Tax implications of letting below market rate

One_Time

Hi,

Does anyone know if there are any tax implications for letting a property below the market rate? For example, would the € difference be considered a gift to the lessee?

If doing a house swap, would the taxman accept that neither party is receiving any rent, or would they consider that both parties are receiving the market rate?

This article suggests that as long as the two parties aren't "Connected" then you can rent a place out for whatever you want, but it's for the UK market. I couldn't find anything related to Ireland.

http://www.taxinsider.co.uk/659-Renting_Property_to_Connected_People_Below_Market_Value.html

Any input gratefully received!

johnnyskeleton

Sounds like something you should really speak to an accountant about. It's all very well people giving you an internet opinion, but not so good if that opinion is wrong, you follow it, and then end up prosecuted.

You could always be upfront with revenue and ask them how they would view it, but I suspect you already know the answer to that question!

One_Time

Yeah, I guess an accountant's the best bet. I was just hoping there might be some established rules I could follow, similar to the ones for renting to a relative.

Thanks!

I called revenue as well. They said they'd accept whatever figures I submitted in my self assessment, but they couldn't say one way or the other how it would be considered if I was audited

godtabh

You can charge what you want up to an including the market rent (as per the prtb) and you are liable for tax based on income/expenditure.

D3PO

godtabh wrote: »

You can charge what you want up to an including the market rent (as per the prtb) and you are liable for tax based on income/expenditure.

its not that straight forward. If the OP rented a property out for €1 a year and market rate was €1,000 a month there are tax implications.

as has been said the OP needs to discuss with an accountant. To say you can charge what you like is wildly incorrect though.

Arbiter of Good Taste

D3PO wrote: »

its not that straight forward. If the OP rented a property out for €1 a year and market rate was €1,000 a month there are tax implications.

as has been said the OP needs to discuss with an accountant. To say you can charge what you like is wildly incorrect though.

Agreed. Revenue may view you as having given away an asset - certain rights can also be assets - so you could be venturing into CGT territory. Or the other side could be deemed to have received some type of gift which may create a CAT liability for them.

Ensure you speak with an accountant who is also a tax advisor.

Oral Surgeon

One_Time wrote: »

Hi,

Does anyone know if there are any tax implications for letting a property below the market rate? For example, would the € difference be considered a gift to the lessee?

If doing a house swap, would the taxman accept that neither party is receiving any rent, or would they consider that both parties are receiving the market rate?

This article suggests that as long as the two parties aren't "Connected" then you can rent a place out for whatever you want, but it's for the UK market. I couldn't find anything related to Ireland.

http://www.taxinsider.co.uk/659-Renting_Property_to_Connected_People_Below_Market_Value.html

Any input gratefully received!

Can I be bold and ask the question; why you would do this if you are not connected to the tennant??? Are you taking cash on the side or a bit of barter?? Revenue dont like this....

One_Time

Certainly - my wife is expecting, so we decided to move to a house down the country. When we found a house we like the landlord said he's actually looking for an apartment in the city. We were planning on letting ours when we moved out so we thought it would be worth looking into the option of a swap - either straight or with a small monthly payment on one side (declared as income).

If it's a non runner we'll just put it on the open market and pay the full income tax, less deductions, on whatever we can get. Looks like it's not an option, but I'll run it past an accountant anyway.

Oral Surgeon

One_Time wrote: »

Certainly - my wife is expecting, so we decided to move to a house down the country. When we found a house we like the landlord said he's actually looking for an apartment in the city. We were planning on letting ours when we moved out so we thought it would be worth looking into the option of a swap - either straight or with a small monthly payment on one side (declared as income).

If it's a non runner we'll just put it on the open market and pay the full income tax, less deductions, on whatever we can get. Looks like it's not an option, but I'll run it past an accountant anyway.

I'm sure Mr Taxman would like you to pay him some money and him to pay you some more money. Both declare it and both pay tax on each others payments....!!

Talk to a tax advisor....

Good luck

One_Time

It's looking like that alright. Any time you try to think outside the box it seems revenue's been there before you

Thanks for the help everyone!

Frank Lee Midere

If revenue cared about this they would also have to care about people living rent free in a room. Like your children. Or the Spanish students. Or couch surfers. Sure get advice. But it's almost certainly ok.

Mrs OBumble

Frank Lee Midere wrote: »

If revenue cared about this they would also have to care about people living rent free in a room. Like your children. Or the Spanish students. Or couch surfers. Sure get advice. But it's almost certainly ok.

They do care about such things.

They have explicit rules which say it's ok for your own children.

The Spanish students are covered by the rent-a-room scheme, and you are required to declare the income but the first 10k is tax-free.

Couch-surfers are most likely not tax-resident in Ireland. Or if they're resident but homeless it's likely that their income is so low that no tax would be required anyway.

In the case of a substantial rent-discount, without any corresponding reason, then there may be a tax issue.

djimi

Mrs OBumble wrote: »

The Spanish students are covered by the rent-a-room scheme, and you are required to declare the income but the first 10k is tax-free.

What are the rules on the rent a room scheme in terms of the owner as an occupier? Could both parties rent the master bedroom of their respective houses to each other for say €500 a month? Or are there rules determining how often the owner must occupy the property?

Arbiter of Good Taste

djimi wrote: »

What are the rules on the rent a room scheme in terms of the owner as an occupier? Could both parties rent the master bedroom of their respective houses to each other for say €500 a month? Or are there rules determining how often the owner must occupy the property?

The room needs to be in your sole or main residence. So if you are not living in the house yourself, or spend the majority of your time actually living there, then the letting it should not qualify for relief.

djimi

Ah fair enough. You hear stories of people letting out rooms and then going away for work or whatever and leaving the tenant the run of the house while they were gone, but I wasnt sure if this was a legit situation or what.

D3PO

djimi wrote: »

Ah fair enough. You hear stories of people letting out rooms and then going away for work or whatever and leaving the tenant the run of the house while they were gone, but I wasnt sure if this was a legit situation or what.

it can be if they are living in hotels whilst away for work. Depends on the situation really.

Eldarion

In OP's scenario could they not both set each other up under the rent-a-room scheme and exchange say 300-500 euro monthly into each other's accounts. It's gonna come to under 10k for each of them for the year so is tax free and they both get to reside in the desired properties.

Not exactly following the spirit of the law I know.

D3PO

Eldarion wrote: »

In OP's scenario could they not both set each other up under the rent-a-room scheme and exchange say 300-500 euro monthly into each other's accounts. It's gonna come to under 10k for each of them for the year so is tax free and they both get to reside in the desired properties.

Not exactly following the spirit of the law I know.

No because they aren't living in the house therefore it is not rent a room.

Arbiter of Good Taste

D3PO wrote: »

it can be if they are living in hotels whilst away for work. Depends on the situation really.

Correct. In that scenario the home is still their sole or main residence.

sunnysoutheast

One_Time wrote: »

Yeah, I guess an accountant's the best bet. I was just hoping there might be some established rules I could follow, similar to the ones for renting to a relative.

Thanks!

I called revenue as well. They said they'd accept whatever figures I submitted in my self assessment, but they couldn't say one way or the other how it would be considered if I was audited

I guess you can charge whatever rent you like, but from the Revenue guide IT70 "Expenses incurred in the letting of premises on an uneconomic basis" are not allowable, presumably so that losses on one "uneconomic" property cannot offset profits on another or be carried forward to future years. Nowhere is "uneconomic" categorically defined though....

Any repairs, etc. would therefore not be deductible, nor would mortgage interest, capital allowances etc. At best, perhaps, you would be able to claim proportionately vs. the market rent for the property. Would there be a lease with a zero rent amount and another with a tiny rent?!

Interesting question though, when you find out more please post up!

fash

OP could pay the other guy to look after his property/house sit. €1.
(And vice versa).
It is a useful service to offer- especially if the house doesn't comply with rental standards and so would be illegal to rent - eg missing a microwave, a fire blanket or a 15 minute timer on the bathroom fan.

dinnyirwin

fash wrote: »

OP could pay the other guy to look after his property/house sit. €1.
(And vice versa).
It is a useful service to offer- especially if the house doesn't comply with rental standards and so would be illegal to rent - eg missing a microwave, a fire blanket or a 15 minute timer on the bathroom fan.

this ^^^

If revenue ask all you say is -
I asked a friend to move into a property I own while im not using it as I just dont have the time to rent it out at the moment.
He doesnt take any money from me. I dont take any money from him.
He is doing me a favour and staying there temporarily. Isnt that nice of him.

D3PO

dinnyirwin wrote: »

this ^^^

If revenue ask all you say is -
I asked a friend to move into a property I own while im not using it as I just dont have the time to rent it out at the moment.
He doesnt take any money from me. I dont take any money from him.
He is doing me a favour and staying there temporarily. Isnt that nice of him.

yeah because revenue are complete idiots :rolleyes:

fash

D3PO wrote: »

yeah because revenue are complete idiots :rolleyes:

It would be illegal to rent in the circumstances I described.
There is a market for house sitters- it is a useful service.
Insurance won't work if the house is unoccupied for 30 days, the house might get broken into if the post isn't collected every day etc.
Not only that but renting a house comes with various obligations which may not be acceptable to you- so renting is not possible.

In such circumstances, what do you do?

EDIT: other thing- renting it or requires you to give "quiet enjoyment"- I.e. it's the renamed house effectively. If you do not want that- then again the house owner is getting more benefit than the house sitter.

dinnyirwin

D3PO wrote: »

yeah because revenue are complete idiots :rolleyes:

If you say so.

djimi

If no money is changing hands then why would Revenue need to be involved at all?

dinnyirwin

djimi wrote: »

If no money is changing hands then why would Revenue need to be involved at all?

Its the "value" issue that revenue would be interested in.
If you can remove that aspect of it then you are ok and dont need them involved.

djimi

This is going to sound a lot more underhanded than I mean it to, but if two families are agreeing to swap their houses for a period of time, and no money is changing hands as part of the deal, then how would Revenue even know to get involved?

If its a form of tax evasion then fair enough; Im not trying to suggest that that would be the right thing to do! I just dont really understand why Revenue would have to get involved in a scenario like this.

DublinDilbert

Up until a few years ago people would regularly swap entire buildings, quite common in commercial properties. But they changed the law so theses transactions now have stamp duty.

It's hard to see how it is taxable as both parties are making a gain and a loss, but definitely an accountant will advise you on this