Tax implications?

Silent Running

I want to buy a second house with money just sitting in the bank doing nothing. I know I would be liable for CGT if I sold it at a profit in the future.

What I'm unsure of is the current tax implications. I want my son to live in it while he does it up over time, possibly a long time. I don't want rent, I want him to act as a caretaker of the place and do some improvements, and he won't be paid for any work carried out.

Is there a tax liability for either of us in this scenario?

TIA.

TheShow

If there is no income from the property, then there is no income to pay tax on.

AndrewJRenko

How big a part of your investment portfolio does this house represent?

Do you really, really want to put this large amount into one investment sector (Irish residential property). This is a risky investment strategy.

Silent Running

AndrewJRenko wrote: »

How big a part of your investment portfolio does this house represent?

Do you really, really want to put this large amount into one investment sector (Irish residential property). This is a risky investment strategy.

To be honest, my son is renting and wasting huge chunks of money every month. The plan would be that he saves his ass off and gets to buy his own house. I'll be happy if I get my money back on the place some time in the future.

I have a steady, passive, monetary stream that more than covers my living expenses.

The majority of investments involve risk. I'm aware of the risk in the property market. If the market goes bust when I want to sell, I can put it with an agent to rent.

It's not Dublin, so not as big an investment as you might think.

relax carry on

TheShow wrote: »

If there is no income from the property, then there is no income to pay tax on.

https://www.revenue.ie/en/gains-gifts-and-inheritance/valuation-date-and-the-value-of-certain-benefits/free-use-of-property-and-interest-free-loans.aspx

May be CAT implications where the annual market value of the rent comes off the lifetime threshold.

relax carry on

relax carry on wrote: »

https://www.revenue.ie/en/gains-gifts-and-inheritance/valuation-date-and-the-value-of-certain-benefits/free-use-of-property-and-interest-free-loans.aspx

May be CAT implications where the annual market value of the rent comes off the lifetime threshold.

I’d love to know how this is enforced. They won’t have a clue if the son lives there.

Reati

relax carry on wrote: »

https://www.revenue.ie/en/gains-gifts-and-inheritance/valuation-date-and-the-value-of-certain-benefits/free-use-of-property-and-interest-free-loans.aspx

May be CAT implications where the annual market value of the rent comes off the lifetime threshold.

Jaysus, they've every angle covered don't they! Only wish the rest of the public services were run so efficiently!

AndrewJRenko

Noor Early Statistics wrote: »

I’d love to know how this is enforced. They won’t have a clue if the son lives there.

Just like they didn't have a clue about the bogus non resident accounts?

AndrewJRenko

AndrewJRenko wrote: »

Just like they didn't have a clue about the bogus non resident accounts?

There has to be some trail for a non-resident account but for someone living in a house and not paying rent (or paying cash in hand) its would be exceptionally difficult.

I have never moved any of my correspondence from my home house and use it for all proof of address, I’ve lived in house shares that I paid cash and hadn’t a single item addressed to myself at the house. There was one occasion where I wanted to use the addres for something and I was unable to prove I lived there.

Living in a house owned by another family member is another level to this. There is no way of knowing a person lives there.

I’m not suggesting anyone avoids this (though it is beyond idiotic) I’m simply pointing out that the rule is unenforceable for anyone who knows about it and plans around it.

relax carry on

Noor Early Statistics wrote: »

There has to be some trail for a non-resident account but for someone living in a house and not paying rent (or paying cash in hand) its would be exceptionally difficult.

I have never moved any of my correspondence from my home house and use it for all proof of address, I’ve lived in house shares that I paid cash and hadn’t a single item addressed to myself at the house. There was one occasion where I wanted to use the addres for something and I was unable to prove I lived there.

Living in a house owned by another family member is another level to this. There is no way of knowing a person lives there.

I’m not suggesting anyone avoids this (though it is beyond idiotic) I’m simply pointing out that the rule is unenforceable for anyone who knows about it and plans around it.

LPT records would be the starting point. Multi home ownership and the usage of the property.

AndrewJRenko

Noor Early Statistics wrote: »

There has to be some trail for a non-resident account but for someone living in a house and not paying rent (or paying cash in hand) its would be exceptionally difficult.

I have never moved any of my correspondence from my home house and use it for all proof of address, I’ve lived in house shares that I paid cash and hadn’t a single item addressed to myself at the house. There was one occasion where I wanted to use the addres for something and I was unable to prove I lived there.

Living in a house owned by another family member is another level to this. There is no way of knowing a person lives there.

I’m not suggesting anyone avoids this (though it is beyond idiotic) I’m simply pointing out that the rule is unenforceable for anyone who knows about it and plans around it.

All the cute hoors driving over the border with briefcases of cash were so sure that there was no way that they could ever be caught either.

Revenue have some great technology for identitying exceptions - lifestyle beyond stated means and more. They generally don't have to prove anything - you have to prove your complaince.

The Revenue naughty list published each quarter are full of smart blokes who were certain that they could never be caught.

relax carry on

relax carry on wrote: »

LPT records would be the starting point. Multi home ownership and the usage of the property.

Left empty, perfectly legal.

AndrewJRenko wrote: »

The Revenue naughty list published each quarter are full of smart blokes who were certain that they could never be caught.

Revenue are not the mystics some appear to think they catch a lot of people but there are plenty they don’t I would bet a lot of money that they would never even get a sniff of a person living in a parents second property short of having the place stalked and the people followed.

As I said I’m not encouraging anyone to beak the law but I see stupid rules like creating a tax liability under a silly gift rule for a persons child living in their property is just that, stupid as it’s basically unenforceable. I’m very strongly against all forms of gift and inheritance taxes within the family to begin with but these sort of rules really take the biscuit.

AndrewJRenko

Noor Early Statistics wrote: »

Left empty, perfectly legal.



Revenue are not the mystics some appear to think they catch a lot of people but there are plenty they don’t I would bet a lot of money that they would never even get a sniff of a person living in a parents second property short of having the place stalked and the people followed.

As I said I’m not encouraging anyone to beak the law but I see stupid rules like creating a tax liability under a silly gift rule for a persons child living in their property is just that, stupid as it’s basically unenforceable. I’m very strongly against all forms of gift and inheritance taxes within the family to begin with but these sort of rules really take the biscuit.

Do you think that, for example, the parents owning a second property and not declaring any income might flag up a situation for further investigation?

And if Revenue aren't "mystics' today, do you think that maybe they will be mystics in five years time, with better technology and more data sharing?

relax carry on

Noor Early Statistics wrote: »

Left empty, perfectly legal.

Like I said, starting point. LPT is just one element to consider. The taxpayer who replies as you suggest, has knowingly made a false declaration to Revenue and has just compounded their problems.

barneystinson

Noor Early Statistics wrote: »

Left empty, perfectly legal.

Easily verified by reference to the utility bills, even if left in the parents' name. A house left empty will have a very different profile of electricity usage to a house that is occupied. Compounded if the parent didn't actually pay the bill (and Revenue would have the power to compel details of the means of payment).

Once a person is caught in a lie by Revenue, their credibility is shot, the presumption of honesty that underpins dealings between Revenue and customers is pretty much gone out the window. Oh, and they're also exposed to summary prosecution.

Now, in the case at hand, you'd be foolish to argue the property was idle and risk Revenue deciding that you must have had a cash in hand letting, and charging you income tax, when the reality was that there was modest gift in respect of free use of property eating into a small fraction of the CAT threshold.

Donald Trump

Of course you should never do anything illegal.

oh, btw, on a completely unrelated matter, if parents split up and bought a second house and one went to live in it and had all the bills in their name it might explain why there was no rental income. And a break like that can be good for a couple. You might find that they could get back together later and rekindle their relationship

AndrewJRenko

Donald Trump wrote: »

Of course you should never do anything illegal.

oh, btw, on a completely unrelated matter, if parents split up and bought a second house and one went to live in it and had all the bills in their name it might explain why there was no rental income. And a break like that can be good for a couple. You might find that they could get back together later and rekindle their relationship

Don't you just love it when people think they're smarter than Revenue, who do this stuff for a living?

Donald Trump

AndrewJRenko wrote: »

Don't you just love it when people think they're smarter than Revenue, who do this stuff for a living?

I know what you mean.

My cousin split up with her husband there a few years ago. Luckily they had two houses at the time due to moving and keeping the original one to rent it out (as was the fashion in the mid 2000s). It worked out grand - she went back to live in the original house and they each have the kids a few days a week.

The only wrinkle is the constant raids by the ERU who smash in her front door a few times a weeks and race in followed by Revenue inspectors who make sure that she is inside the house.

Smart fellas those Revenue people. On the ball always.

relax carry on

For those of you tempted by the bar stool musings in relation to sticking it to "da man", keep in mind that when Revenue do come a knocking, " the excuse of I met a guy in the pub, the man on the internet told me etc won't protect you from paying the tax due. You'll then have the added bonus of interest, penalty and potential prosecution coupled with drawing attention to yourself from Revenue for the foreseeable future.

If you want to consider legal avenues of reducing your exposure to tax then you'll have to pay for it unfortunately.

ted1

Silent Running wrote: »

To be honest, my son is renting and wasting huge chunks of money every month. The plan would be that he saves his ass off and gets to buy his own house. I'll be happy if I get my money back on the place some time in the future.
D

To be honest, in this case you may be aswell as charging him rent but diverting it into a savings account for him. It’ll keep him in the habit of paying rent/mortgage.

Donald Trump

ted1 wrote: »

To be honest, in this case you may be aswell as charging him rent but diverting it into a savings account for him. It’ll keep him in the habit of paying rent/mortgage.

He might as well keep renting as that. Unless you are advising to do something under the counter.

If he gives you 1000 quid in rent then you could be giving the tax man roughly half of that. Then of course when you gift him back the money, he'll have to pay CAT on it (god forbid someone advises you how to minimize the tax implications).

So he'll be left with about one third of what he gave you in rent.

AndrewJRenko

Donald Trump wrote: »

I know what you mean.

My cousin split up with her husband there a few years ago. Luckily they had two houses at the time due to moving and keeping the original one to rent it out (as was the fashion in the mid 2000s). It worked out grand - she went back to live in the original house and they each have the kids a few days a week.

The only wrinkle is the constant raids by the ERU who smash in her front door a few times a weeks and race in followed by Revenue inspectors who make sure that she is inside the house.

Smart fellas those Revenue people. On the ball always.

All these people were certain that they were smarter than the smart fellas in Revenue;


https://www.revenue.ie/en/corporate/press-office/list-of-defaulters/index.aspx

Donald Trump

AndrewJRenko wrote: »

All these people were certain that they were smarter than the smart fellas in Revenue;


https://www.revenue.ie/en/corporate/press-office/list-of-defaulters/index.aspx

That's great news.

Any of them done for either splitting up with their spouse or for letting their child live in the house with them rent free?

AndrewJRenko

Donald Trump wrote: »

That's great news.

Any of them done for either splitting up with their spouse or for letting their child live in the house with them rent free?

I don't know. Do you know?

ted1

Donald Trump wrote: »

He might as well keep renting as that. Unless you are advising to do something under the counter.

If he gives you 1000 quid in rent then you could be giving the tax man roughly half of that. Then of course when you gift him back the money, he'll have to pay CAT on it (god forbid someone advises you how to minimize the tax implications).

So he'll be left with about one third of what he gave you in rent.

Tbh I wouldn’t count taking 1000 from your own child and putting it into a prize bond/ account in their name as under the counter.

ted1

Some details here: https://www.google.ie/amp/s/amp.independent.ie/business/personal-finance/will-son-and-his-girlfriend-face-a-tax-bill-if-we-let-them-live-rentfree-in-our-second-home-35367412.html

marizpan

Just use the annual gift exemption to a child of €3,000.
Beware that revenue will use the market value of similar properties in the area to calculate the value of the gift.
And your son doing work for you on the house is deemed consideration/benefit and also within the scope of tax.

AndrewJRenko

AndrewJRenko wrote: »

All these people were certain that they were smarter than the smart fellas in Revenue;


https://www.revenue.ie/en/corporate/press-office/list-of-defaulters/index.aspx

Not advocating people partake in tax evasion at all but I love the way people think revenue have superpowers, it’s quite funny. How ever long that list is you can you sure the list that aren’t on it is significantly longer.

Spanish Eyes

Tax implications are, as mentioned by OP, CGT on a subsequent sale.

Second issue is a rent free gift to child (CAT). But realistically with the 3k annual exemption it should be ok. Don't forget that if you have a spouse h/she can gift 3K also, making that 6k tax free for your son each year. So if the rent is equal to that, fine, and if not, the balance of market rent is a gift. Will take a long time for him to exceed his child/parent CAT threshold though I'm guessing.

You do not have to register a property with RTB if it is a family member living there.

You (and spouse if relevant) will be liable to IT on the rental income though.

Go for it. All above board.

relax carry on

Noor Early Statistics wrote: »

Not advocating people partake in tax evasion at all but I love the way people think revenue have superpowers, it’s quite funny. How ever long that list is you can you sure the list that aren’t on it is significantly longer.

You do realise that the publication list is the list of those who met the publication criteria. It's a fraction of all the settlements Revenue made per quarter. For example those who made qualifying disclosures of their taxation issues which were accepted avoid publication even if the settlement amounts are above the publication threshold. Feel free to peruse Revenues annual reports for gross intervention and yield.

AndrewJRenko

Noor Early Statistics wrote: »

Not advocating people partake in tax evasion at all but I love the way people think revenue have superpowers, it’s quite funny. How ever long that list is you can you sure the list that aren’t on it is significantly longer.

With the millions they spend on good technology every year, super power is actually a fairly accurate description.

They're in no hurry either, as the interest and penalties they charge accumulate nicely over time.