Small Gift Exemption and Rental Income

S

SherwoodForest

Registered User
Messages
1
Due to an expanding family, my sister and I are considering the following.

1. My wife and I leave our house and move into an investment property my parents own. The market rent for this property would be €2,000 a month (€24,000 per annum).

2. My sister moves into our home with her boyfriend. Market rent would be around €1,250 a month (€15,000 per annum).

Can my parents then gift me and my wife €3,000 each under the annual small gift exemption totalling €12,000 by way of foregone rent for use of the property leaving their taxable rental income as the remaining €12,000 which I will then pay to them as my landlord?

And similarly, can my wife and I gift my sister and her boyfriend €12,000 under the small gift exemption by way of foregone rent for use of our property leaving our rental income liability at €3,000?

Thanks in advance.
 
Not sure but I think the benefit in kind you get is to be dealt with separate for tax purposes and the 3K gift comes to you via after tax assets.
 
Yes is the short answer to your query. You can discount the market rent if what's proposed is not the same as a regular letting. By way of example, if my tenant has an issue, he/she calls me and I resolve it. On the other hand, if my brother is living in my property "on the cheap" and he has an issue, he better not ring me! The technical term is a "caretaker discount". A 25% discount might be reasonable.
 
Whatever about a 25% discount, the discount with the sister is 80% and with the parents 50%.

I dont believe you can in effect net the cash flows as one is Case V rental Income and the other is a Capital Tax exemption along the lines that John Luc pointed......

The other point is now nobody has a PPR which means the CGT exemption is lost for the period of the renting.
 
Branz said:
Whatever about a 25% discount, the discount with the sister is 80% and with the parents 50%.

I dont believe you can in effect net the cash flows as one is Case V rental Income and the other is a Capital Tax exemption along the lines that John Luc pointed......

The other point is now nobody has a PPR which means the CGT exemption is lost for the period of the renting.
Click to expand...

Sorry, but you're mistaken.

Let's just look at the parents' rental property in isolation, and forget about caretaker discounts. It's an investment property. The market rent is €24k per annum. The parents are willing to accept €12k per annum from the younger couple. Taxable rent of €12k pa will arise for the parents. A taxable gift of €12k pa will arise for the younger couple (under the "free use of property" rules). The Small Gift Exemption will cover the gift (4 x €3k), so no issue.

CGT exemptions aren't really relevant as the parents' property is an investment property and the OP needs to move to a bigger property in any event. As for the sister, we don't know their circumstances.
 
What you describe is not the same as this

SherwoodForest said:
Can my parents then gift me and my wife €3,000 each under the annual small gift exemption totalling €12,000 by way of foregone rent for use of the property leaving their taxable rental income as the remaining €12,000 which I will then pay to them as my landlord?
Click to expand...

The end result may be the same but the parents are not gifting, the renters are in receipt of a deemed gift which happens to match the SGE of 3k pa per person.
http://www.revenue.ie/en/tax/cat/guide/free-property-loans.html

Re the CGT exemption, It needs to be pointed out that they will lose the CGT exemption on what I presume is their current PPR for the period of the rental, so to say they are not relevant is perhaps a bit disingenuous, given the possible asset values involved.
 
The parents forego €12,000 of rent by charging them €12,000 instead of €24,000. That's a gift of €12,000 from the parents to the younger couple (under the "free use of property" provision). Happily, it's covered by the Small Gift Exemption.

The OP's first point is that they need to move to a bigger property, so PPR relief, whilst valuable, is a peripheral consideration.
 
You must log in or register to reply here.
Back
Top