Advice on managing property on behalf of the owner

Sprog 4

Hello,

I was just wondering if anyone had any insight or advice that I could use in my situation.

My father owns a property that historically has been rented out to tenants. There are no tenants there currently. I am due to start college in September and we had the idea that I would take over the general management of the property and use the rent income to finance my college expenses. I would also live there for the duration. So I was wondering what is the best way to go about this in a legal sense. As my dad is getting on a bit, ideally we would like it so that I take on all the responsibility from a maintenance and tax perspective so my dad doesn't have to worry about it too much.

I feel that the best solution, if it is possible, would be to make me the landlord somehow. Is this even possible without legally taking ownership of the house?

If not, then an idea I had would be that I would rent the whole property which has 3 bedrooms, live in one room and sub-let the other two after which my dad would reimburse me what I had paid to him. The amount I would initially pay to him for the rent would be kept low so as to reduce his tax liability. Seeing as though the majority of the rent would then be going into my account, I would pay the majority of the tax. This is less than ideal as my tenants would only be subletting and as I understand they have fewer rights than proper tenants.

Also, my dad is registered with the PRTB. If I was taking over the landlord duties does this mean that I would have to register too? As I understand it if I am living there then I don't need to.

Also, what would be the procedure for tax? Would I simply have to do a self assessment each year?

I hope I have explained my intentions clearly and someone can offer some advice. Also as I have absolutely no experience in this area I apologise if some of these issues seem naive and/or trivial but any help on how to do this is appreciated.

Thanks.

Pawwed Rig

If you live there and get <€10,000 per annum there should be no tax consequences.
See this link
http://www.revenue.ie/en/tax/it/leaflets/it70.html#section11

You do not have to take legal ownership of the house for this.
If you live there you would not need to register with the PRTB.
You would need to declare that you are availing of the scheme on a tax return every year. This is just for statistical purposes and would not involve a tax liability if you meet the criteria.

There would be capital acquisitions tax implications here aswell.

djimi

Sprog 4 wrote: »

This is less than ideal as my tenants would only be subletting and as I understand they have fewer rights than proper tenants.

Anybody living with you would be a licensee either way as they would be either living with the landlord or an immediate family member of the landlord, and as such would have virtually no rights whatsoever.

wmpdd3

If you live there rent free will revenue come after your father for the rent you should be paying or is it up to your father what he does with the house?

seamus

Living in accommodation rent-free doesn't count as income unless the accommodation is provided by your employers, afaik.

Certainly where the relationship between the owner and the resident is family, there is no consequence. I couldn't say for certain if you allowed someone not related to you to live somewhere rent-free. There would still be no consequence for the father (you are only liable for tax on actual income not potential income ), but the "tenant" may possibly be liable for gift tax.

In fact, it's a bit easier for the father because if he did pay rent (even €10 a month), then his father would legally be obliged to register with the PRTB and all that crap. If he doesn't pay rent, there's no rental for legal purposes and therefore no need for the PRTB.

Ray Palmer

What you are attempting is tax fraud. Your father is letting you have the place for free in order to avoid tax on rental income. The revenue will not be so blind to know what you are doing. You don't own the property and your dad's tax payment will be down.

The parent will be seeing as gifting the child monthly and therefore deducted form your inheritance. I pretty sure it is all covered under the inheritance and gift section of the tax law. The same way your parent can't sell you the property for €1 to avoid gift and inheritance. I went to a solicitor about the same and I was assured there was no legal way around it.

Pawwed Rig

Ray Palmer wrote: »

What you are attempting is tax fraud. Your father is letting you have the place for free in order to avoid tax on rental income. The revenue will not be so blind to know what you are doing. You don't own the property and your dad's tax payment will be down.
.

It is not tax fraud. He is asking about the best legal way of doing this. How is that fraud?
Fraud would be if he knowingly evaded tax which has not happened.

Ray Palmer

Pawwed Rig wrote: »

It is not tax fraud. He is asking about the best legal way of doing this. How is that fraud?
Fraud would be if he knowingly evaded tax which has not happened.

It isn't tax fraud until he does it I guess:rolleyes:

It is certainly an attempt to not pay taxes on rental income which is tax evasion a form of fraud. As I said it is covered in tax legislation as others tried to avoid/evade tax in this manner.

Pawwed Rig

It isn't even a potential fraud. I can think of a couple of ways he could do this and pay zero tax quite legally with no avoidance/evasion.
An attempt not to pay taxes is a rational course of action. We should all be doing it (so long as we can remain legal). This is what tax planning is for. For example I often sold shares close to a year end so I could avail of the €1,270 CGT exemption thereby not paying higher taxes further down the line. This is not tax avoidance/evasion, it is tax planning and is perfectly legal.

djimi

Ray Palmer wrote: »

What you are attempting is tax fraud. Your father is letting you have the place for free in order to avoid tax on rental income. The revenue will not be so blind to know what you are doing. You don't own the property and your dad's tax payment will be down.

The parent will be seeing as gifting the child monthly and therefore deducted form your inheritance. I pretty sure it is all covered under the inheritance and gift section of the tax law. The same way your parent can't sell you the property for €1 to avoid gift and inheritance. I went to a solicitor about the same and I was assured there was no legal way around it.

Have you got any links for this? Im not doubting you; just curious to read about it. It seems very strange to me that somebody can own a house and that revenue can dictate the terms in which they can allow someone to live in it.

Ray Palmer

Pawwed Rig wrote: »

It isn't even a potential fraud. I can think of a couple of ways he could do this and pay zero tax quite legally with no avoidance/evasion.
An attempt not to pay taxes is a rational course of action. We should all be doing it (so long as we can remain legal). This is what tax planning is for. For example I often sold shares close to a year end so I could avail of the €1,270 CGT exemption thereby not paying higher taxes further down the line. This is not tax avoidance/evasion, it is tax planning and is perfectly legal.

That is not the same. The parent is gifting him the use of an asset. Once over 3k in a year it is taxable. As he doesn't own the property he can't do the rent a room scheme and avoid tax there.

Seeing as you can "think" of a couple of ways to do it legally why not post them. The OP certainly doesn't apply.

djimi wrote: »

Have you got any links for this? Im not doubting you; just curious to read about it. It seems very strange to me that somebody can own a house and that revenue can dictate the terms in which they can allow someone to live in it.

http://www.revenue.ie/en/about/foi/s16/templates/capital-acquisitions-tax/

Part 1 explains gifts. It is all quite complex but gifts from parents are certainly not exempt. Other tax breaks for property owners won't apply. It isn't dictating how some body lives in a place it is about income having tax paid on it. One way or the other you are meant to pay tax on income.

djimi

Its not a gift though if the property remains in the parents name, and if there is no money changing hands then there is no income so surely no tax to be paid?

Pawwed Rig

Ray Palmer wrote: »

That is not the same. The parent is gifting him the use of an asset. Once over 3k in a year it is taxable. As he doesn't own the property he can't do the rent a room scheme and avoid tax there.

Well ok. If both parents are still alive and is co owner of the house then recipient can avail of 2 small gift exemptions of €3,000 each. €6,000 would go along way towards market rent in many parts of the country. Zero tax for parents - Perfectly legal.
Recipient rents out rooms under rent a room scheme* - zero tax, perfectly legal.

2. Gift house. If value is < than €225,000 then no tax for recipient perfectly legal. No tax for parent if purchase price is > €225,000 perfectly legal.

Tax is a very personal thing and the OP has not posted enough information to fully advise him here. The above may work in the OPs case or they may not. (I would definitely not advise number 2 for example.) For the OP to get proper advice we would need alot of personal info that it would not be appropriate to post here such as age of father/mother. Relative health, locations of properties, age of OP, size of family, valuations of house and family home etc etc etc.
My best advice to the OP would be to go and see a tax advisor with his parent(s). It is against the charter of the tax forum to give advice on capital items (like houses) so it would not be a good idea to start giving specific advice here either.

*He doesn't need to own the property to avail of rent a room relief

djimi wrote: »

Its not a gift though if the property remains in the parents name, and if there is no money changing hands then there is no income so surely no tax to be paid?

It is a gift of the market value of the rent the house would achieve under an arms length transaction

Sprog 4

Thank you everyone for the replies and information. I have a much better understanding of the situation now and can make an informed plan.

OK so here is a statement from Part 7.1.32 (PDF 54 KB) of the Income Tax, Capital Gains Tax and Corporation Tax Manual (basically what Pawwed said)

The room or rooms must be in a residential premises that is situated in the State and that is occupied by an individual as his/her sole or main residence during the particular tax year. An individual may live in more than one residence but can only avail of rent-a-room relief in respect of his/her sole or main residence. In general, an individual’s sole or main residence is that individual’s home for the greater part of the time and where friends and correspondents would expect to find him/her. The individual does not have to own the residence and it could, for example, be occupied as rented accommodation.

So the property will be my main residence and I don't have to own it to avail of the rent-a-room scheme. Income will be <10k per annum so I am not liable to pay any tax. This seems clear to me. So I am being gifted an amount equivalent to all income gained by renting the other two rooms plus what I would have paid my dad had I been paying rent. Lets say this in total comes to about 10.8k (assuming all rooms are rented for 12 months at 300p/m). I am exempt from 6k of this (I'll have to check if my parents are co-owners) so I pay CAT on the remaining 4.8k at 33%? Would this even be cheaper than my dad paying tax on rent from the other two rooms directly?

Pawwed Rig

Not exactly as you will have a lifetime exemption of €225,000 that should be used up first before you start paying CAT. Bear in mind though, as Ray Palmer said earlier, this is cutting into your inheritance.

Having said that though, there was something niggling in my head all day today about this situation so I did a bit of reading tonight when I got home from work. I was thinking it seemed a little unfair to be taxed on maintenance payments for a college student and had a vague memory of coming across something similar before.
So I found this, There is an exemption available in the legislation section 82(2) CATCA 2003

'Notwithstanding anything contained in this Act, the receipt in the lifetime of the disponer of money or money’s worth—

(a) by—

(i) the [ spouse, civil partner, child or child of the civil partner ] of the disponer, or

(ii) a person in relation to whom the disponer stands in loco parentis,

for support, maintenance or education, or

(b) by a person who is in relation to the disponer a dependent relative under section 466 of the Taxes Consolidation Act 1997, for support or maintenance,

is not a gift or an inheritance, where the provision of such support, maintenance or education, or such support or maintenance—

(i) is such as would be part of the normal expenditure of a person in the circumstances of the disponer, and

(ii) is reasonable having regard to the financial circumstances of the disponer.'

(disponer is the person providing the benefit)

Ray Palmer

Pawwed Rig wrote: »

Well ok. If both parents are still alive and is co owner of the house then recipient can avail of 2 small gift exemptions of €3,000 each. €6,000 would go along way towards market rent in many parts of the country. Zero tax for parents - Perfectly legal.
Recipient rents out rooms under rent a room scheme* - zero tax, perfectly legal.

2. Gift house. If value is < than €225,000 then no tax for recipient perfectly legal. No tax for parent if purchase price is > €225,000 perfectly legal.

1) If the property is in both parents names.
2) Massive difference to parents to helping their child in college to giving them a property which most likely is part of a pension plan. Totally different scenario
3) The support of a child in education is a within reason calculation. When they check tax records and see it is offsetting rental tax they may not see it as within reason.

OP

Go to an accountant and check it out properly. When I investigated this area the accountants were telling me it couldn't be done. I am not surprised lay people saying otherwise. There can be a lot of ambiguity in tax law and an inspector can choose how to apply things. There are quite often rules that override lower regulations.

I wouldn't rely on the rent a room scheme remaining unchanged the time you are in college. I would certainly check the property doesn't have to belong to you with an accountant. The leaflets do say "home" but that seems a little odd given the spirit the bill was brought in on. If the government want house/rent prices up they could easily stop or restrict it.

Marcusm

Ray Palmer wrote: »

1) If the property is in both parents names.
2) Massive difference to parents to helping their child in college to giving them a property which most likely is part of a pension plan. Totally different scenario
3) The support of a child in education is a within reason calculation. When they check tax records and see it is offsetting rental tax they may not see it as within reason.

OP

Go to an accountant and check it out properly. When I investigated this area the accountants were telling me it couldn't be done. I am not surprised lay people saying otherwise. There can be a lot of ambiguity in tax law and an inspector can choose how to apply things. There are quite often rules that override lower regulations.

I wouldn't rely on the rent a room scheme remaining unchanged the time you are in college. I would certainly check the property doesn't have to belong to you with an accountant. The leaflets do say "home" but that seems a little odd given the spirit the bill was brought in on. If the government want house/rent prices up they could easily stop or restrict it.

Ray

Unless you went to a specialised tax consultant, I'm unsurprised that you got this advice. Many solicitors/accountants purport to provide tax advice but in reality many of them are neither qualified nor capable of providing anything other than a tax returns service.

Nothing would preclude the parent from leasing the house to the child for (say) a 3 year period for a nominal or nil rent. The child (OP) could then choose to sublet if he wishes. The assessment of rental income in Ireland (Sch D Case V) does not have transfer pricing provisions to impute a market rent. Provided no leases exist at that time, a range of anti avoidance rules on transferring income etc should not apply. The leasing at undervalue would be a gift but likely within the lifetime allowance but in reality, highly unlikely to be taken into account.

The OP would be assessable in respect of any rents arising under any sublease/licence subject to rent a room reliefs etc. general anti avoidance provisions are unlikely to apply as although less tax would be paid, the owner is taking the economic consequence (ie he has no entitlement to any rent) and is genuinely neutral as to the sub letting.

It is probably not avoidance but good tax planning. There is certainly no fraud element.

Ray Palmer

Marcusm wrote: »

Ray

Unless you went to a specialised tax consultant, I'm unsurprised that you got this advice.

.

It was a specialised tax consultant. So what is your expertise?

Provide rent free accommodation to your child would not normally be an issue but for the child to then rent out the property is the issue.

Marcusm

Ray Palmer wrote: »

It was a specialised tax consultant. So what is your expertise?

Provide rent free accommodation to your child would not normally be an issue but for the child to then rent out the property is the issue.

Can't see anywhere that is an issue for the reasons set out.

I trained in Ireland's largest tax practice starting 1989 moving internationally and retired at 39 on the proceeds of my good advice & practice!

Ray Palmer

Marcusm wrote: »

Can't see anywhere that is an issue for the reasons set out.

I trained in Ireland's largest tax practice starting 1989 moving internationally and retired at 39 on the proceeds of my good advice & practice!

I am still going to say go to an accountant specialist and not take the advice here.

You may very well be telling the truth but I wouldn't trust you just on your word. Anybody else doing so would be crazy it is no reflection on you just the nature of public forums.

Marcusm

Ray Palmer wrote: »

I am still going to say go to an accountant specialist and not take the advice here.

You may very well be telling the truth but I wouldn't trust you just on your word. Anybody else doing so would be crazy it is no reflection on you just the nature of public forums.

I would absolutely agree with you that they should take advice. I posted only in response to the over and back between you and another poster as I think fraud is a word which should be used sparingly.