2nd home daughter renting rooms - tax liability?

Hannaho

If daughter is renting out rooms to friends from college - all students - is it the parent as owner of the house that should make the tax return, or the daughter - daughter is 19 - son is there also and he is 17 - two rooms will be rented out to other students - do they make a tax return each - he is only 17 - or is is the parents that make it - they will be using the money from each room to pay their own bills and for pocket money.

radiotrickster

Your post is pretty confusing.

From what I'm getting, the parents own the house but the children act as landlords and take all of the money for renting the house?

893bet

You don’t live there so parents cannnot avail of the tax relief! You must live in the house (but don’t have to own it I believe).

I think only one of your children can avail of the scheme and so should submit return for the other two rooms. All money should be paid to one of the children who is as such the the home owner for the purposes of the scheme.

Hannaho

Yes, sorry for post being confusing - both of our children are living in our old house and will be renting out rooms to two other students. I wasn't sure if they could make two separate tax returns and split the money.

Once the amount is under 14k and one of your children keeps the money (i.e. doesn’t give it to you officially anyway) then it’s tax free under the rent a room scheme and only one of them needs to make a return on it.

DubCount

The daughter receives a gift from the parents in the form of the rental value of the property (including the rooms she rents out and the room she uses herself). This falls into Capital Acquisition Tax (CAT). There is an annual exemption of €3,000 per parent and the remainder comes off the annual CAT limit from her parents.

The use of the house now belongs to the daughter. She is liable to income tax on the rental income. If the property now qualifies as the daughters principal private residence, then she could claim rent-a-room exemption if total rental income (including contributions to utilities) is less than €14,000 p.a..

Its the daughters responsibility to deal with both the CAT and Income Tax issues.

Hannaho

Hi! DubCount that's quite complicated. If I just take the rental income from the two rooms and pay the 52% tax on it - does my daughter (and son) as he will be living there also, eat into their yearly CAT exemption - their addresses for correspondence will still be my and my partner's home address, not the second property - if we were to charge our daughter and son for the actual rental value it would be about 500 per month each - obviously, we are not charging them that.

Marcusm

Hannaho wrote: »

Hi! DubCount that's quite complicated. If I just take the rental income from the two rooms and pay the 52% tax on it - does my daughter (and son) as he will be living there also, eat into their yearly CAT exemption - their addresses for correspondence will still be my and my partner's home address, not the second property - if we were to charge our daughter and son for the actual rental value it would be about 500 per month each - obviously, we are not charging them that.

Gifts of money or money’s worth for the “support, maintenance and education” of a child in full time education (even if over 18) do not count as a gift for capital acquisitions tax purposes and this includes the “free use of a house” - see below for an extract from Revenue’s relevant manual.

If you provide use of the house to your children and THEY choose to rent rooms in respect of which THEY are entitled to the rent and it falls below the 14k limit (which it sounds like it will), there will be no income tax or CAT liability for anyone.

Free Use of House by Child attending University
The provision of the use of a house owned by a parent rent-free, to a child not more that 25 years of age who is attending university, to help support and maintain the child while in university, is a normal and reasonable provision and is, accordingly, exempt from tax under Section 82 CATCA 2003.

Hannaho

Thanks for that Marcusm. That's very clear! I don't want to get in to a ball of tax trouble, and would prefer that my daughter rented the two rooms - which will net about 9.5k for the academic year - which will cover utility bills in the house, gas, elec, internet, tv and most of the weekly food bill for both of them. So the best route is to let my daughter rent the rooms out, with the money going into her account, and then filing in a return for tax year. She will be letting from end August this year - does the return for this go for October 2021?

I wouldn’t worry about CAT for your kids in the form of free rent. Aside from the fact it’s totally and utterly unenforceable or traceable but on top of that supporting children though college falls outside normal CAT rules, you could be paying 10k each for them to rent a place so allowing them live rent free in your house is no different imo.

Marcusm

Hannaho wrote: »

Thanks for that Marcusm. That's very clear! I don't want to get in to a ball of tax trouble, and would prefer that my daughter rented the two rooms - which will net about 9.5k for the academic year - which will cover utility bills in the house, gas, elec, internet, tv and most of the weekly food bill for both of them. So the best route is to let my daughter rent the rooms out, with the money going into her account, and then filing in a return for tax year. She will be letting from end August this year - does the return for this go for October 2021?

Section 216A(4) TCA1997 provides that a person’s requirement to make a return exists as if the relief did not exist. If your daughter also has a PAYE job then it should be returned on MyAccoubt etc online. Otherwise, I suspect she will need to register for tax and file a form 11. There is a 4 year time limit for claiming the relief.

Claw Hammer

Marcusm wrote: »

Section 216A(4) TCA1997 provides that a person’s requirement to make a return exists as if the relief did not exist. If your daughter also has a PAYE job then it should be returned on MyAccoubt etc online. Otherwise, I suspect she will need to register for tax and file a form 11. There is a 4 year time limit for claiming the relief.

If the daughter is renting out rooms in a house she does not own and is not paying rent for, the the rent is a gift from her parents. It would seem that if each child gets rental income it would support an argument that the rent is maintaining them in college.

JustAThought

Noemi Moldy Apprentice wrote: »

Once the amount is under 14k and one of your children keeps the money (i.e. doesn’t give it to you officially anyway) then it’s tax free under the rent a room scheme and only one of them needs to make a return on it.

Isn’t this for the OWNER occupier. They technically have to be both. Unless you have gifted your house to your 17yo child and daughter. Social welfare /revenue will be all over it like a rash once they spot the ages. Might obviously affect your childrens college grants Should they be in receipt of any not to mention you own situation getting scrutiny.

Claw Hammer

JustAThought wrote: »

Isn’t this for the OWNER occupier. They technically have to be both. Unless you have gifted your house to your 17yo child and daughter. Social welfare /revenue will be all over it like a rash once they spot the ages. Might obviously affect your childrens college grants Should they be in receipt of any not to mention you own situation getting scrutiny.

I would not take anything nox says seriously. He is constantly putting forward propositions that have no proper legal basis, based on his own hypotheses.

brisan

Claw Hammer wrote: »

If the daughter is renting out rooms in a house she does not own and is not paying rent for, the the rent is a gift from her parents. It would seem that if each child gets rental income it would support an argument that the rent is maintaining them in college.

I think @marcusm covered this in his post

Claw Hammer

brisan wrote: »

I think @marcusm covered this in his post

He was talking about one child getting all the income.

Claw Hammer

Claw Hammer wrote: »

If the daughter is renting out rooms in a house she does not own and is not paying rent for, the the rent is a gift from her parents. It would seem that if each child gets rental income it would support an argument that the rent is maintaining them in college.

No idea how you have arrived at this conclusion. The fact the children are living rent free is unrelated to one of them claiming rent a room relief. Both children can not claim rent a room relief for the same property so you suggestion is not possible anyway unless you are suggesting they declare it as taxable income which would be a crazy thing to do when it can be claimed tax free.

JustAThought wrote: »

Isn’t this for the OWNER occupier. They technically have to be both. Unless you have gifted your house to your 17yo child and daughter. Social welfare /revenue will be all over it like a rash once they spot the ages. Might obviously affect your childrens college grants Should they be in receipt of any not to mention you own situation getting scrutiny.

No, you only need to be the occupier in order to claim rent a room relief.

I you rent a full house and rent out two room then you are entitled to claim rent a room relief the same as if you owned the property.

In the ops case the children are "renting" the property and as occupiers are entitled to claim rent a room relief.

JustAThought

nonsense.

JustAThought

JustAThought wrote: »

nonsense.

Which part exactly? As what you said in your post is 100% incorrect and totally clueless also as this topic is regularly discussed and it has been explained on a regular basis that you don't need to own the house in order to claim rent a room relief.

Treppen

Can you avail of the €14 k allowance even if you don't own the house?

Treppen

Treppen wrote: »

Can you avail of the €14 k allowance even if you don't own the house?

Yes, it applies to house owners/occupiers and people renting a house and occupying it.

Claw Hammer

Noemi Moldy Apprentice wrote: »

Yes, it applies to house owners/occupiers and people renting a house and occupying it.

Neither daughter is renting the house.

Claw Hammer

Claw Hammer wrote: »

Neither daughter is renting the house.

They are renting it rent free by occupying it. What is necessary in your eyes to define "renting"?

This scenario has been discussed in the past on here and it was always the consensus that rent a room can be claimed by the occupying child in this scenario.

Neowise

Treppen wrote: »

Can you avail of the €14 k allowance even if you don't own the house?

yes.

In most cases, you do not have to own the property

source: can't post links yet but you can check on citizensinformation.ie › rent_a_room_scheme

Marcusm

Claw Hammer wrote: »

If the daughter is renting out rooms in a house she does not own and is not paying rent for, the the rent is a gift from her parents. It would seem that if each child gets rental income it would support an argument that the rent is maintaining them in college.

The entitlement to occupation of the home is the gift to the daughter and this is an exempt gift for CAT purposes while she is under 25 and in full time education. The daughter occupies the property as her sole or main residence and if SHE chooses to gain financially by renting out rooms then, subject to other rules concerning rent-a-room relief including no short lets, she is entitled to avail of the relief up to 14k.

Marcusm

JustAThought wrote: »

Isn’t this for the OWNER occupier. They technically have to be both. Unless you have gifted your house to your 17yo child and daughter. Social welfare /revenue will be all over it like a rash once they spot the ages. Might obviously affect your childrens college grants Should they be in receipt of any not to mention you own situation getting scrutiny.

It doesn’t have to be an owner occupier; if a renter sublets then they are entitled to claim rent a room relief for the subtennat’s tent if they meet the relevant test. The requirement is that you are receiving the rent in respect of your sole or main residence; your status in that residence is not (generally) important.

davindub

Marcusm wrote: »

The entitlement to occupation of the home is the gift to the daughter and this is an exempt gift for CAT purposes while she is under 25 and in full time education. The daughter occupies the property as her sole or main residence and if SHE chooses to gain financially by renting out rooms then, subject to other rules concerning rent-a-room relief including no short lets, she is entitled to avail of the relief up to 14k.

While you are correct about CAT and the rent a room relief, this has a high risk of being determined a transaction created for income tax avoidance by the parents.

https://www.charteredaccountants.ie/taxsource/1997/en/act/pub/0039/nfg/sec0811-nfg.html

OP this is something you need tax advice on.

august12

I have a similar situation as the OP but in my case, my son is living with his wife in my second property which has a mortgage, he is covering the monthly mortgage and it's my intention to transfer ownership to him in a few years when mortgage is paid, what's the tax implications here, the mortgage is about half the value of the property, the remainder will be a gift from me to him. I'm not sure what to do re tax returns as last year will be first year of tax liability, due by October this year.

Marcusm

davindub wrote: »

While you are correct about CAT and the rent a room relief, this has a high risk of being determined a transaction created for income tax avoidance by the parents.

https://www.charteredaccountants.ie/taxsource/1997/en/act/pub/0039/nfg/sec0811-nfg.html

OP this is something you need tax advice on.

I genuinely don’t think s811C is at all in point provided Hannaho leaves it to his daughter to decide whether or not to sublet the property and whether to enforce the rent etc.

davindub

davindub wrote: »

While you are correct about CAT and the rent a room relief, this has a high risk of being determined a transaction created for income tax avoidance by the parents.

https://www.charteredaccountants.ie/taxsource/1997/en/act/pub/0039/nfg/sec0811-nfg.html

OP this is something you need tax advice on.

I think high risk is a big exaggeration. The chances of this even coming onto revenues radar is tiny and then they will have a hard job proving something is not above board. They can’t just decide to disallow perfectly legal reliefs being availed off.

IRtax

The difference between market rent on the property and the payment of the mortgage is a benefit received by your son. This may be less than the 3k gift exemption per year per parent so might not eat into your sons life time annual category A threshold which he would be using when you transferring or gifting the property to your son.

The rent you should be returning is the market rate of rent in your tax return I believe.

august12 wrote: »

I have a similar situation as the OP but in my case, my son is living with his wife in my second property which has a mortgage, he is covering the monthly mortgage and it's my intention to transfer ownership to him in a few years when mortgage is paid, what's the tax implications here, the mortgage is about half the value of the property, the remainder will be a gift from me to him. I'm not sure what to do re tax returns as last year will be first year of tax liability, due by October this year.

davindub

Marcusm wrote: »

I genuinely don’t think s811C is at all in point provided Hannaho leaves it to his daughter to decide whether or not to sublet the property and whether to enforce the rent etc.

But the property is not Hannaho's daughter's, he is allowing her to use it for the purposes of her education. He can't really distance himself from this, it is not an arms length transaction.

Basically the upshot of this is that the daughter is receiving income that Hannaho would be expected to pay income tax on, but by placing the income in his daughters name, he is saving on income tax.

davindub

Noemi Moldy Apprentice wrote: »

I think high risk is a big exaggeration. The chances of this even coming onto revenues radar is tiny and then they will have a hard job proving something is not above board. They can’t just decide to disallow perfectly legal reliefs being availed off.

A Revenue auditor can actually make a decision that the transaction is for the purposes of the avoidance of income tax (or other tax).

As regards radar, Revenue do select returns for enquiry, some random, some declare too little income for their trade or rental, etc.. (as far as I know, they don't publish the list of criteria).

IRtax

IRtax wrote: »

The difference between market rent on the property and the payment of the mortgage is a benefit received by your son. This may be less than the 3k gift exemption per year per parent so might not eat into your sons life time annual category A threshold which he would be using when you transferring or gifting the property to your son.
.

Not applicable when the ops children are in full time education, there is no CAT liable.

davindub wrote: »

A Revenue auditor can actually make a decision that the transaction is for the purposes of the avoidance of income tax (or other tax).

As regards radar, Revenue do select returns for enquiry, some random, some declare too little income for their trade or rental, etc.. (as far as I know, they don't publish the list of criteria).

I don’t think I’ve ever heard of someone I know get an audit and I know plenty of self employed people, farmers, trades men etc (many of which would do plenty of cash in hand work). I can’t see the chances being anything but tiny for a paye worker or a student to get an audit, especially a student.

davindub

Noemi Moldy Apprentice wrote: »

Not applicable when the ops children are in full time education, there is no CAT liable.



I don’t think I’ve ever heard of someone I know get an audit and I know plenty of self employed people, farmers, trades men etc (many of which would do plenty of cash in hand work). I can’t see the chances being anything but tiny for a paye worker or a student to get an audit, especially a student.

Nox that means very little, you can hardly be ignorant that Revenue do send inquiries and conduct audits of those exact same categories, and if you don't know that, I am sure even within the landlords on this forum, some will have received enquiries or had an audit for reasons they never established.

Marcusm

davindub wrote: »

But the property is not Hannaho's daughter's, he is allowing her to use it for the purposes of her education. He can't really distance himself from this, it is not an arms length transaction.

Basically the upshot of this is that the daughter is receiving income that Hannaho would be expected to pay income tax on, but by placing the income in his daughters name, he is saving on income tax.

If Hannaho was “placing the income in his daughter’s name” then it would not be a s821C issue but a simple case of failure to report and he would be exposed to criminal penalties. If Hannaho grants his daughter the right to use the property for no cost then income cannot be imputes to him for the purposes of income tax as the arm’s length principal simply does not apply - s835C does not apply unless one of them is a company. Provided Hannaho does not cause any subletting to arise and has no financial interest in any rent arising thereunder, I do not see it as susceptible to recharacterisation as a diversion by him of rent to which he would be entitled. By permitting his children to live there rent-free, no rent can be imputed to him. THey would then have occupation of the premises and if they choose to sublet, any rent is theirs in a similar manner to many head tenant arrangements in the rented residential sector.

davindub

Marcusm wrote: »

If Hannaho was “placing the income in his daughter’s name” then it would not be a s821C issue but a simple case of failure to report and he would be exposed to criminal penalties. If Hannaho grants his daughter the right to use the property for no cost then income cannot be imputes to him for the purposes of income tax as the arm’s length principal simply does not apply - s835C does not apply unless one of them is a company. Provided Hannaho does not cause any subletting to arise and has no financial interest in any rent arising thereunder, I do not see it as susceptible to recharacterisation as a diversion by him of rent to which he would be entitled. By permitting his children to live there rent-free, no rent can be imputed to him. THey would then have occupation of the premises and if they choose to sublet, any rent is theirs in a similar manner to many head tenant arrangements in the rented residential sector.

Arms length can of course apply when considering the substance of transactions. As we are talking about a transaction giving control of a property to someone else to give them an income he would otherwise be providing after income tax, you can assume any words I use refer to this.

You cannot compare this to the daughter renting a property elsewhere and creating licences.

Honestly, you can bicker all you want but this is high risk.

Claw Hammer

Marcusm wrote: »

If Hannaho was “placing the income in his daughter’s name” then it would not be a s821C issue but a simple case of failure to report and he would be exposed to criminal penalties. If Hannaho grants his daughter the right to use the property for no cost then income cannot be imputes to him for the purposes of income tax as the arm’s length principal simply does not apply - s835C does not apply unless one of them is a company. Provided Hannaho does not cause any subletting to arise and has no financial interest in any rent arising thereunder, I do not see it as susceptible to recharacterisation as a diversion by him of rent to which he would be entitled. By permitting his children to live there rent-free, no rent can be imputed to him. THey would then have occupation of the premises and if they choose to sublet, any rent is theirs in a similar manner to many head tenant arrangements in the rented residential sector.

If Hannaho allows his daughter to reside in the property and she uses the property to generate an income, then either she is taxable on the income or Hannaho is. She is his agent in the property. She has no legal interest in the property. She cannot claim rent a room relief in the absence of a legal interest in the property. She is effectively being gifted the income. If hannaho doesn't get proper tax advice and goes ahead with this scheme he may well find itself taxed on the income and his daughter taxed as a gift on the same income.

Claw Hammer

Claw Hammer wrote: »

If Hannaho allows his daughter to reside in the property and she uses the property to generate an income, then either she is taxable on the income or Hannaho is. She is his agent in the property. She has no legal interest in the property. She cannot claim rent a room relief in the absence of a legal interest in the property. She is effectively being gifted the income. If hannaho doesn't get proper tax advice and goes ahead with this scheme he may well find itself taxed on the income and his daughter taxed as a gift on the same income.

You are just making stuff up.

This would be clearly stated were it true, but there is absolutely no stipulation in rent a room relief to back up your “theory”.

Marcusm

davindub wrote: »

Arms length can of course apply when considering the substance of transactions. As we are talking about a transaction giving control of a property to someone else to give them an income he would otherwise be providing after income tax, you can assume any words I use refer to this.

You cannot compare this to the daughter renting a property elsewhere and creating licences.

Honestly, you can bicker all you want but this is high risk.

I’m not bickering; I’m making cogent arguments based on experience going back to the McGrath schemes, the introduction of the predecessor of s811C as s86 FA1989 and decades dealing with avoidance transactions across numerous jurisdictions in professional practice and industry. There is certainly not a high risk here provided Hannaho is not entitled to the rent, does not require his daughter to sublet etc.

davindub

Marcusm wrote: »

I’m not bickering; I’m making cogent arguments based on experience going back to the McGrath schemes, the introduction of the predecessor of s811C as s86 FA1989 and decades dealing with avoidance transactions across numerous jurisdictions in professional practice and industry. There is certainly not a high risk here provided Hannaho is not entitled to the rent, does not require his daughter to sublet etc.

But he is entitled to the income arising from the property, he has not leased the property to the daughter and it is still his property. Mere words do not change the substance here which is he is providing for his daughters education but attempting to do so from income he would otherwise be taxed on.

Have you professional experience in that particular income tax situation under 811C? Or even a similar one in this exact jurisdiction? If so explain.

Certainly if you have decades of experience in creating (or advising on) tax avoidance schemes that is a particular skillset and I would respect that, but I doubt you would be sharing that knowledge for free?

Claw Hammer

Noemi Moldy Apprentice wrote: »

You are just making stuff up.

This would be clearly stated were it true, but there is absolutely no stipulation in rent a room relief to back up your “theory”.

What backs up yours?

Claw Hammer

Claw Hammer wrote: »

What backs up yours?

The lack of any evidence to say its not allowed and the fact that it is perfecty within the regulations.

The ops children are staying in his home with his consent, in order words a word of mouth agreement that they can rent rooms off him. They could always scribble something down on paper and sign it if that would make you happier.

After that it's just rent a room relief same as anyone else.

Marcusm

davindub wrote: »

But he is entitled to the income arising from the property, he has not leased the property to the daughter and it is still his property. Mere words do not change the substance here which is he is providing for his daughters education but attempting to do so from income he would otherwise be taxed on.

Have you professional experience in that particular income tax situation under 811C? Or even a similar one in this exact jurisdiction? If so explain.

Certainly if you have decades of experience in creating (or advising on) tax avoidance schemes that is a particular skillset and I would respect that, but I doubt you would be sharing that knowledge for free?

He is not entitled to income from the property if he allows his daughter to occupy the property to his exclusion.

august12

Marcusm wrote: »

He is not entitled to income from the property if he allows his daughter to occupy the property to his exclusion.

Marcusm, would you mind giving me your opinion on my query yesterday at 20.30, page 3, just to clarify, my son lodges the mortgage amount to my account which then goes towards the mortgage each month, unsure of the implications of all of this.

Neowise

august12 wrote: »

Marcusm, would you mind giving me your opinion on my query yesterday at 20.30, page 3, just to clarify, my son lodges the mortgage amount to my account which then goes towards the mortgage each month, unsure of the implications of all of this.

The monies lodged into your account is rental income. It does not matter if this is or is not equal to the mortgage amount.

Neowise

Neowise wrote: »

The monies lodged into your account is rental income. It does not matter if this is or is not equal to the mortgage amount.

If you were/are wsorking and already on top rate of tax, and there were no exemptions, which there may be or may not be, then the monies after tax would not be enough to cover the mortgage payments.

Marcusm

august12 wrote: »

I have a similar situation as the OP but in my case, my son is living with his wife in my second property which has a mortgage, he is covering the monthly mortgage and it's my intention to transfer ownership to him in a few years when mortgage is paid, what's the tax implications here, the mortgage is about half the value of the property, the remainder will be a gift from me to him. I'm not sure what to do re tax returns as last year will be first year of tax liability, due by October this year.

It is hard to see how his payments are anything other than compensation to you for the occupation of the property, ie rent. At best you will get tax relief in respect of the interest element of the mortgage payments.

JimmyVik

sure I know a married couple who have shared two houses between them.

He travels up to Dublin and stays 5 days per week in their house in Dublin.
She lives with the kids in Cork.

He travels back and stays in the house in Cork from Friday to Monday.

They found it better to separate. Now the Dublin house is his PPR and the Cork house is her PPR. And there are 2 students renting rooms in the house in Dublin under the rent a room scheme.

brisan

JimmyVik wrote: »

sure I know a married couple who have shared two houses between them.

He travels up to Dublin and stays 5 days per week in their house in Dublin.
She lives with the kids in Cork.

He travels back and stays in the house in Cork from Friday to Monday.

They found it better to separate. Now the Dublin house is his PPR and the Cork house is her PPR. And there are 2 students renting rooms in the house in Dublin under the rent a room scheme.

Is he a TD ??

Claw Hammer

Marcusm wrote: »

He is not entitled to income from the property if he allows his daughter to occupy the property to his exclusion.

How could his daughter exclude him from the property? The daughters no legal interest in the property.