Not Registered as Investment Property. Risks?

M

Mairead

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If an Investment property which has been rented out now is not registered for tax, what are the likely risks involved?
Would you pay back tax on the last year? Can you be found out?
 
The obvious risks - that you will be found out and at least required to pay all outstanding taxes (e.g. income tax on rental income, CGT on the eventual resale, stamp duty clawback where applicable) and possibly also interest and penalties. Yes you can be found out - either sooner or later. See also my answer to your other questions here. Nobody in their right mind would recommend tax evasion as a prudent investment/money management strategy due to the risks attaching.
 
This question may be off theme so Admins please feel free to move. We are finished our mortgage on our home and would like to buy a property for our children to live in as they need in the city. Is this considered an investment property?
 
Depends on what you mean- if you mean for the purpose of CGT, then if someone occupies the property as their ppr ( a dependant of yours) without paying rent, then I believe it is exempt from CGt in much the same way as your PPR is.
 
Our son is mid twenties and living at home (we live in a rural area), he would like to live in Dublin for work and social reasons. Like so many young people he could not afford a mortgage yet and we would be reluctant to hand over a large deposit when we have 2 other children who could make use of this should they go to college. How would we structure this with the revenue?
Thank you.
 
If your son is paying rent, then naturally you need to declare this as a rental income, if not, then there is nothing for you to structure. If you mean on the purchase, well you would be buying as owner occupier if your son lives in it rent free, if hes paying rent, you would be buying as an investor for stamp duty purposes.
 
Vanilla, thank you for the reply. Our son "hands up" €200" euro per month keep. If this was bought as an owner occupier could we still avail of the €7000(?) rent a room scheme with this house? My other concern is if he was to go and travel for a year?
 
Owner occupiers can rent a room or rooms in their PPR and collect up to €7,620 p.a. in rental income tax free with no stamp duty clawback or CGT implications. If you exceed this then all rental income is assessable for income tax, a clawback of stamp duty applies if the property is rented within five years of purchase and CGT may be charged on some portion of any resale gain. If your son is genuinely handing up rent to you then you should be able to avail of the rent a room scheme and he should be able to avail of the rent allowance tax credit as far as I know.
 
Thanks for reply on this. We never intended to avoid any tax as we only ever thought we would hold onto the property for a year max so it has been pure lack of organisation more than anything else. BTW in relation to the claw back, does that need to be paid now even of the house is not being sold. Where does this need to be paid and how much would that work out on a house that cost £198,000 3 years ago?
When the house is declared what would we end up paying in tax?
 
Where a former PPR is rented within five years of purchase then the initial renting of it immediately triggers the stamp duty clawback liability as far as I know. You'll have to check with Revenue as to how much an investor would have paid on the property three years ago and when the liability needs to be discharged. At today's rates an investor would pay 4% stamp duty on the purchase of a house costing IR£198K (€251K) - i.e. about €10K. The amount payable three years ago may be in or around this or a bit less, I'm not sure.

No offence but your original post certainly made it sound like you were attempting to evade tax.
 
Just going back to Summer there- I dont know the answer to this but I wonder if you buy a second property as an owner occupier on the basis that a dependant relative will be living there ( and your ppr is elsewhere) whether that dependant relative comes under the rent a room scheme- or whether to qualify as an owner occupier that relative has to live there rent free and another room can be rented out? Perhaps you should check with the revenue.
 

Very much doubt it because
  1. An individual or married couple can have only one PPR so in this case the second property is not their PPR.
  2. The relative living there is not an owner occupier.
However - best to check all the same.
 
Just to clarify- I think what Summer wants to do is to remain in her ppr, but buy the second house as an owner occupier, which she is entitled to do if her son resides there and occupies it on her behalf. My question is whether she can collect rent from that son- I don't believe she can, but if her son lives there rent free, another room or rooms can be rented out. Its the question of whether she can collect rent from her son that I think should be queried.
 
Vanilla said:
Just to clarify- I think what Summer wants to do is to remain in her ppr, but buy the second house as an owner occupier, which she is entitled to do if her son resides there and occupies it on her behalf.
Click to expand...

This is incorrect. One can only have a single PPR. If Summer is living in one property as her PPR then she cannot have a second PPR even if a relative is living there. The "relative residing on one's behalf" qualification as an owner occupier only applies if one is, for example, seconded by one's employer to work abroad for a time as far as I know. It is not relevant to this situation.
 
Who qualifies as an owner occupier

From the revenue website:


Does that not mean that Summer can purchase as an owner occupier if her son lives there as his ppr?
 
No - "as his only or principal place of residence" applies to the purchaser. Summer already has a PPR. She can't have a second one.
 
Yes thats right- I'm afraid I was thinking about stamp duty when I was referring to the owner- occupier relief - but should have clarified that.

Out of interest I checked the provision in relation to CGT whereby one can have a dwellinghouse which is resided in by a dependant relative and which is treated as a ppr on its disposal- it seems to have come in under the 1979 FA- and refers to a relative who is incapable through old age or infirmity of maintaining themselves. I don't know why I thought it had been loosened up to include all dependant relatives in practice - I was perhaps thinking of the CAT relief where a dependant relative is resident in the house for three years prior to disposal( And therefore would include a student son or daughter).

Sorry about that Summer- my only excuse is that I had three glasses of wine last night - opened a bottle of sancerre and forgot to stop pouring- and today am actually hungover and feeling extremely poorly and sorry for myself ( a lightweight) - although that doesnt excuse the earlier post re CGT!
 
Thank you for the replies. This may well turn out to be a more common topic as the money program on BBC2 tomorrow night covers the topic of KIPPERS. It looks as if 1 in 4 adult children are still living at home.
 
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