Renting a room

tina1040

If I buy a 2 bed apartment for my child to live in for the 4 years of college and the other room is rented to another student, how does that work for rental income or rent a room income?

JustJoe7240

tina1040 wrote: »

If I buy a 2 bed apartment for my child to live in for the 4 years of college and the other room is rented to another student, how does that work for rental income or rent a room income?

A gross income of 14k per year is exempt from tax.

tina1040

JustJoe7240 wrote: »

A gross income of 14k per year is exempt from tax.

So is my child living in the apartment enough to qualify for rent a room? The property will be in my name.

893bet

JustJoe7240 wrote: »

A gross income of 14k per year is exempt from tax.

No. The OP wont be living there.



If the property is put in the child's name then it would apply as the child would be the owner but obviously that would raise other tax issues.

Heres Johnny

Your rental income is taxable. So rent from other student is taxable as I'm sure your child is rent free.

The free rent you give them may actually come under gift tax. You are allowed gift a child 3k a year tax free and anything after that is taxable by the recipient.

That's the theory. Now the reality will be that your child won't pay gift tax.

Just pay the tax income on the other student.

It doesn't come under the 14k rent a room relief as it's not your principal residence

amcalester

Could you rent to your child for €1 a year and let your child sublet?

Your child would have to keep the rent for themselves.

Heres Johnny

amcalester wrote: »

Could you rent to your child for €1 a year and let your child sublet?

Your child would have to keep the rent for themselves.

Revenue wouldn't allow that. Don't know what law prevents it but it's definitely not allowed

amcalester

Heres Johnny wrote: »

Revenue wouldn't allow that. Don't know what law prevents it but it's definitely not allowed

Not sure either, can’t see any reason to not allow it but I’m sure they’d figure out one.

Could have serious implications on the re-sale value as well if the rent was set at €1.

Sleeper12

tina1040 wrote:

So is my child living in the apartment enough to qualify for rent a room? The property will be in my name.

Your daughter can rent out the room & earn up to 14k tax free per year.

On a separate note your daughter can gift up to 3k to you and another 3k to your wife totally tax free

Wildly Boaring

Sleeper12 wrote: »

Your daughter can rent out the room & earn up to 14k tax free per year.

On a separate note your daughter can gift up to 3k to you and another 3k to your wife totally tax free

Would the daughter not need to own the apartment?

Sleeper12

Wildly Boaring wrote:

Would the daughter not need to own the apartment?

Strangely enough no. The only requirement is that it is her main residence. Even if she rented an apartment from a stranger she still can benefit from the rent a room scheme.

Heres Johnny

Think this might be a runner actually. Rent whole property to your daughter for a modest enough amount and let her sublet. The mortgage interest relief could offset most of tax bill.
Interesting.

jimmycrackcorm

Sleeper12 wrote:

On a separate note your daughter can gift up to 3k to you and another 3k to your wife totally tax free

Very clever way of doing it.

Sleeper12

jimmycrackcorm wrote:

Very clever way of doing it.

I'm not suggesting anything. I'm just pointing out that the daughter can gift them tax free.

I suppose there is nothing wrong with suggesting it anyway. It's tax avoidance (perfectly legal) rather than tax evading (definitely not legal)

august12

Heres Johnny wrote:

Think this might be a runner actually. Rent whole property to your daughter for a modest enough amount and let her sublet. The mortgage interest relief could offset most of tax bill. Interesting.

This is interesting, I am in the process of buying a house, son will live in it with girlfriend, I am trying to get my head around the most effective way of doing this to limit tax, the house will be purchased as a buy to let with a mortgage, I will either have to rent to them and register on the RTB or is the above an option?

TheBoyConor

You need to be careful not to get the apartment stuck RPZ at too low of a rate which could affect its value.

To avoid this, just rent the apartment to your daughter at the market rate, draw up a contract, register everything with the RTB etc etc. Then she "goes into arrears" which you don't pursue her for.
You don't pay tax because you never received any rent money from her but she is still notionally liable for the rent in theory.

If you have cash in hand you could even issue her a receipt for a deposit and lodge your cash back into your account.

She can then sublet to the other student up to the 14k tax free limit.

Would this be watertight?
It would be clear as day to a revenue inspector what is going on but I think everything is still legally above board as you've done everything by the book. It's just your tenant daughter will be "no good to pay rent as per her contract
with her party lifestyle".

Heres Johnny

Kind of depends on how much or little rent is allowed to be charged before it's deemed not allowed by revenue.
I'm not sure of the answer.
But if there's avoidance one way they usually get another way

davindub

OP you would be better to get a chartered tax advisor on this one.

Be careful of tax advice on the internet, I come across many people who have interpreted tax rules for themselves and end up paying penalty interest and charges up to 10 years later.

In a nutshell, the RTA doesn't apply as long as your daughter remains in residence there. So there is no need to register the other occupant.

There is no CAT to be paid by your daughter (<25 years old) as it comes under educational expenses. However if you were to allow your child to rent out the other room, they would be paying CAT at least on the loan of the market value of the rent the other room could attain and she can claim the 14k tax free, however any transfer back to you and attempt to claim CAT exemptions would be seen as tax evasion rather than avoidance, it is income and subject to income tax. It would be open to a revenue interpretation whether the whole apartment market value rent would be now subject to CAT as it is no longer for educational purposes.

https://www.revenue.ie/en/gains-gifts-and-inheritance/valuation-date-and-the-value-of-certain-benefits/free-use-of-property-and-interest-free-loans.aspx

You might be cheaper and safer just to declare the income and half of the expenses associated with the property (50% of the 85% mortgage relief, 50% of management fees, etc).

august12

august12 wrote: »

This is interesting, I am in the process of buying a house, son will live in it with girlfriend, I am trying to get my head around the most effective way of doing this to limit tax, the house will be purchased as a buy to let with a mortgage, I will either have to rent to them and register on the RTB or is the above an option?

If your son is living there there is no obligation to register with the RTB etc as they can be classified as a licensee and the RTA does not apply.

TheBoyConor wrote: »

You need to be careful not to get the apartment stuck RPZ at too low of a rate which could affect its value.

There is no danger of this happening as the op's daughter will not be renting the house simply living in there parents house and the other person renting the room will be a licensee. The house is not rented and therefore no rent will be set and no need for all the messing around with renting at full market rate, arrears or RTB etc.

4ensic15

august12 wrote: »

This is interesting, I am in the process of buying a house, son will live in it with girlfriend, I am trying to get my head around the most effective way of doing this to limit tax, the house will be purchased as a buy to let with a mortgage, I will either have to rent to them and register on the RTB or is the above an option?

There is no need to register with the RTB as long as there is no written lease. Be careful of gift tax however.

TheBoyConor

Another option is just to say nothing and let your daughter live there and rent the other room to a student with them of the understanding that the house is your daughter's and they are a licencee. Rent paid in cash.

4ensic15

TheBoyConor wrote: »

Another option is just to say nothing and let your daughter live there and rent the other room to a student with them of the understanding that the house is your daughter's and they are a licencee. Rent paid in cash.

You mean fiddle the tax?

Sleeper12

TheBoyConor wrote:

Another option is just to say nothing and let your daughter live there and rent the other room to a student with them of the understanding that the house is your daughter's and they are a licencee. Rent paid in cash.

Why would you break the law when the daughter can rent out the room tax free under the rent a room scheme? Everything legal and above board

Fian

Sleeper12 wrote: »

I'm not suggesting anything. I'm just pointing out that the daughter can gift them tax free.

I suppose there is nothing wrong with suggesting it anyway. It's tax avoidance (perfectly legal) rather than tax evading (definitely not legal)

No it would vbe evasion and illegal - because you are talking about misrepresenting the income being given to the parents as income coming to the child.