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Renting home to family

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  • 03-06-2020 3:12pm
    #1
    Nabber
    Registered Users Posts: 2,855 ✭✭✭


    Hey Folks

    I have a job opportunity coming up in the USA, one which I am likely to take.
    This will involve relocating with the wife and kids.
    We have 26yrs remaining on our current mortgage. I've looked at the finances and maintaining our mortgage in Ireland while renting/purchasing in USA is an option it's a very tight line and not something we'd like to undertake.

    A member of my family has offered to take over the mortgage repayments as rental type agreement, which would work out well if possible, but I'm unsure of the legalities with such an arrangement, changes to the mortgage or insurance cost or taxation could make renting to this family member nonviable (they have a strict budget)


    Before I talk to my bank and notify them that I'll be moving stateside, I wanted to understand some of my options (I'm leaning heavily towards selling),
    • Legal obligation with renting Irish home when living abroad?
    • What tax will I be liable for?
    • What is the likely new terms of the mortgage?

    I'm not looking to avoid any responsibilities, additional costs or taxes.

    Thanks in advance.


Comments

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    #2
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,279 Mod ✭✭✭✭The_Conductor


    1. As a non-resident landlord you are automatically liable for 20% witholding tax to be paid by the tenant to Revenue on your behalf.
    2. You can make an Irish tax return annually and offset the 20% paid towards any Irish tax you may owe, or not, as the case may be.
    3. You are also subject to US tax on your Irish rental income but because of a reciprochal tax agreement- can offset any Irish tax paid on your Irish rental income against the US tax due on it (I have no idea whether it would cover the sum in its entirety- or whether you'd have a balance to pay- but you have to declare it and trigger the reciprochal tax arrangements.
    4. You remain fully liable for the property and should anything go wrong with the tenant, are expected to be in a position to resolve the issue within a reasonable timeframe (reasonable is determined by the nature of the issue).
    5. You are liable to meet all Irish Residential Tenancy Legislation obligations as they pertain to being a landlord.
    6. Your tenant gains 'Part IV' rights once they have been resident for 6 months- after which you may only revoke the tenancy under certain strict conditions.
    7. What happens if your tenant doesn't pay the rent- and the mortgage goes into arrears? It could destroy your credit rating internationally.
    8. You would be expected to declare that you are no longer using the property as your PPR (Principle Private Residence) to your mortgage lender- who in turn will normally put you on an investor mortgage (typically between 3.5 and 4% mortgage interest at present). Aka- your mortgage repayments would shoot up- as the interest component of the mortgage would probably double.
    9. You remain fully liable for the upkeep of the property- including maintaining the exterior and grounds of the property. You can be fined if the tenant does something stupid like not cutting the lawns etc.

    Etc etc etc


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    #3
    Caranica
    Registered Users Posts: 10,040 ✭✭✭✭Caranica


    Also the family member should pay you rent, not take over the mortgage payments in order to prevent them claiming a share of the property.


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    #4
    Nabber
    Registered Users Posts: 2,855 ✭✭✭Nabber


    Thanks for the responses. I think selling is the best option here.


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    #5
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,279 Mod ✭✭✭✭The_Conductor


    Nabber wrote: »
    Thanks for the responses. I think selling is the best option here.

    Really, it is.
    You're opening yourself to a world of hurt if you rent to a family member...........


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    #6
    NSAman
    Registered Users Posts: 3,394 ✭✭✭NSAman


    Honestly, if you are coming to the States how long do you intend to stay here?

    Tax may be charged in Ireland but that can also be offset against income tax here. You will also have to declare income on your tax return here and give bank details etc... etc. Its nothing major that a decent accountant cannot sort out.

    The rental should be that .... a rental do NOT let them just pay the mortgage. It will come with the Tax withholding as outlined above and all the obligations of rental agreement. HOWEVER, if the family member is trustworthy this can negate a lot of the crap that renting out in Ireland comes with.... it can also bring a massive headache... depending on how trustworthy that family member is.

    Look into it further. I know it is a financial hardship, but maintaining the property there will make it easier if you DO return.

    Sorry I am not more assistance in this as I do not rent out my property in Ireland.


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    #7
    thebiggestjim
    Registered Users Posts: 345 ✭✭thebiggestjim


    The_Conductor wrote: »
    1. As a non-resident landlord you are automatically liable for 20% witholding tax to be paid by the tenant to Revenue on your behalf.
    2. You can make an Irish tax return annually and offset the 20% paid towards any Irish tax you may owe, or not, as the case may be.
    3. You are also subject to US tax on your Irish rental income but because of a reciprochal tax agreement- can offset any Irish tax paid on your Irish rental income against the US tax due on it (I have no idea whether it would cover the sum in its entirety- or whether you'd have a balance to pay- but you have to declare it and trigger the reciprochal tax arrangements.
    4. You remain fully liable for the property and should anything go wrong with the tenant, are expected to be in a position to resolve the issue within a reasonable timeframe (reasonable is determined by the nature of the issue).
    5. You are liable to meet all Irish Residential Tenancy Legislation obligations as they pertain to being a landlord.
    6. Your tenant gains 'Part IV' rights once they have been resident for 6 months- after which you may only revoke the tenancy under certain strict conditions.
    7. What happens if your tenant doesn't pay the rent- and the mortgage goes into arrears? It could destroy your credit rating internationally.
    8. You would be expected to declare that you are no longer using the property as your PPR (Principle Private Residence) to your mortgage lender- who in turn will normally put you on an investor mortgage (typically between 3.5 and 4% mortgage interest at present). Aka- your mortgage repayments would shoot up- as the interest component of the mortgage would probably double.
    9. You remain fully liable for the upkeep of the property- including maintaining the exterior and grounds of the property. You can be fined if the tenant does something stupid like not cutting the lawns etc.

    Etc etc etc

    This is scare mongering advice. Conductor have you lived in the USA while owning a property in Ireland? I did so for many years. I was better off owning and renting the property from the USA than living in Ireland and renting the property.

    Pay your taxes which can be offset against your USA taxes. One big advantage is you can offset your Irish mortgage interest against your USA taxes. This is a big benefit especially as you are at the early stages of your mortgage when you are paying higher interest. If you buy a property in the USA you can offset both mortgage interests. You can also offset any expenses including flights home, repairs etc.

    Have a handymen available to come and fix whatever needs to be fixed. They have to accept e-payments and produce receipts for records. Very simple really, write these expenses off in your USA taxes.

    In your lease explicitly call out any fines accrued are the responsibility of the tenant. It is a very effective way of stopping fines being accrued. I have done this for years. Again very simple.

    The bank does not expect you to walk into their branch and ask to be put on a higher rate because your circumstances have changed. They expect you to keep paying the mortgage which they are making a boat load of money from. Keep paying the mortgage and you and the bank will be fine. Don't listen to the nonsense quoted above.

    Property upkeep is very simple, see my handymen point quoted above.

    It can be very useful to have a property to come back to if you only intend staying 3-5 years. It will be hard for you to get an Irish mortgage when you return. You could also return to a spike in property prices leaving you homeless because of a broken Irish market.

    My two cents.


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    #8
    Caranica
    Registered Users Posts: 10,040 ✭✭✭✭Caranica


    The Conductor is not scaremongering. I've recently come across the mountain of paperwork from when we rented our family home. It brought back memories of the stress, financial and otherwise, the damage and theft, and the heartache. I wouldn't recommend being a landlord to my worst enemy.


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    #9
    Nabber
    Registered Users Posts: 2,855 ✭✭✭Nabber


    NSAman wrote: »
    Honestly, if you are coming to the States how long do you intend to stay here?

    We plan on staying 4-5 years, my contract allows for me to return after 18 months if my family have not settled well.

    The family member is trusty worthy, and will take on the upkeep of the house as the mortgage rate is significantly lower than the rental price. Mortgage repayments are €800-€1000 below rental prices.
    It's unlikely on our return we would move back to the house, we had planned on moving out in 4 years due to kids secondary location and the family out growing the house. We'd likely rent if required on return to Ireland.
    I was better off owning and renting the property from the USA than living in Ireland and renting the property.

    Thanks for the response thebiggestjim.


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    #10
    listermint
    Registered Users Posts: 33,726 ✭✭✭✭listermint


    Right now is the best time to consider upping sticks and moving to the states.........


    The very best time.


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    #11
    Wabbit Ears
    Registered Users Posts: 3,043 ✭✭✭Wabbit Ears


    Im going to repeat this here so that, in several years time when you look back on this, you were told.

    Renting to family will never end well, don't do it. Never mix family and business.

    What you are proposing is, at best, renting to someone for significantly less than market value for no reason other that a vague hand wave of 'family'. The worst case is you allow them to pay your mortgage for several years and they own part of your house and all the horrors in resolving that.


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    #12
    Claw Hammer
    Registered Users Posts: 6,163 ✭✭✭Claw Hammer


    If you are ot going back to the house anyway, sell it. Renting at an undervalue to a family member brigs you into gift tax as the difference between what they are paying and market rent is deemed a gift.


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    #13
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,279 Mod ✭✭✭✭The_Conductor


    Letting to them- in the manner in which you're suggesting, is a tax mess (in two different jurisdictions, for both you and the family member).
    There is also the way you are bringing the mortgage into the equation- which suggests they are paying the mortgage- so legally they could have a call on the property (a share in it) down the road..........

    Seriously, sell it, its not worth the head wreck.


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    #14
    Iodine1
    Registered Users Posts: 380 ✭✭Iodine1


    Definitely sell. Renting to family will lead to a row at some stage. Renting property is a business decision. If you want to invest in that business buy a "renter" minimum maintenance in a town suitable for renting. Do NOT go in half way. You are the landlord and the law is against you. Remember:
    Don't pay mortgage : you end up liable.
    Fall down steps? Your insurance pays.
    Don't pay insurance you are liable.
    Don't pay tax: revenue will bleed it out of you eventually.
    And then listen to, "X threw us out of the house and we only after paying the mortgage for years"


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    #15
    Nabber
    Registered Users Posts: 2,855 ✭✭✭Nabber


    listermint wrote: »
    Right now is the best time to consider upping sticks and moving to the states.........


    The very best time.

    To be fair, we had made the decision a few months back. I was waiting on the proposal from my employer and then some negotiations, the move was put on hold due to COVID-19.


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