Free use of property & section 86 Capital Acquisition Tax

Hi, for many years (about 10yrs) I have lived in a house, which was owned by my Aunt. It has always been understood that ultimately I would inherit the house, however to avoid a Capital Gain Tax exposure I (and my aunt) accepted that title would occur on her death. Given the provision of Section 86 CATA & my personal circumstance I did not see this as a problem. The house has now passed to me & S86 has applied to the transfer; however Revenue are now forming the opinion that “free use of property” provisions should apply to the 10 years I lived there rent free – I had always thought that once 3 years had passed I did not need to concern myself with this as the house had become “outside” the scope of CAT (if the house itself was not liable to CAT, how could use of the house be liable?) - help, help - pls help (PS this is my first post of this type ever, so sorry for any mistakes made) - Thanks

I can understand how you may have been confused, although I've never heard of someone taking the gift of a house to mean the gift of the use of the House.

Section 40 says that's it's the equivalent rent of the property so
1. What's was the equivalent rent of a property in the area? Did you contribute anything to your aunt? Are you single/married, did anyone else occupy the property?
2. Have you received any gifts from relatives in this class before?
3. There is an annual small gift exemption of €3,000 which you can deduct from your annual gift.

[FONT=&quot]Thanks Joe – [/FONT]
[FONT=&quot]I had thought I had done my homework on this. S86 clearly exempts the title transfer – that’s accepted by all. However I had thought S86(2) made reference to S32(2) gave me a degree of comfort in that I clearly was the “remainderman” in that I had a limited interest in possession before title – this being an exempted person S86(2). S86(3) exempts me (that’s accepted even by Revenue). & all other conditions are met. Your help on this is great appreciated as I am on the hook for quite a bit of money that I just don’t have – if you have any ideas to tie my residence (free use) to S86 I’d love to hear them[/FONT][FONT=&quot][/FONT]
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[FONT=&quot]In reading section 40(thanks for that) I think it is clear that any money I spend on improving &/or maintaining the property would reduce the value of the gift I received ??? – What do you think?[/FONT]
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I'm not a solicitor but you know a lot about this already but just for clarity was your aunt a life tenant and you the remainderman or are you saying that your aunt promised you the house an your misinterpreted the section 86(2).

You're clutching at straws with S.32 - it has no relevance to your situation AFAIK.

You've received an annual gift of (the value of the market rent) - (3k annual exemption) - (any consideration).

Joe_90 said:

I'm not a solicitor but you know a lot about this already but just for clarity was your aunt a life tenant and you the remainderman or are you saying that your aunt promised you the house an your misinterpreted the section 86(2).

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Seems to me like he's misunderstanding the Section (possibly wishful thinking), as S.32 applies where a remainderman disposes of their future benefit to another person (a transferee) and makes the transferee step into the shoes of the remainderman in accounting for the CAT that ultimately arises... this is a red herring in the circumstances here.

The OP isn't a remainderman, he's simply someone who has an indication that they are named in their aunt's will!

Totally distinct from that potential future gift/inheritance, the OP has had free use of the property and this gives rise to the annual gift that is causing the problem...

(Unless I've completely misunderstood what's going on here!)

you may be right, prehaps Iam cluching at straws - but doing my best here because I'm in a spot of bodder. What do you think about money I spend improving/maintaining the property - does it reduce my exposure??? - any HELP would be great

Ps (you are right) but how did you know I am "him"?

Scoby said:

Ps (you are right) but how did you know I am "him"?

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I've never met/heard of scoby being applied who wasn't male

(maybe it's a Waterford/Kilkenny -ism... this suggests it is )

Scoby said:

you may be right, prehaps Iam cluching at straws - but doing my best here because I'm in a spot of bodder. What do you think about money I spend improving/maintaining the property - does it reduce my exposure??? - any HELP would be great

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Yes I'd say you should certainly argue the case that such money was in the nature of consideration for your use of the property. Proving how much was spent could be the difficult part.

What you really urgently need here is good advice from a practitioner who specialises in this area - I can think of a couple of possible arguments that could be made, but CAT isn't my area of expertise so I'm not going to start speculating idly.

Bottom line is if you are exposed to a substantial tax bill, good professional advice, even if it's simply in negotiating a settlement, ALWAYS pays for itself...

Well Buoy!!! That's a Waterfordism, I've not heard Scoby round these parts for a long time.

Nothing to do with Scooby is it?

OP did you live in the property alone? What was the rent of an equivalent property in the area?

As Mandebrot suggests you should take professional advice on the subject but some pointers would help others.

mandelbrot said:

the OP has had free use of the property and this gives rise to the annual gift that is causing the problem...

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So it's gift tax then on the 'notional' rent that would be paid for a room in a similar property. Unless she paid 'rent' or something instead of rent or equal to rent. Scoby mentions she paid for repairs, can she argue that it was in lieu of rent I wonder. In any case she has the annual gift exemption of 3K which is about 58€ a week. If she took care of her aunt, ran messages, used petrol to ferry her around the place, could that kind of thing count towards rent I wonder. As long as she keeps it below the 10K rent a room scheme.

Scoby can you tell us how much revenue have calculated you have been 'gifted' by renting for free? What did they base it on.

From what the OP said in his first post the reason that the house was not gifted to him was because of a CGT issue, that would indicate that the aunt was not residing in the property, so the introduction of the "rent a room" relief is not appropriate.

I missed that Joe, so OP was residing alone in the house. And the tax will be based on the notional rent of a whole house then. Less the 3K annual exemption. Could be very high tax as there will be penalties and interest maybe. Time to hire an expert to deal with revenue. Might have to get a loan to pay the tax. Though I think penalties would be unfair here if the OP comes clean, it seems they didn't know they were liable for it, but of course that's no defence, all the more reason to hire a professional who know how to sort this out.