Caretaker Agreement- Tax implication

Calltocall

Take this scenario

Aunt lived in her only home until she had to move to a nursing home due to illness, her home was left empty, house was old, almost dilapidated, Aunt asked her nephew and his partner to move into home rent free to avoid the house been broken into etc and also giving them opportunity to live in a house with a garden rather than a flat they had been renting.

Nephew spent approx 12,000 of his own money before he moved in to do repair works and he fixed up some rooms basically house is now a two bed house, the house is quite large and bigger than two beds but he just focused the works on rooms they would live in.

Nephew pays all the bills, property tax, insurance etc but someone mentioned he should have a caretaker agreement drawn up with his aunt to state in lieu of works done, paying bills etc she won’t charge him rent. She doesn’t want to charge him but he may be hit with a large tax bill if there for long time for free use of property, all he has at present is a verbal agreement that he can live there.

Finally I should state his gift tax threshold from aunt has been exhausted and she plans to leave house to nephew in her will.

Is a caretakers agreement the way to go in this scenario to best manage possible tax implications?

Calltocall

Calltocall wrote: »

Take this scenario

Aunt lived in her only home until she had to move to a nursing home due to illness, her home was left empty, house was old, almost dilapidated, Aunt asked her nephew and his partner to move into home rent free to avoid the house been broken into etc and also giving them opportunity to live in a house with a garden rather than a flat they had been renting.

Nephew spent approx 12,000 of his own money before he moved in to do repair works and he fixed up some rooms basically house is now a two bed house, the house is quite large and bigger than two beds but he just focused the works on rooms they would live in.

Nephew pays all the bills, property tax, insurance etc but someone mentioned he should have a caretaker agreement drawn up with his aunt to state in lieu of works done, paying bills etc she won’t charge him rent. She doesn’t want to charge him but he may be hit with a large tax bill if there for long time for free use of property, all he has at present is a verbal agreement that he can live there.

Finally I should state his gift tax threshold from aunt has been exhausted and she plans to leave house to nephew in her will.

Is a caretakers agreement the way to go in this scenario to best manage possible tax implications?

Any thoughts on above scenario folks?

Calltocall

So I’ve got a bit of differing advice on above, one saying caretakers agreement is the way to go, the other saying a rental agreement for a set fee each month at a reduced rate is the way to go, any insight folks as to what be acceptable? Thanks

denisbg

i would appreciate it if someone would say if there are tax implications if a caretakers agreement is in place by the nephew in above situation. Thanks

downtheroad

The nephew is being gifted the market value rent. This is a taxable event in the eyes of Revenue.

The small gift exemption of €3,000 a year will cover the first 3k of the rent. The rest comes off the Category B gift/inheritance thresholds.

Anything after that is taxable.

mardosoo

In the given scenario, it's wise for the nephew to consider a caretaker agreement with his aunt as a way to manage potential tax implications and provide clarity regarding their living arrangement. While his aunt may not want to charge him rent, having a formal agreement in place can help protect both parties and ensure that the nephew's contribution to repairs and bills is recognized.