Gift tax implications of allowing my son stay rent-free in an investment property I own

This is covered in today's Irish Times.


The [broken link removed] tightened the rules and now the only support parents are allowed offer adult children tax-free is the option of living in the family home, funding a child’s wedding costs (but not the honeymoon) and providing accommodation away from home rent-free to a child under the age of 25 in recognised full-time education.

Does this mean:

Child under 25 and in full time education: No CAT

Child under 25 but working: CAT

Child over 25 in full time education: CAT

Brendan

This seems to be the relevant section of the 2014 Finance Act which clarifies categories for exemptions from CAT:

“(4) The receipt by—

(a) a minor child of the disponer or of the civil partner of the disponer, or

(b) a child of the disponer, or of the civil partner of the disponer, who is more than 18 years of age but not more than 25 years of age and is receiving full-time education or instruction at any university, college, school or other educational establishment, or who, regardless of age, is permanently incapacitated by reason of physical or mental infirmity from maintaining himself or herself,

Click to expand...

I haven't looked in a while, but the Census says that are about 2 million dwellings in Ireland. Of these about 100k are unoccupied (not holiday homes), and another 25k households claim that they are living in properties at reduced or zero rent.

However in nearly all cases Revenue don't and can't know who is living in what property at any point in time.

Hi Brendan,

The position is more or less as you set-out.

I don’t think the answer in the IT is a great one to be honest.

It’s not as simple as that. It’s possible to apply a “caretaker discount” to the market rent which makes sense when you think about it. If the property was empty, there’d be security and maintenance issues.

It’s generally accepted that a discount of 25-35% is okay.

Then there’s the point raised on another thread recently; a third party pays market rent for the exclusive use of the property. A child who’s allowed to stay in the property usually has to “tolerate” family guests at any time.

Also, when a tenant has a problem, the tenant calls the landlord. When a child has a problem in the property and they call the parent, they’re usually told to sort it themselves.

All of the above reduces the real market value of the rent.

Is it compulsory to inform the relevant authorities what arrangements a family may have?

noproblem said:

Is it compulsory to inform the relevant authorities what arrangements a family may have?

Click to expand...

No

Gordon Gekko said:

Also, when a tenant has a problem, the tenant calls the landlord. When a child has a problem in the property and they call the parent, they’re usually told to sort it themselves.

All of the above reduces the real market value of the rent.

Click to expand...

Does this mean that expenses such as maintenance costs can be offset against the rent? If so should receipts be kept?

Had a similar situation for a client a few years ago, that a tax advisor looked into for me. It is technically a gift

Market Value of Property * Factor for a male and the relevant age, less small gift exemption, less group threshold * 33%

They also said that in the majority of family rent free arrangements, no return is made to the Revenue. The reality is, there's loads of ways that parents help out their children that isn't reported to the revenue. Deposits for a home being the most common.

Steven Barrett said:

Had a similar situation for a client a few years ago, that a tax advisor looked into for me. It is technically a gift

Market Value of Property * Factor for a male and the relevant age, less small gift exemption, less group threshold * 33%

They also said that in the majority of family rent free arrangements, no return is made to the Revenue. The reality is, there's loads of ways that parents help out their children that isn't reported to the revenue. Deposits for a home being the most common.

Click to expand...

Hi Steven,

That advisor gave you a bum steer I’m afraid.

Gordon