Living In Parents 2nd home Rent Free - Capital Acquisitions Tax

A

alexani

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Sorry if this is really long winded, but would be grateful for any help with this.

Mr.A owns a second property, which his son Mr B lives in with his wife Mrs B rent free. The long term plan is for this house to be signed over to MR B but as of yet this hasn't happened. Mr & Mrs B have spent money renovating the house while living in it.
What Tax are Mr & Mrs B liable for while living in the house while it is still owned by Mr A?

Mr.B is an employee of Mr A's company. Though house is owned personally by Mr.A
5 years ago Mr A gifted Mr B money. At the time it would not have been the full threshold. But today it would be over it, so is this gift threshold a once off? and that is it now used up or is this a per year threshold?
Could the gift of living in the house be given to Mrs B And so would fall under Group C threshold of €21,700 therefore not liable for any tax?
Estimated that annual rent from property would be approx €9,600

I know that is a lot of info and a lot of questions. Thanks for taking the time to read it and for any help with this.
 
If Mr B and his wife have lived in the house for 3 years, they can receive a gift of it from Mr A free of CAT. It will be a disposal for Mr A, so he may face Capital Gains Tax if it has increased in value since he bought it.

Check this leaflet for the conditions: http://www.revenue.ie/en/tax/cat/leaflets/cat10.html

Not sure about the CAT implications of living rent free. I would argue that they are getting €4,800 each per year, which is less than the €5,000 annual exemption, so they should be ok.

But it's probably best to transfer the house now.

The advantage to Mr A in waiting to leave it in his will, is that there will be no CGT on his death. However, as this may change and as the 6 year rule might change, they should probably do it now.

Brendan
 
Thank you Brendan. One final question if Mr A did sign over the house to Mr & Mrs B who then moved out of the house and rented it out. Total time living in the house would be 7 years, but only 2 from date of gift. Would this fall under Capital Gains Tax and not Capital Acquisitions Tax for Mr & Mrs B
 
Alexani,

There's a couple of things to pick up on... Annual small gift exemption is 3k, not 5k as Brendan said. Under CAT legislation there is deemed taxable gift of 1.6k to Mr & Mrs B each year (4.6k less 3k small gift exemption). If Mr. B is over the threshold then he should be paying tax on this amount. Mrs B has stranger threshold of c. 15k to work with.

If you are able to claim dwelling house exemption, as suggested by Brendan and a good idea, there is a condition that you occupy the house as your main residence for 6 years to avoid claw back of the relief. It is vital that you get professional advice if you are to avail of this relief
 
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