the bungalow and be able to use it to help younger family members get their start for nominal rent while they try and save for deposits/ work on builds etc

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Are you talking about the 5 year old? You should not be making a decision today in case it helps a 5 year old in 20 years.

Or are you talking about other relatives? Your husband's nieces and nephews?

They might not want to live in the house.

They might be far more appreciative of you giving them a present of cash towards the purchase of their home.

It might slightly different if your current home is close to a college where they are likely to go.

The only argument I would see for keeping your home is that your husband will be going through a huge change moving in with the mother in law. It could cause huge family tension and might be no harm in having another property if you separate.

Brendan

Brendan Burgess said:

could cause huge family tension and might be no harm in having another property if you separate

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Good grief! Don't ever take up Marriage Counselling!

I have deleted the posts on Section 72. Feel free to continue the discussion of the merits of these policies in this Key Post.

VioletCoyne said:

I would rather keep a hold of the bungalow and be able to use it to help younger family members get their start for nominal rent while they try and save for deposits/ work on builds etc and eventually have it as a general long term rental to other applicants. I had family do this for me, it made all the dinfference and I want to do the same for the younger ones below me

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Its very nice, but this was fine 10 or 20 years ago when the rental sector was still growing fast and there was a plethora of other options, its a far bigger risk now given that they could be stuck there for years. Think carefully about it. If things don't change dramatically (& nearly all of the potential opposition have vicious anti-investor policies that will ultimately only make the situation much, much worse) the current situation is going to remain with us for a very long time.

There is a fundamental question you need to answer here firstly, do you want to be a landlord with all the hassle it brings?. Will you be close enough to the rented house for example, when the tennents call you to say a tap is leaking, to get over quickly and fix it?. If you don't, then you should sell.

Secondly, and this sounds a little mercenary, but you will also need to look at whether or not your mothers house requires anything doing to it to facilitate her care, so a stairlift, walk in shower etc. How will that be funded?

Thirdly, you need to look down the line at the Fair Deal situation and whether or not you will need to take out the Fair Deal Loan and how that will be funded?. It does sound, that with the tax liability and potentially the loan to be paid back, you will have to sell the house and have the ability to pay all of that off or mortgage the mothers house. But given the hassle these days of evicting tennants and the amount of notice you have to give etc, you might be better off selling now, getting the cash in and investing. Once the tennents leave, you may also need to put a few grand into the rented house to spruce it up a bit,.

Peanuts20 said:

Will you be close enough to the rented house for example, when the tennents call you to say a tap is leaking, to get over quickly and fix it?. If you don't, then you should sell.

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Using an agent (for a fee obviously) to rent it out on a "hands off" basis is also an option.

Peanuts20 said:

There is a fundamental question you need to answer here firstly, do you want to be a landlord with all the hassle it brings?.

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If you get the vetting correct it reduces the noise significantly.

I never have nor ever will use an agent In my 26 years of letting property.

Say you advertise it and get 100 queries. In
my case I'm looking for a specific type of tenant. I shortlist to 10 then clear a day and
schedule meetings at 30 minute intervals.
25-30% won't turn up.

You get a good sense of an individual or couple during that 30 mins. Let them do the talking more or less.

It certainly is worth the time when you get a solid intelligent decent type into the property....you won't be getting calls at 2am because a fridge has stopped working and the rent will be paid on time.

Brendan Burgess said:

might be no harm in having another property if you separate.

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But the other doomsday scenario is if anything happened the poster before she inherits. Then, provided the son in law inherits, the tax bill becomes extremely large. That would encourage the gifting of the property at this stage; that could also have big benefits for any Fair Deal calculations. (I hope my understanding of tax is correct).

Are the two properties in close proximity. It's just that the bungalow is only worth €235k. Bungalows aren't cheap anywhere.
€700k+ is a total different property type.

If you were letting a bungalow in a rural part and you will be nearby yourself, it might be an ok option, depending on who might be looking for such a property in a small community.

Tuscany said:

But the other doomsday scenario is if anything happened the poster before she inherits.

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I think it's worth bearing in mind that a couple might actually split up. I am guessing that the chances are increased by moving in with the MIL. I wouldn't plan for it but I would allow for it.

Splitting up is common. A daughter predeceasing her mother is a lot less likely.

Brendan

There is also the possibility that it just doesn’t work out as you hoped. Maybe after a few weeks or even a few years down the line. Could your mother live for 10+ years.

In that case the best for all might be to move out (not divorce). Would be handy to have the old house.

VioletCoyne said:

I know that time is the main factor in claiming the larger home as a primary residence and that one option in order to avoid a larger tax bill is to not own any other property which would mean selling our current house.

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What are the current requirements?
How long from disposal of a principal residence before a person can inherit another primary residence free of CAT?

I imagine that there are some restrictions and these would be an important consideration in analysing the options, bearing in mind that they may or may not change at some stage.

Tuscany said:

How long from disposal of a principal residence before a person can inherit another primary residence free of CAT?

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Surely these two things are unrelated? The lifetime CAT exemption thresholds are summarised here:

The OP would have a liability of €100k approximately if she inherited now.

If she moves into the larger house, disposes of her own and then inherits, she thinks that will eliminate or reduce her liability.

Brendan is wondering if the rules will still be the same when she inherits.

Brendan Burgess said:

If you don't own any other residential property when you eventually inherit your mother's house, will it be free of CAT?

Will the rules be the same when your mother dies? We just don't know.

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So it would be helpful to know what are the current rules for the OP to be able to inherit, in excess of the threshold, without a liability.

Tuscany said:

If she moves into the larger house, disposes of her own and then inherits, she thinks that will eliminate or reduce her liability.

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Are you sure about that?
If she sells her PPR and moves into the mother's property and lives there then it remains the mother's property.
If/when the mother later gifts or bequeaths the property to the cohabiting daughter isn't CAT assessable on the full value of the property?
Same as if it was gifted now?
I don't see how the disposal of the PPR and moving in with the mother alters the CAT situation?
What exemption do you think would apply here?

ClubMan said:

Are you sure about that?

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I'm not saying it, ClubMan.

But both OP and Brendan seem to suggest it

VioletCoyne said:

I know that time is the main factor in claiming the larger home as a primary residence and that one option in order to avoid a larger tax bill is to not own any other property

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Brendan Burgess said:

It's an interesting dilemma though. If you don't own any other residential property when you eventually inherit your mother's house, will it be free of CAT?

Will the rules be the same when your mother dies? We just don't know.

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I don't think that the possibility of avoiding CAT should be a significant factor in deciding whether to sell the house or not.

Therefore, I would not study the rules and qualifying criteria in detail.

If all other factors were closely balanced, then the potential exemption from CAT would swing it for me.

Thanks Brendan. That clarifies the financial stuff, and the scenarios facing the OP.

If the OP sells now, moves to the larger house with Mother and does not inherit for 3 years, she saves herself €100k.

If she retains the house - doesn’t sell, she will have a liability of €100k whenever she inherits.

If the OP sells now, moves to the larger house with Mother and inherits within 3 years, she will have a liability of €100k.

The 3 year limit is key obviously; that's not very pleasant to be overly focussed on.

The rules and how they apply seem clear.

The opening post is looking for a way to keep the existing house and not incur the CAT liability of around €100k. That is hardly possible.

And that €100k will increase.