Interesting by-product of RPZ

3DataModem

I know a guy who has been 'renting' a house to his son; it's lived in by his son and his friend who are in college for the past three years.

For first two years the son paid a nominal rent of about 1/4 market rate, and consequently the owner was liable to gift tax.

However the flat is now in a RPZ, and the owner has just recently successfully argued to the revenue that he is no longer liable for gift tax, as he has no capability to rent to his son or anyone else at a substantially higher rent. The apartment effectively has its own 'market rate' that is not linked to the wider market, and gift tax is therefore not applicable.

There are other complications regarding the tax situation, but I thought it was an interesting case for this forum especially considering the discussions about the pros/cons of RPZ.

Fian

Will be somewhat less interesting when he finds himself bound to that rate after his son no longer needs the property. And that any subsequent purchaser is also bound to it when he looks to sell it on.

Having said that something about this does not ring true - there is a high CAT threshold which children can receive tax free from parents (€310k) and it would not be possible for a university age child to use up this threshold on rent. further it is not the owner who would be liable for CAT - it is the son.

3DataModem

Fian wrote: »

Having said that something about this does not ring true.

Agree.. I think I got only a small amount of the picture. I believe their are already 'gifts' in play for this son in recent years due to some pre-inheritance asset disposal (parents divorced and remarried). I was surprised the parents were charging any rent, but apparently the reason was to have some income to charge the expenses against.

Fian wrote: »

And that any subsequent purchaser is also bound to it when he looks to sell it on."

That's interesting. I guess it would incentivise a large rentless gap before a sale so that it's market rate could 'reset' to the external market rate.

Fian

3DataModem wrote: »

Agree.. I think I got only a small amount of the picture. I believe their are already 'gifts' in play for this son in recent years due to some pre-inheritance asset disposal (parents divorced and remarried). I was surprised the parents were charging any rent, but apparently the reason was to have some income to charge the expenses against.



That's interesting. I guess it would incentivise a large rentless gap before a sale so that it's market rate could 'reset' to the external market rate.

except teh law does not reset the permissible rent because there is a gap. Once it is captured by teh RPZ rules it is permanently capped at 4% per annum increases.

Instances like these will probably be the type of cases that lead to challenges to teh law - instances where the rent prior to the RPZ was artificially low because it was being provided to some kind of dependant/relation and then the rent is capped permanently based on this rate.

3DataModem

Fian wrote: »

except teh law does not reset the permissible rent because there is a gap. Once it is captured by teh RPZ rules it is permanently capped at 4% per annum increases..

I don't think this is correct.

"Exempt properties include those that are new to the rental market and have not been let at any time in the previous two years."

So if a place hasn't been rented in the last two years, RPZ does not apply.

loyatemu

you can gift a child 3k per year tax free, beyond that there's a lifetime inheritance threshold of (currently) €310K so I doubt anyone is paying tax, and if they were it would be the son that was liable, not the owner.

But I can't imagine the revenue would be that interested in someone providing cheap/free accommodation for their student children, as students have little/no income so it would generally be the parents paying the rent anyway. I'm sure there are plenty of people on good salaries who are living rent-free in family-owned properties - I don't know to what extent the Revenue follow up on it.

Samuel T. Cogley

3DataModem wrote: »

I don't think this is correct.

"Exempt properties include those that are new to the rental market and have not been let at any time in the previous two years."

So if a place hasn't been rented in the last two years, RPZ does not apply.

They're subject to RPZ rules but you can go straight to market rent.

Browney7

3DataModem wrote: »

I don't think this is correct.

"Exempt properties include those that are new to the rental market and have not been let at any time in the previous two years."

So if a place hasn't been rented in the last two years, RPZ does not apply.

The actual legislation states
"Where a dwelling has not at any time been the subject of a tenancy during the period of 2 years prior to the date the area is prescribed under section 24A as a rent pressure zone".

The RTB guidance is as you've posted but it doesn't mean the same thing and is open to interpretation. If the property had been subject to a tenancy for a month of the RPZ and left vacant for 5 years (RPZ is temporary but will be tinkered with and extended), it's debatable as to whether it's subject to the cap or not for example.

Fian

Browney7 wrote: »

The actual legislation states
"Where a dwelling has not at any time been the subject of a tenancy during the period of 2 years prior to the date the area is prescribed under section 24A as a rent pressure zone".

The RTB guidance is as you've posted but it doesn't mean the same thing and is open to interpretation. If the property had been subject to a tenancy for a month of the RPZ and left vacant for 5 years (RPZ is temporary but will be tinkered with and extended), it's debatable as to whether it's subject to the cap or not for example.

Yes. the RPZ guideance is incorrect (or at least poorly worded), the legislation is clear.

This also means that new properties on the market or any properties that were not rented during that period of 2 years are not captured by the RPZ legislation even after the first rent is set - they are free to increase rent by more than 4% per annum up to market rent from year to year.

Edit:

The relevant provision is inserted into section 19 of the 2014 Act by section 34 of teh 2016 Act:

http://www.irishstatutebook.ie/eli/2016/act/17/section/34/enacted/en/html#sec34

(5) Subsection (4) does not apply—

(a) where a dwelling has not at any time been the subject of a tenancy during the period of 2 years prior to the date the area is prescribed under section 24A as a rent pressure zone or deemed to be so prescribed;

(b) if, in the period since the rent was last set under a tenancy for the dwelling—

(i) a substantial change in the nature of the accommodation provided under the tenancy occurs, and

(ii) the rent under the tenancy, were it to be set immediately after that change, would, by virtue of that change, be different to what was the market rent for the tenancy at the time the rent was last set under a tenancy for the dwelling.

Fian

Fian wrote: »

Yes. the RPZ guideance is incorrect (or at least poorly worded), the legislation is clear.

This also means that new properties on the market or any properties that were not rented during that period of 2 years are not captured by the RPZ legislation even after the first rent is set - they are free to increase rent by more than 4% per annum up to market rent from year to year.

Interestingly the issue i had pointed out above has arisen today - 25% rent increase imposed within an RPZ in respect of properties which were not reanted in the 2 years prior to Dublin being deemed an RPZ:

https://www.rte.ie/news/dublin/2018/1005/1001233-rent/

A group of tenants have gathered outside the offices of landlord I-RES to protest a hike in their rent by up to 25%.

The tenants of the Maple Apartments, in Beacon South Quarter, Sandyford were informed by letter that the rent is increasing from 1 January.

Among those gathered were students, families, and couples living together trying to save for a mortgage.

The letter, seen by RTÉ News, states that I-RES is exempt from rent pressure zone legislation, which limits rent increases to 4%.

The landlord says this is the case because the dwelling had not been the subject of a tenancy in the two years prior to the area being designated as a rent pressure zone.

TD Richard Boyd Barrett met with the tenants this afternoon.

He said the opposition has been pointing out that "the legislation is full of loopholes."

"The last two years have shown that big corporate landlords are exploiting those loopholes to get around rent caps," Mr Boyd Barrett said.

Browney7

Fian wrote: »

Interestingly the issue i had pointed out above has arisen today - 25% rent increase imposed within an RPZ in respect of properties which were not reanted in the 2 years prior to Dublin being deemed an RPZ:

https://www.rte.ie/news/dublin/2018/1005/1001233-rent/

Good spot! Will watch this space for developments! 25% increase on what's already a massive rent.

4ensic15

3DataModem wrote: »

I don't think this is correct.

"Exempt properties include those that are new to the rental market and have not been let at any time in the previous two years."

So if a place hasn't been rented in the last two years, RPZ does not apply.

That was 2 years prior to the start of the RPZ. Once A rent cap has set in, it can't be broken. This story sounds BS. The rent cap doesn't apply to houses where a child of the owner resides. Gift tax is paid by the recipient, not the donor.

DubCount

3DataModem wrote: »

I know a guy who has been 'renting' a house to his son; it's lived in by his son and his friend who are in college for the past three years.

For first two years the son paid a nominal rent of about 1/4 market rate, and consequently the owner was liable to gift tax.

However the flat is now in a RPZ, and the owner has just recently successfully argued to the revenue that he is no longer liable for gift tax, as he has no capability to rent to his son or anyone else at a substantially higher rent. The apartment effectively has its own 'market rate' that is not linked to the wider market, and gift tax is therefore not applicable.

There are other complications regarding the tax situation, but I thought it was an interesting case for this forum especially considering the discussions about the pros/cons of RPZ.

It looks like the child may be under 25 and in full time education. If that's the case, allowing him to stay in a house rent free would probably be already covered by the Section 82 exemption, regardless of whether the accommodation in in a RPZ or not.

Firstly it’s the son who would be liable to CAT not the owner.

Also if he had any cop on he would be confirming that there is no tenancy in place and that no rent has been set. A child living in a parents property is considered a licensee and no tenancy is created.

4ensic15

Heavenly Agreeable Planetarium wrote: »

Firstly it’s the son who would be liable to CAT not the owner.

Also if he had any cop on he would be confirming that there is no tenancy in place and that no rent has been set. A child living in a parents property is considered a licensee and no tenancy is created.

The child is not necessarily considered a licensee. The RTA does not apply to a dwelling where a child of the landlord resides and where no written agreement has been entered into by anyone who resides in the dwelling.
As a result the RPZ rules do not apply if the act as a whole does not apply.

Ray Palmer

This is all very strange. Immediate family members living in property aren't considered tenants normally so none of the rules apply. They don't even inspect the properties in those cases. It could have changed at some point but the scenario doesn't actually sound true to me.
A child doesn't pay gift tax if they remaining living in the parent home and I don't think there is any difference when it is property they own and not their main dwelling.

DubCount

Ray Palmer wrote: »

A child doesn't pay gift tax if they remaining living in the parent home and I don't think there is any difference when it is property they own and not their main dwelling.

This is not true in all cases. Where a child in under 25 and in full time education, then a parent can provide accommodation to attend college without a gift tax implication. There is a similar exemption for providing accommodation to a permanently incapacitated child. However, there is no general exemption to gift tax in all circumstances where a parent provides free accommodation (outside the family home) to an adult child.