Buying an apartment for a parent - any tax implications

Susie2017

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A relative is considering buying a 2 bed apartment in Dublin for around 200k. Property would be for an elderly parent who is currently paying rent at a high rate and also for visits to see him (2nd bedroom) and visit the other parent who lives nearby (they are separated). Idea would be that when the parent dies (hopefully not for a long time) property could be either used for kids to go to college - or if they decide not to go to college in Dublin then it could be rented providing some rental income approaching retirement. Any tax implications of giving a room to a parent in an apartment cost free ?
 

Susie2017

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Thank you Gordon. Are you certain there is no gift tax implication or BIK for instance for the elderly parent. I read that taxes could apply if it was parent giving a child a rent free apartment but couldnt find anything on the reverse ? Is there any allowance for CGT in the future if the apt had to be sold ? The parent is retired from employment on ill health grounds for around 30 years, but has a work pension and old age pension not sure if this is relevant.
 

Sarenco

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Technically providing free accommodation constitutes a gift.

However, an annual allowance of €3,000, plus a cumulative tax-free threshold of €32,500 applies in this scenario.

In any event, I strongly suspect that Revenue would have zero interest in a family arrangement of this nature.
 

Gordon Gekko

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Technically providing free accommodation constitutes a gift.

However, an annual allowance of €3,000, plus a cumulative tax-free threshold of €32,500 applies in this scenario.

In any event, I strongly suspect that Revenue would have zero interest in a family arrangement of this nature.
Yes, but I was also getting at the general exemption for older people who are “incapacitated” (i.e. over 65!) and whose income is low.

But either way Revenue have no interest in such arrangements.
 

Susie2017

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Any consensus on the CGT if the event of the parent dying and the apartment being sold ? If the kids went to college elsewhere. Person in question doesn't really want to be a landlord given the current PRTB and high taxation of rental income.
 

Gordon Gekko

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Any consensus on the CGT if the event of the parent dying and the apartment being sold ? If the kids went to college elsewhere. Person in question doesn't really want to be a landlord given the current PRTB and high taxation of rental income.
There would not be any CGT.

Section 604(11) TCA 1997 extends PPR Relief to scenarios where the property in question is the residence of a dependent relative.
 

Susie2017

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Thank you Gordon. What defines a dependent relative ? He is not dependent in a financial sense other than he wouldn't have had the funds to purchase an apartment outright or get a mortgage. He was fortunate to have a good pension from work when he retired on these health grounds but ended up having to rent after leaving the family home so paying his own expenses, utilities etc is not an issue.
 

Gordon Gekko

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Thank you Gordon. What defines a dependent relative ? He is not dependent in a financial sense other than he wouldn't have had the funds to purchase an apartment outright or get a mortgage. He was fortunate to have a good pension from work when he retired on these health grounds but ended up having to rent after leaving the family home so paying his own expenses, utilities etc is not an issue.
Somewhat hilariously, it includes a parent who’s 65 or over. I have to remind my Dad that he’s incapacitated in the eyes of Revenue when he wins the money on the golf course or wants to order an extra bottle of red.
 

Susie2017

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Wow. So once you are over 65 you are dependent or incapacitated whether you like it or not. Thank you Gordon. That is most helpful.
 

Brendan Burgess

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In any event, I strongly suspect that Revenue would have zero interest in a family arrangement of this nature.
I think that this is often overlooked. People get the impression that Revenue is trying to jump on ordinary people to squeeze tax out of them or fine them for the tax implications of some normal family type issue.

Revenue is not like that and if you reported this, the official might quietly tell you that it's more trouble to them than it is worth.

Brendan
 

Susie2017

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Brendan I was always under the impression that revenue do try to squeeze every penny! The person considering this scenario is already a landlord, would they still be excluded from consideration. I presume the 3000 plus 32500, allowed a period of occupancy of ten years would amount to 6250 per annum. Is there a link to revenue on these figures? If the parent is only using one bedroom and the owner the other when visiting then this would cover around half the expected rent for the apt approx. Would they have to make these calculations in a return to revenue annually ? Person in question would not want any hassle with revenue down the road.
 

Sarenco

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Section 604(11) TCA 1997 extends PPR Relief to scenarios where the property in question is the residence of a dependent relative.
That Section provides that a “dependent relative”, in relation to an individual, means a relative of the individual, or of the wife or husband of the individual, who is incapacitated by old age or infirmity from maintaining himself or herself, or the widowed father or widowed mother (whether or not he or she is so incapacitated) of the individual or of the wife or husband of the individual.

Would the parent fall within that definition?
 

Gordon Gekko

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That Section provides that a “dependent relative”, in relation to an individual, means a relative of the individual, or of the wife or husband of the individual, who is incapacitated by old age or infirmity from maintaining himself or herself, or the widowed father or widowed mother (whether or not he or she is so incapacitated) of the individual or of the wife or husband of the individual.

Would the parent fall within that definition?
Yes, somewhat hilariously Revenue’s view is that being 65+ is “incapacitated by old age”...brilliant!
 

Brian McD

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Would anybody happen to know if CGT would not apply on sale / provisions of Section 604(11) TCA 1997 apply where a son was to build a house for his "incapacitated by old age" parents on a site that they would gift to him , assuming of course that the site was transferred into the son's name before building commenced?
 

Sophrosyne

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Somewhat hilariously, it includes a parent who’s 65 or over. I have to remind my Dad that he’s incapacitated in the eyes of Revenue when he wins the money on the golf course or wants to order an extra bottle of red.
That is not Revenue’s view but rather it is contained in the legislation - TCA 1997 s 466.

The principle is that “dependent” means that the relative has inadequate means to maintain themselves and relies on the claimant for support.

“Where for any year of assessment a claimant proves that he or she maintains at his or her own expense any person, being…”

If the relative has sufficient income to maintain themselves then the Dependent Relative Credit is unavailable.

According to s 466 the relative’s income cannot exceed the amount of the annual old age contributory pension at age 80 plus the Living Alone Allowance. For 2020 that amounts to €15,060.
 
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