Terminating new lease in order to house daughter

[Villaines]

Hi there

Just hoping someone has worked out the definitive position under the new leases rules in the event that landlord wants vacant possession in order for house to be occupied by son or daughter.

Situation is that a house could be let under a new lease (at market rent) from January 2027, but house could be required for son or daughter within the 6 years (i.e. before January 2033).

Not clear on "proven hardship" concept that seems to undermine the right of the landlord to terminate within the 6 year period.

Son or daughter might be living with landlord in landlord's PPR, or might be returning from abroad.

Given that effectively 52.4% tax would be payable on rental income (deductions would be minimal, except possible estate agent management fees and maintenance), house may be retained but kept vacant (at cost of LPT, etc.) - sale unlikely due to CGT. Possible future transfer of property to son or daughter after August 2029 (availing of same event CGT relief from CAT - but seemingly house must be retained for 2 years rather than sold - going to check if reinvestment in another house does not trigger clawback of CAT relief).

 

[Greenbook]

Situation is that a house could be let under a new lease (at market rent) from January 2027, but house could be required for son or daughter within the 6 years (i.e. before January 2033).

Assuming that you are a small landlord, then you can reclaim for a son or daughter within the 6 year period.

Two issues though;

1. As we see the whole time now, the tenant could just dig in, refuse to move, challenge the NoT on spurious grounds. They will be aided by Threshold and facilitated by the RTB Tribunal. Getting vacant possession could take three or four years.

2. You can get the house back if it is 'required' by the child. The word 'required' is increasingly being read as 'needs', so the question would be does the child actually need the house or do they just want it. If the answer is 'want', you may lose the case in the Tribunal. Even if the child does genuinely need the house, a stage may come (the RTB Tribunal makes up its own law) that the child's need will be weighed against the tenant's need and guess who will win there.

3. One minor slip in the paperwork and the NoT is invalid. If you acted on the invalid NoT in any way, you are likely compensating the tenant and could face criminal prosecution.

It is like everything else for landlords in the PRS, you have rights on paper but these are very weak in reality.

 

[Villaines]

Thanks Greenbook,

Yes I am seeing different descriptions used even on the same page of the RTB website. On one hand they say a small landlord has a right to terminate where "The landlord or a close family member needs to live in the property. Close family means a spouse, civil partner, child, step-child, foster child, adopted child, parent, step-parent or parent-in-law only.".

Then lower down the page within a table on the same point they say "Allowed only in cases of hardship during 6-year tenancy cycle (TMD) for landlord or immediate family member only." (my italics).

How a landlord can end a tenancy - Residential Tenancies Board

rtb.ie

So as you suggest, there seems to be a bit of a grey area there in terms of how the legislation is being interpreted (needs/hardship etc), possibly even inferences beyond the wording of the legislation itself (which I have not seen) and like everything in the PRS now it's all weighed in favour of the tenant. But eventually I plan to gift or bequeath this property to my daughter and would prefer her to have flexibility to use proceeds for a PPR in my lifetime which is why I want to avail of same event CGT credit (given the disastrous impact of house price inflation with unmatched inheritance exemption threshold increases).

 

[Greenbook]

So as you suggest, there seems to be a bit of a grey area there in terms of how the legislation is being interpreted (needs/hardship etc), possibly even inferences beyond the wording of the legislation itself (which I have not seen) and like everything in the PRS now it's all weighed in favour of the tenant. But eventually I plan to gift or bequeath this property to my daughter and would prefer her to have flexibility to use proceeds for a PPR in my lifetime which is why I want to avail of same event CGT credit (given the disastrous impact of house price inflation with unmatched inheritance exemption threshold increases).

If you do want to gift it to your daughter, you are better off just leaving it vacant until such time as it can be gifted to us. There is no guarantee at all that you will get it back when you need it. You may not be able to sell with the tenant in situ and, if you can, the price will be significantly lower.

The alternative, which depends on where the house is located, is to do rolling temporary rentals. Are you near a university where you could rent to short term students or academics or are there contractors in the area who need occassional housing for workers.

 

[Brendan Burgess]

I would start by temporarily parking the tax issues and working out what is the best thing to do here. After deciding that, then you can look at the tax consequences to see if they are such to prevent you doing the best thing.

You have a son and a daughter, either of whom might or might not want the house within the next 6 years. Or they might want a different house. Or they might want this house in 9 years.

So it seems clear to me that flexibility is the most important aspect of your investment planning.

Sell the house.
Pay the CGT.
Invest the proceeds in an equity based product.

Then when a child wants to buy a house, you have full flexibility.

They can buy the house that suits them and are not dependent on the house you actually own. They can buy a cheaper or dearer house. They can buy in that location or some other location.

They can buy at a time that suits them and you are not prevented from selling it by stupid legislation or an overholding tenant. For example, if you want to sell the house mid term to give them the proceeds to buy another house, you can't do so.

If you want to help both your children around the same time, you can split the proceeds of an equity investment. Much more difficult to do with a house.

 

[Brendan Burgess]

Now what are the tax consequences?

What is the value today and what is the CGT liability if you sell it?

Assuming you were gifting it today, what would be the tax implications?

• They move into the house
• They live in it for X years
• You then gift it to them
• You pay CGT on the sale
• Would they have a CAT liability against which to offset the CGT?

There seems to be a lot of conditions for you to get a tax benefit from delaying the gifting and sale

• There has to be a substantial CGT bill
• There has to be a substantial CAT bill in excess of the €420k threshold
• The rules will have to remain the same

If they can avoid CAT, then you save nothing.

Just sell the house, pay the tax, and maximise flexibility.

 

[Villaines]

Yes this was always a private estate house (but say one step up from a corporation house and in an area where corporation houses would be more normal) that would in the past have passed without any CAT.

Due to the age of the house, whilst neighbouring properties have fetched high prices (e.g. €750k) where they have been renovated with decent extensions, houses requiring renovation sell for €400k-€500k in recent times.

Let's imagine it would fetch €600k (I'd be surprised but we live in strange times). The CGT bill would be c€55k-€60k (partial PPR exemption) and rising the longer the property is held. The CAT bill would of course not be far off that (33%*€177k).

The child would also be expected to receive further inheritances (small family, employed parents living modestly with PPR mortgage fully repaid) - unless there would be a divorce or some unforeseen and unwanted unravelling/enlargement of the family unit.

So we're looking at a potential saving of up to €60k on CAT minus €6k stamp duty and costs. So maybe a €50k saving. But loss of other possible first time buyer benefits in the future like help to buy.

No alternative use currently for the asset or cash other than "investment".

 

[Greenbook]

Selling and investing the cash in equities is by far the better option. At least you can sell all or part of those when you need to give your children cash. There is no regulation, you just buy, hold and sell at your own choice.

There are other risks with the PRS - your tenant is willing to move, but a 'temporary' eviction ban is introduced. He stays permanently.

I also think that there is an increasing risk of a sales ban as the PRS shrinks. Your tenant leaves, but as a 'temporary' measure again, you cannot sell, you must re-let. This might, yet again at the start, only be in particular Zones where the rental pressure is acute.

 

[Brendan Burgess]

Let's imagine it would fetch €600k

Do you have two children? Are you planning to give both €600k while you are alive?

When will this happen?

CAT may well be different then.

OK, you save €50k tax by holding onto it. And that is a significant figure. But the overall house price is anywhere between €400k and €600k which is a much bigger determinant of the outcome.

I would just take the tax hit now.

 

[Brendan Burgess]

Hang on...

Why not simply gift the empty house to your child now?

You pay the CGT. They pay no CAT.

They can keep the house or sell it. If they keep the house, it might be easier for them to make a case that they need it if they are trying to terminate the tenancy.

Brendan

 

[Greenbook]

They can keep the house or sell it. If they keep the house, it might be easier for them to make a case that they need it if they are trying to terminate the tenancy.

That is right. It will be easier for your child to convince the Tribunal that they need to move into the house that they own themselves. It will be more of a stretch if it is your daughter who is quite comfortably living in your house with you who 'needs' the house.

 

[stormy]

It's worth bearing in mind a tenanted house is worth a lot less. Agents I've spoken to put the discount at around 30%. It can't be mortgaged, so the buyers are cash investors only, and they price in the tenancy and the rent cap. Both CGT and CAT are charged on what the property would fetch on the open market, and that means the value with the tenant in situ (you would do that gift with the tenant in-situ).

So the CGT on the gift is lower, the CAT is lower, and the stamp duty is lower too. Get two or three independent valuations that reflect the tenancy, and keep them on file. Justifying the discount to Revenue shouldn't be an issue: houses let on post-March 2026 tenancies are out of favour with investors, with a six-year minimum term and rent increases capped at the lower of 2% / inflation. Your daughter will have to deal with the tenancy, but the tax bill will be noticeably smaller. One catch: her base cost is the lower value too. If she later sells with vacant possession, some of that discount comes back as CGT for her.

 

[Villaines]

Hang on...

Why not simply gift the empty house to your child now?

Still a minor child for now- but I suppose there would be the option of a bare trust - presumably at an additional set-up cost (any advice welcomed). A fairly sensible child and one that I want to help eventually buy in a better part of the city.

I appreciate all the issues regarding gifting assets to young adults. I myself got the benefit of a gift of half of this "ancestral home" (on my father's side) at a young age, I paid no CAT on the 50% share but back then the entire house would have been well under the CAT threshold anyway.

I held onto it after I bought my PPR in 2012 and it's appreciated, I had some good tenants and some not so good tenants, the mortgage I took out on the half I had to buy from my uncle is now fully repaid (including top ups for minor improvements), and I just want to be able to gift or bequeath it in similar fashion, but due to CAT thresholds not keeping up with house price inflation, it's now within the scope of CAT (and CGT if I gift it in my lifetime - which I wish to do).

It's worth bearing in mind a tenanted house is worth a lot less.

That's a good point - as you say, this might reduce the CGT now but yeah I'm mindful of the future base cost and maximising the value of the CGT I pay by way of credit against my daughter's CAT bill - I suppose it's like for like.

 

[Brendan Burgess]

Still a minor child for now

I just want to be able to gift or bequeath it in similar fashion,

You should not be planning in such detail for someone who is a minor child now who wouldn't be buying/acquiring a house in the ordinary course of affairs for at least ten years.

A house is a house. You should move it on to someone who will make it a long-term home who wants to live now in that area and not hold onto it in case your minor child might want it in 10 years.

You are allowing your reasoning to be buffeted by tax on the one hand and sentimentality on the other.

 

[Greenbook]

By holding on to the house in the hope that your minor child will want it in a decade or so, you are risking tying yourself and your child if there is a bare trust into the PRS with all its risks and traps. For one reason or another, you simply may not be able to get the house back in 10 years time or you may be forced to sell it with the tenant in situ at an undervalue (if there are any takers at all).

The better option is to sell and invest in equities. You can hold, sell, gift these as you like without restriction. You'll be able to help your child buy a house when the time comes.

 

[Villaines]

You are allowing your reasoning to be buffeted by tax on the one hand and sentimentality on the other.

Thanks for all the advice. Yes there's a lot of sentimentality and some ageing parents in the background still trumpeting how their wisdom not to sell in the past retained all this apparent wealth (when the drains don't block up or the tenant doesn't get raided by the gardai).

The better option is to sell and invest in equities.

I know - but I find it very hard to put €500k straight into equities - holding onto the old place can seem like the easy option until there's water coming out of the ceiling.

A sibling is taking care of the place for the next few months so will make a decision on it in the new year. We don't really have any desire to move/improve the PPR or buy a holiday home but that would be another way I keep the money invested in bricks and mortar without the hassle of the tenants and risk to the capital of putting in tenants.

 

[Greenbook]

Best of luck whatever you decide @Villaines, but keep in mind that January 27 when the tenant leaves may be the only time for 6 years and possibly a lot longer that you will have vacant posession of the house and have ability to decide what to do with the house.

 

[ClubMan]

I know - but I find it very hard to put €500k straight into equities

For what it's worth...

What to do with a million euros?

Personal details Your age: 49 Your spouse's age: 54 Number and age of children: 2 aged 9 and 14 Income and expenditure Annual gross income from employment or profession: €30,000 (state job) Annual gross income of spouse/partner: €60000 (state job) Pension: have maxed AVC’s (should I also...

www.askaboutmoney.com

 

[JamieB_]

OR you could think of it this way.
If its already this complicated and messy to even plan at the moment, what kind of swamp will you be navigating to get your property back in a few more years. You might not even ever to be able to get it back. You have the opportunity to bank your money now and take it out of the reach of the RTB, whose sole purpose is to keep it from you by whatever means available to them and those means are growing all the time.
Think of it like the half million euro question on who wants to be a millionaire and you can assume the next question is going to be the hardest one you ever heard in your life. Would you bank and walk away or try the next question and maybe lose it all.
Its not possible to get a fair shake by the RTB now. And that gets worse every year.

 

[misemoi]

This is really one of those head/heart things. Try to pivot your thinking...you want to give your child a step up in life, like we all do in myriad ways...cash gifts, teaching them how to manage their money, funding enriching activities, paying for education etc etc etc. Your support came in the form of an inheritance of property (amongst others I am sure) but your support to your child does not have to be take the same form.

Yes, it turned out to be a great return versus what was initially paid for it, but then what would have happened in the meantime if your family had invested in another asset class? The resulting cash inheritance from that might have led you to buy a home in a different place that appreciated even more than this one did? Would you have taken the opportunity to travel and where might that have led you? Could you have invested early in a great start up and made your millions when it sold?

So try to remove the emotion from this, and focus on the outcome. Property is no longer the slam dunk it once was in terms of investments (though it does offer a buffer of somewhere to live and avoid high rents in this time of shortage and that has a value) so do a proper assessment and basically listen to all the wise folk above and their sage advice.