Ask an expert: “Our son lives rent-free in our second house. What are the tax implications?’

Sinead Ryan answers your questions about real estate financing.

Question: My wife and I have a second home, a nest egg. Our last tenant moved out in April and we let our son move into the house rent-free. He pays the utility bills. Is this acceptable to the tax office or will there be problems?

You mentioned renting peppercorns in a recent article and we wonder if charging our son a small fee as rent would cover our situation? And if so, would we have to draw up a contract?

Answers: That sounds like a good solution to a common problem, and of course your son’s placement is not an end in itself.

Marian Ryan, Consumer Tax Manager at advises: “In the case of a free/reduced rental of a home to a child, the difference between the calculated rent (if any) and the market rent will be considered a taxable capital donation, unless Your son is either under 18 or under 25 and is in college.

“The first €3,000 of the total value of all gifts received by an individual in a calendar year are tax free. Because your property is jointly owned by you and your wife, your son can benefit from €6,000 in tax-free gifts. So if the annual market rent is €6,000 or less, your son doesn’t have to pay taxes.

“If the amount of the fictitious gift exceeds the annual allowance of 6,000 euros, the relationship between the donor and the donor is decisive for determining the capital acquisition tax liability. gifts/inheritances from parents to children) is currently €335,000.

“This threshold is a lifetime threshold and any gift or inheritance received within the same group must be aggregated. If the amount of the gift or inheritance exceeds 80 percent of the group threshold, your son must make a CAT Return labeled IT38. The tax implications for you could be more complicated.

“If no rent is charged, there are no further tax obligations. However, if a reduced rent is charged, you will be subject to tax at your marginal rate (up to 52 percent) on your rental income (gross rental income less allowable expenses). Rental gains must be reported on your annual tax return(s), which can be either Form 12 or Form 11. Individuals whose total net non-PAYE income is less than €5,000 (but not zero) may file a Form 12 tax return.

“However, if your non-PAYE income exceeds €5,000, you must register for self-assessment and file a self-assessed Form 11 tax return each year. In the case of jointly assessed couples, the EUR 5,000 limit is offset against the joint non-pay-as-you-go income of both spouses.

“Furthermore, if you cannot make a profit from the rent you receive, it is considered uneconomical renting. You cannot offset losses from uneconomic rental with other rental income.”

It sounds to me like you just wanted to live in the property and do your son a favor. That’s perfectly fine, but let the details be open and independently verified, especially when it comes to assessing rent loss.

Question: I live and work outside of Ireland. I have a property in Ireland that is let to some tenants. The rent is very low, especially by today’s standards. My tenants and I signed a contract stating that if either party wanted to cancel the contract, one month’s notice would suffice. Do my tenants have a legal right to a longer notice period if I terminate the contract?

Do I also have to pay tax on my rental income or does this only happen above a certain amount? I am not earning a salary in Ireland because I work abroad.

Answers: Regarding the tax, since a recent question from a tenant with an absent landlord, I’ve had a few inquiries about it. To recap, Gerry Scully of Tax Return Plus says yes you will have to pay income tax and Universal Social Charge on the profit from your Irish rental property.

However, as a non-resident you are exempt from PRSI. Tax is charged using the uniform tax range of 20 pcs up to €36,800 and 40 pcs above. USC is zero up to €13,000 and 0.5-4.5 percent above that. You can claim part of the €1,700 personal tax credit (based on your Irish income as a percentage of your worldwide income) and you would likely benefit from guidance from an accountant or tax adviser familiar with the tax laws of your place of residence .

If you do not appoint an Irish Collections Agent your renter will be required to deduct 20% withholding tax at source.

Well, in terms of the lease with your tenant, this could be a problem. The Residential Tenancies Board says that on a fixed-term lease, notice of termination can be served for three reasons: (a) a breach clause in the contract, (b) both parties agree to terminate the tenancy, or (c) if the tenant has done so has breached its obligations and has been given a reasonable period of time to remedy the breach.

If your renter disputes this they can do so with the RTB so it might be worth contacting them to verify your position. Ask an expert: “Our son lives rent-free in our second house. What are the tax implications?’

Fry Electronics Team

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