Buying house for adult children to live in and as an investment.

U

Up Rovers

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Hi All,

I'm just wondering if ye could give me some advice regarding buying a house for my 2 adult children to live in and also as an investment. Our house is a bit tight for space with 4 adults so it would help with this also. I am wondering if there are any tax implications or other issues that I am not aware of regarding this purchase. We will be buying with cash and won't be charging them rent or leaving ourselves strapped for cash either.

We intend putting the house in husband and wife names rather than the children.
 
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They would be subject to Gift Tax (CAT) on the value of the rent less the €3,000 annual exemption. However, as a parent can give over €310,000 in lifetime gifts, this should not be an immediate issue.

If you sell the property at some later stage, you would pay CGT on the profit you make.

Being a landlord is just too much hassle these days. I am not sure if there is an exemption for houses let to family members. But if there isn't, you would only be able to increase the rent to a new tenant after they leave by 4% per year.

What you propose is just too much hassle unless it's a very short-term solution.


I think it would make more sense to give them a formal mortgage for the property and let them buy it themselves. That would mean that they would look after it better. They would repay the loan to you which would be a good discipline for them. And any increase in value would be exempt from CGT as it would be their family home.

The interest which you should charge would be subject to Gift Tax, but as before, this would not be an immediate problem.

The downside to this is that you would be tying up your cash. If they don't repay the loan, there isn't very much you could do about it.

If one of them decides that they want to move on and buy a house of their own, having a mortgage, even from their parents, could be a problem. So maybe you could do two separate mortgages so that one person could sell their share of the house (to you?) and repay the mortgage. Take legal advice on this. A normal mortgage might work also.

If you go down the route of joint purchase of the house, then you should make sure that they do an agreement between themselves on what happens if one wants to sell. It would appear to me that the correct solution would be for them to be obliged to sell to you at the market price as determined by a valuer.

Brendan
 
Depending on where you live and site size it might make a lot of sense and a lot less financial hassle to build on to your existing house.
 
I think Brendan is over thinking this.

You want to buy a house in your and your wife's name with your and your wife's own money. No issue there.

You want to let your adult children live in that house without charging them rent. Legally they would be living there under licence.

How does that differ from the present situation whereby they live in your existing house, presumably they don't pay rent now either. Well it doesn't, so does allowing adult children live in your property with out charging them rent count as a gift for tax purposes.

Of course it shouldn't in any sensible world, and there are hundreds of thousands of people doing this . However it seems that Revenue have suggested that it should count as a taxable gift. Now i don't think that is remotely likely to be an issue for you but if it was ever raised the €3,000 per annum gift allowance would still be available.
 
I am offering him a much better, more tax-efficient, way of achieving his objective.

It's "planning", not"overthinking".

Brendan
 
Brendan is right...it would make far more sense for the parents to lend the money to the children for them to purchase the property. Almost zero tax consequences in the current low interest rate environment.
 
Brendan Burgess said:
I am offering him a much better, more tax-efficient, way of achieving his objective.
Click to expand...

But was the children owning the house actually the objective.

Up Rovers said:
We intend putting the house in husband and wife names rather than the children.
Click to expand...

I took from this that he wanted to give his children a place to live, not ownership of a house.

While we don't know much about the background perhaps the OP is thinking that down the line one or other of the children's life circumstances may change, partner, grand children, whatever. Keeping the house in the OPs name allows flexibility around any eventual decisions.
 
Hi cremeegg

Sometimes people who approach askaboutmoney with a question, are asking the wrong question.

Or have not thought of all the questions.

By "overthinking" this, I give him a few more options to consider.

He may well go ahead with his original idea.

Brendan
 
Brendan Burgess said:
I think it would make more sense to give them a formal mortgage for the property and let them buy it themselves.
Click to expand...

Hi Brendan, in this example, should the OP kick the bucket (sorry OP!) and the debt presumably written off, would there be any CAT / gift tax due?
 
Hi Firefly

When the OP kicks the bucket, the children would owe the money to the estate just like any mortgage. It would not be written off.

The OP may leave money to the children, or he may leave it to the Cats and Dogs home.

They are separate issues.

Brendan
 
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