Tax implication of providing a house for a relative

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Claricias

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I have a relative that will never be in a position to own her own home. She has health issues and has been unable to work for the past number of years. She is currently in rental accommodation since her mum died but it's awful, badly heated and mouldy. She is on the council housing list for the last 6 years also.

I'm in a position where I can buy a small 2up/2 down townhouse outright and while I could conceivably rent it to her, I would prefer to put her name on the deeds on purchasing. This way, when I die she will always at least have a home. Even if I didn't put her on the deeds I intend to bequeath her the house when I die, but that would leave her with a large bill for inheritance tax and put her home in jeopardy if she doesn't have substantial savings to pay the taxation due. She's my niece so would fall into group B.

What is the tax implication, if any, of including her on the deeds of the house? She could pay me a small rent or even let out a room to pay back her half of the purchase price and I would pay tax on that payment. I know if I acted as a bank and loaned her the money I would have to charge interest, otherwise it would be considered a gift, but if I was a co owner on the deeds I'm not sure what my liabilty would be.

Any advice appreciated, I'll be asking my accountant as well, and if it all goes ahead I'll be getting a contract drawn up with my solicitor to protect both parties interests.
 
I am not a tax expert, so verify the following:

She may be able to avoid CAT through

Qualifying conditions for inheritance on, or after, 25 December 2016

This page provides information regarding the inheritance of a dwelling house on, or after, 25 December 2016
www.revenue.ie www.revenue.ie

I think she qualifies if she is a dependent relative which it sounds as if she is.


So you buy the house in your own name.
Leave it to her in your will.
Your liability to Capital Gains Tax will disappear when you die.
She inherits the home exempt from CAT.

If she dies first, you then just own an investment property. I think it will be exempt from CGT as it was for a dependent relative.
 
There is an excellent summary of it here

Gifts to Dependent Relatives



Dwelling house relief is available on gifts (and inheritances) of property to a dependent relative. A
‘relative’ is a lineal ancestor, lineal descendant, brother, sister, uncle, aunt, niece or nephew of the disponer or
his spouse or civil partner.

A dependent relative is defined as an individual aged 65 years or over, or permanently and totally incapacitated by reason of mental or physical infirmity from maintaining himself. The incapacity threshold is quite high given that there is a requirement for permanent and total capacity.

A dependent relative who takes a gift of a dwelling house is deemed to take it as an inheritance and the condition that the house must be occupied by the disponer does not apply.

Prior to Finance Act 2017 this relaxation of the conditions applied to gifts only so a dependent relative who qualified for DHR on a gift would not have qualified if the benefit passed as an inheritance instead and the disponer was not living in the house on the date of his death.

From 25 December 2017 the disponer does not need to live in the house for an inheritance by a dependent relative to qualify for the relief.
 
You could gift it to her now and be done with it just in case the law changes.

The downside of that is that if she dies first, you would pay CAT on your inheritance of it from her.
 
Based on the OP, I wouldn't be confident that the exemption is available. As the article you linked says, the incapacity threshold is quite high, being out of work for a few years on account of health issues, is not the same thing as being permanently and totally incapacitated from maintaining oneself. If the person is currently living independently in rented accommodation, that makes it pretty clear that she's not incapable of maintaining herself.
 
Thanks @torblednam

A dependent relative is defined as an individual aged 65 years or over, or permanently and totally incapacitated
by reason of mental or physical infirmity from maintaining himself. The incapacity threshold is quite high given that there is a requirement for permanent and total capacity.

If the niece is over 65 when the OP dies, is she automatically a dependent relative?
 
Yes, that's right, and she'd have to have been living in the property for at least 3 years prior to the inheritance.
 
It's hard to know whether she will qualify as a dependent relative, she's in her 30s, I'm in my 50s.
She had been working for some years but contracted an illness that left her with long term health issues. She retrained and could likely work in a small capacity in the near future if her health improves a bit. Currently she's not working as she's in receipt of an invalidity pension.

It stresses me out seeing her in this position, and I have the funds to do this. I have my PPR paid off and also have some other property investments so it's not like I'm putting all my eggs in one basket so to speak. I have one child who will inherit all myself and my husband leave which will be plenty and think I would rather do this now and give my niece security of a home. It's just about finding the best way to go about it.
 
So the best thing for the OP to do now is

1) Buy a house in her own name.
2) Rent it to the relative who will probably qualify for HAP
3) Leave the house in her will to the niece
4) Put in a wording in the will "In the event that the niece has a CAT liability as a result of this gift, then I leave her a sum of money to discharge that liability"

5) Await developments.
 
Claricias said:
It's hard to know whether she will qualify as a dependent relative, she's in her 30s, I'm in my 50s.
Click to expand...

Don't worry about that now.
If she has a long-term invalidity, there is every chance that she could qualify as a dependent relative by the time you die.
And if she reaches 65 while you are still alive, problem solved.

And legislation could change either way in the meantime to make it easier or harder for her to qualify.
 
Brendan Burgess said:
So the best thing for the OP to do now is

1) Buy a house in her own name.
2) Rent it to the relative who will probably qualify for HAP
3) Leave the house in her will to the niece
4) Put in a wording in the will "In the event that the niece has a CAT liability as a result of this gift, then I leave her a sum of money to discharge that liability"

5) Await developments.
Click to expand...
She does qualify for HAP.
But isn't there a rule that family or dependents cannot claim HAP in some form?

I know I could do the above. But I want to give her the security of having her name on the deeds.
Is the best option for me to gift the money to her now?
Or become the bank and have her repay me in mortgage payments (with interest for taxation purposes)

She's already had the upheaval of having the family home sold and her small inheritance is frittering away on huge rent on a bad property.
 
Claricias said:
But isn't there a rule that family or dependents cannot claim HAP in some form?
Click to expand...

Not my area of expertise, so there may well be such a rule.

Claricias said:
But I want to give her the security of having her name on the deeds.
Click to expand...

You could do that but it would be very inefficient for tax purposes.
Why not give her a 30 year lease on the property and she would be just as secure.

Claricias said:
become the bank and have her repay me in mortgage payments
Click to expand...

Has she the means to repay you?

If so, then give her an interest-free loan.


She will get the security.
She will feel less obliged to you as she will be repaying the loan.

The interest rate should about 2% so she will be deemed to be getting an annual gift of 2% of the amount of the mortgage. But she would not need to worry about this for some years as there is a €3,000 small gift exemption and €40,000 threshold which would take quite a few years to use up.
 
Claricias said:
But isn't there a rule that family or dependents cannot claim HAP in some form?
Click to expand...

It has to be a bone-fide tenancy which it would appear to be, but as I say I am not an expert

www.oireachtas.ie

Housing Assistance Payment

Housing Assistance Payment Dáil Éireann Debate, Tuesday - 28 July 2020
www.oireachtas.ie

The Housing Assistance Payment (HAP) Scheme is deemed to be a social housing support under the Housing (Miscellaneous Provisions) Act 2014. As a long term housing support, an assessment of housing need must be completed in order for a household to qualify for HAP. Any household with an identified housing need is eligible for HAP.

In order for housing assistance to be provided under the Act the housing authority must be satisfied that the tenancy concerned is or would be a tenancy in good faith. Where there is a family relationship between the tenant and the landlord, the housing authority may seek evidence of a previous landlord and tenant relationship between a landlord and the HAP applicant. This evidence may include:

- Proof of rent payments;

- A lease or tenancy agreement for the property; and

- Registration of the tenancy with the Residential Tenancies Board.

HAP support is available to tenants in rent a room scheme arrangements, however, the rental of a room to a civil partner, son or daughter is excluded from this scheme. HAP cannot be paid where the tenant is seeking to rent within the family home.

In order for a housing authority to be satisfied that a tenancy is or would be in good faith; the onus is on the applicant and landlord to prove that what is being proposed is a bona fide tenancy. Ultimately, it is the responsibility of the housing authority to make a decision in each individual case.
 
Would including lifetime right of residence on the property deeds/folio be an option here? A conveyancing solicitor should be able to advise.

I have no idea if/how this would interact with any tax issues though.
 
I knew there was something because back in 2018 when she was first looking for accommodation I was looking at the possibility of one of my current investments. The tenants were in it maybe a year but I could truthfully state I needed the house for a family member. But the HAP wasn't certain at that point, I don't think the family connection wording had been clarified as such.
 
ClubMan said:
Would including lifetime right of residence on the property deeds/folio be an option here? A conveyancing solicitor should be able to advise.

I have no idea if/how this would interact with any tax issues though.
Click to expand...

Lifetime right of residence might work, I'll look into it., thank you.
 
Thanks all, plenty of food for thought.
Possible lifetime lease or rights of residence may be the most expedient option for now.
 
Thinking a bit more about it, giving her a loan to buy the house is not a great idea.

If you die, the loan will be repayable and if it's written off, it would be an inheritance and she would get a big CAT liability.

If she lives in the house for 3 years, there is at least a chance that she would be able to inherit the house tax-free.

I know if I were offered the two options, and my aunt was solid and reliable, I would take my chances so that there was a good chance that I would not have a CAT liability.

Brendan
 
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