Renting to Relative - Below Market Rate

C

cliqueentour

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Say I am renting a property to tenants at €1400 a month. A relative of mine is looking for a property to rent and I would like to help her out and rent the property to her.

However, I would only be charging her around €800 a month. What are the tax implications for both me and her? Do I need to ok this with Revenue before I do anything?

The tenants are getting a good deal from me at €1400 a month because other houses in the area are renting at around €1,800 a month, so I'm already renting below market rate in theory.
 
To answer your second question, in my view, the odds are that Revenue won't believe you that your rent has dropped, by choice, on a fully occupied property by €7,200 per annum. They'll possibly assume you are being paid the balance cash in hand and you'll have a divil of a time with them.

As far as helping out the relative is concerned, I would advise you not to do this. It will end in tears. Give your relative the €600 a month instead.
 
Don't forget to take into account that if you are in a rpz and the whole country will be one in a matter of week, you can never up your rent to market rate again.
So you will be effecting your current income, your future income, and the value of your property.
 
I know I could give her €3,000 and so could my wife and this would be free of any tax. The annual limit is €3,000 to a person. So in theory, I could gift her rent €500 a month lower than the market rate or what I currently charge now (so that would be rent of €900 a month). Do I need to inform Revenue that I would be giving her in theory €3,000 a year in terms of cheaper rent. And so would my wife. But we wouldn't actually be giving her the money physically.

As a result of them my annual income on the property would be €10,800 instead of the current level €16,800. And income tax etc due on the €10,800 less expenses and not €16,800.

I understand about the rent cap etc, but I'm more concerned about helping her out to be honest.

To further complicate matters, say I need to put in a new boiler in 1 years time after she's move in and it costs €2,000. Can I offset this €2,000 still against the €10,800 rental income? I'm assuming I can. Can't I?
 
PaxmanK said:
if you are in a rpz and the whole country will be one in a matter of week, you can never up your rent to market rate again.
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Hi Clique

Paxman's point is very important. You must sign a lease at the full market value or the highest price allowed. I know plenty of people who have been caught by this in the past and shortly it will be a criminal offence to charge more than 4%.

If I recall correctly, you are taxed on the rent you actually receive not on the rent due. So if you have a lease saying €17,000 a year, and you collect only €10,000 a year, you will be taxed only on the €10,000.

Brendan
 
To clarify on my post, as I realise on re-reading it could be taken another way.

I didn't mean, don't help out your relative; of course you should help if that's what you want to do. But from experience, renting your property to them, particularly at a lower than normal rent, is most likely to not end well.

It would be better to give your relative the money instead.
 
Brendan point is massively important...the lease needs to be at market value to protect you from the RPZ legislation. Then you’re only taxable on what’s paid.

There’s probably a broader solution in there too for landlords who don’t want to increase rents for good tenants but are almost compelled to by the legislation; do increase it but then write-off some of it by way of gift. It is no skin off the tenant’s nose.
 
Thirsty said:
To answer your second question, in my view, the odds are that Revenue won't believe you that your rent has dropped, by choice, on a fully occupied property by €7,200 per annum. They'll possibly assume you are being paid the balance cash in hand and you'll have a divil of a time with them.
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Very melodramatic. My experience with Revenue is that falling rents in isolation are not considered a red flag issue, unless perhaps in conjunction with other red flags.
 
I would have thought if the lease was for say €1,400 as signed with the RTB and I was declaring say €1,000 a month to Revenue that a check between the two would show up as something not quite being right, no? That I was under declaring income from rent.

I never realised I could have the lease say €1,400 but collect €1,000 only and pay Revenue based on the €1,000 and not be quizzed about it. But I get your point about protecting myself down the line re RPZ issue. Mind you after 3 years of being a RPZ the 4% limit is removed automatically and a person can then determine what the market rate is again from that point onwards. An area doesn't remain an RPZ forever and a day I believe.
 
cliqueentour said:
Mind you after 3 years of being a RPZ the 4% limit is removed automatically and a person can then determine what the market rate is again from that point onwards.
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You would be crazy to rely on that. If you let out your property at less than the current market value, then you should assume that this will be rental level for the foreseeable future.

Brendan
 
Thirsty said:
Yes, melodrama is of course my style...
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I didn't comment on your style. I commented on your suggestion that Revenue won't believe or accept a drop in rent receipts on a given property. Such drops happen all the time, for a variety of reasons.
 
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