I've been trying to advise an in-law about a house purchase they are currently involved in as they seem to be unaware of the RPZ legislation.
One of the family members is purchasing the house from their siblings.
Currently there is a registered tenancy to a nephew of theirs on the house. The nephew will be vacating the property on completion of the sale. The nephew has the property at well below the market rent for the area which is in an RPZ.
The new potential owner intended to increase the rent to a market rate until I pointed out that the existing tenancy would prevent this. They want all of this above board and legal. The sale may fall through because of this issue.
The house had already been significantly renovated in recent years so it would be costly to do so again to nullify the rpz cap.
Am I correct in my understanding above or is there some exemption for the sale of a property to family members nullifying the previous tenancy?
Not aware of such an exemption but PRTB could clarify it
The current owner is letting to a relative and is likely unknowingly under declaring the tax liability. The difference between the market and the under the market rate may be assessed as a gift to the nephew.
I would recomend spending money on a tax accountant who has specialist rental knowledge.
If this is the case I think that the rental is not subject to the ordinary rental rules.
It's from memory, I don't think that the owner can write off losses if the rent is not covering the costs and I can't remember if the difference is taxable as rental income or under gift tax rules.
if the tenancy is registered with the RTB then the rental is subject to the Rent Pressure Zone requirements.
The below market rent from a tax perspective is of no concern to the RTB they will only be interested in any increase that a new tenant could face ie the 4% rule etc.
From a tax perspective you have the annual gift allowance of €3k so this would work for example as follows. If the market rent was €13k a year and you the landlord "gifted the €3k" to the tenant then the landlords tax liability would be based on the income of €10k. The landlord would need to declare the gift of €3k when submitting there income tax returns for the rental income with the €3k explaining the difference between the tax on the €13k and the tax on the €10k declared income.
You can only carry Capital losses forward eg a disposal of a rental property where the sale price was less than the original purchase price.
Is the LL not also restricted in carrying losses forward where allowable non-capital expenses are in excess of the rental income, otherwise they get a tax break on the transfer of economic benefit in the rent reduction?
Also be aware that if you sell to a relative for a below market price there could be tax impications for the seller. ( not saying that the sale is below market value but relatives doing so often have "little arrangements involving cash"
There's some very interesting takes on this I hadn't considered and will pass on to them. Many thanks for that.
Regarding sale of the property it wouldn't have been below market value as they put it on the market and the purchaser effectively bid anonymously against other bidders.
It was a surprise to the other siblings but the purchaser did it that way to avoid any accusations of it being below market value when the rest of the family were told who the purchaser was. Which did help to avoid argument regarding it being sold under-price.
If I am understanding your question correctly you have an 8 year window within which to "depreciate" your capital asset (eg white goods etc) once that period is up its gone.
Any unused capital allowances can be either transferred to another rental property the landlord may have or if this is the only property and the landlords is selling he can use up the balance of his unused capital allowance on his final tax return for his rental income.
I would be surprised if any landlord is not making a profit on the rental income. I understand that they may be making a contribution to mortgage payments as the rental income is not covering the mortgage payments but the mortgage payment is normally capital and interest. There may be some rare occasions where the interest and capital allowances described above are greater than the rental income but this would be rare.