2nd home daughter renting rooms - tax liability?

Hannaho

If daughter is renting out rooms to friends from college - all students - is it the parent as owner of the house that should make the tax return, or the daughter - daughter is 19 - son is there also and he is 17 - two rooms will be rented out to other students - do they make a tax return each - he is only 17 - or is is the parents that make it - they will be using the money from each room to pay their own bills and for pocket money.

radiotrickster

Your post is pretty confusing.

From what I'm getting, the parents own the house but the children act as landlords and take all of the money for renting the house?

893bet

You don’t live there so parents cannnot avail of the tax relief! You must live in the house (but don’t have to own it I believe).

I think only one of your children can avail of the scheme and so should submit return for the other two rooms. All money should be paid to one of the children who is as such the the home owner for the purposes of the scheme.

Hannaho

Yes, sorry for post being confusing - both of our children are living in our old house and will be renting out rooms to two other students. I wasn't sure if they could make two separate tax returns and split the money.

Once the amount is under 14k and one of your children keeps the money (i.e. doesn’t give it to you officially anyway) then it’s tax free under the rent a room scheme and only one of them needs to make a return on it.

DubCount

The daughter receives a gift from the parents in the form of the rental value of the property (including the rooms she rents out and the room she uses herself). This falls into Capital Acquisition Tax (CAT). There is an annual exemption of €3,000 per parent and the remainder comes off the annual CAT limit from her parents.

The use of the house now belongs to the daughter. She is liable to income tax on the rental income. If the property now qualifies as the daughters principal private residence, then she could claim rent-a-room exemption if total rental income (including contributions to utilities) is less than €14,000 p.a..

Its the daughters responsibility to deal with both the CAT and Income Tax issues.

Hannaho

Hi! DubCount that's quite complicated. If I just take the rental income from the two rooms and pay the 52% tax on it - does my daughter (and son) as he will be living there also, eat into their yearly CAT exemption - their addresses for correspondence will still be my and my partner's home address, not the second property - if we were to charge our daughter and son for the actual rental value it would be about 500 per month each - obviously, we are not charging them that.

Marcusm

Hannaho wrote: »

Hi! DubCount that's quite complicated. If I just take the rental income from the two rooms and pay the 52% tax on it - does my daughter (and son) as he will be living there also, eat into their yearly CAT exemption - their addresses for correspondence will still be my and my partner's home address, not the second property - if we were to charge our daughter and son for the actual rental value it would be about 500 per month each - obviously, we are not charging them that.

Gifts of money or money’s worth for the “support, maintenance and education” of a child in full time education (even if over 18) do not count as a gift for capital acquisitions tax purposes and this includes the “free use of a house” - see below for an extract from Revenue’s relevant manual.

If you provide use of the house to your children and THEY choose to rent rooms in respect of which THEY are entitled to the rent and it falls below the 14k limit (which it sounds like it will), there will be no income tax or CAT liability for anyone.

Free Use of House by Child attending University
The provision of the use of a house owned by a parent rent-free, to a child not more that 25 years of age who is attending university, to help support and maintain the child while in university, is a normal and reasonable provision and is, accordingly, exempt from tax under Section 82 CATCA 2003.

Hannaho

Thanks for that Marcusm. That's very clear! I don't want to get in to a ball of tax trouble, and would prefer that my daughter rented the two rooms - which will net about 9.5k for the academic year - which will cover utility bills in the house, gas, elec, internet, tv and most of the weekly food bill for both of them. So the best route is to let my daughter rent the rooms out, with the money going into her account, and then filing in a return for tax year. She will be letting from end August this year - does the return for this go for October 2021?

I wouldn’t worry about CAT for your kids in the form of free rent. Aside from the fact it’s totally and utterly unenforceable or traceable but on top of that supporting children though college falls outside normal CAT rules, you could be paying 10k each for them to rent a place so allowing them live rent free in your house is no different imo.

Marcusm

Hannaho wrote: »

Thanks for that Marcusm. That's very clear! I don't want to get in to a ball of tax trouble, and would prefer that my daughter rented the two rooms - which will net about 9.5k for the academic year - which will cover utility bills in the house, gas, elec, internet, tv and most of the weekly food bill for both of them. So the best route is to let my daughter rent the rooms out, with the money going into her account, and then filing in a return for tax year. She will be letting from end August this year - does the return for this go for October 2021?

Section 216A(4) TCA1997 provides that a person’s requirement to make a return exists as if the relief did not exist. If your daughter also has a PAYE job then it should be returned on MyAccoubt etc online. Otherwise, I suspect she will need to register for tax and file a form 11. There is a 4 year time limit for claiming the relief.

Claw Hammer

Marcusm wrote: »

Section 216A(4) TCA1997 provides that a person’s requirement to make a return exists as if the relief did not exist. If your daughter also has a PAYE job then it should be returned on MyAccoubt etc online. Otherwise, I suspect she will need to register for tax and file a form 11. There is a 4 year time limit for claiming the relief.

If the daughter is renting out rooms in a house she does not own and is not paying rent for, the the rent is a gift from her parents. It would seem that if each child gets rental income it would support an argument that the rent is maintaining them in college.

JustAThought

Noemi Moldy Apprentice wrote: »

Once the amount is under 14k and one of your children keeps the money (i.e. doesn’t give it to you officially anyway) then it’s tax free under the rent a room scheme and only one of them needs to make a return on it.

Isn’t this for the OWNER occupier. They technically have to be both. Unless you have gifted your house to your 17yo child and daughter. Social welfare /revenue will be all over it like a rash once they spot the ages. Might obviously affect your childrens college grants Should they be in receipt of any not to mention you own situation getting scrutiny.

Claw Hammer

JustAThought wrote: »

Isn’t this for the OWNER occupier. They technically have to be both. Unless you have gifted your house to your 17yo child and daughter. Social welfare /revenue will be all over it like a rash once they spot the ages. Might obviously affect your childrens college grants Should they be in receipt of any not to mention you own situation getting scrutiny.

I would not take anything nox says seriously. He is constantly putting forward propositions that have no proper legal basis, based on his own hypotheses.

brisan

Claw Hammer wrote: »

If the daughter is renting out rooms in a house she does not own and is not paying rent for, the the rent is a gift from her parents. It would seem that if each child gets rental income it would support an argument that the rent is maintaining them in college.

I think @marcusm covered this in his post

Claw Hammer

brisan wrote: »

I think @marcusm covered this in his post

He was talking about one child getting all the income.

Claw Hammer

Claw Hammer wrote: »

If the daughter is renting out rooms in a house she does not own and is not paying rent for, the the rent is a gift from her parents. It would seem that if each child gets rental income it would support an argument that the rent is maintaining them in college.

No idea how you have arrived at this conclusion. The fact the children are living rent free is unrelated to one of them claiming rent a room relief. Both children can not claim rent a room relief for the same property so you suggestion is not possible anyway unless you are suggesting they declare it as taxable income which would be a crazy thing to do when it can be claimed tax free.

JustAThought wrote: »

Isn’t this for the OWNER occupier. They technically have to be both. Unless you have gifted your house to your 17yo child and daughter. Social welfare /revenue will be all over it like a rash once they spot the ages. Might obviously affect your childrens college grants Should they be in receipt of any not to mention you own situation getting scrutiny.

No, you only need to be the occupier in order to claim rent a room relief.

I you rent a full house and rent out two room then you are entitled to claim rent a room relief the same as if you owned the property.

In the ops case the children are "renting" the property and as occupiers are entitled to claim rent a room relief.

JustAThought

nonsense.

JustAThought

JustAThought wrote: »

nonsense.

Which part exactly? As what you said in your post is 100% incorrect and totally clueless also as this topic is regularly discussed and it has been explained on a regular basis that you don't need to own the house in order to claim rent a room relief.

Treppen

Can you avail of the €14 k allowance even if you don't own the house?

Treppen

Treppen wrote: »

Can you avail of the €14 k allowance even if you don't own the house?

Yes, it applies to house owners/occupiers and people renting a house and occupying it.

Claw Hammer

Noemi Moldy Apprentice wrote: »

Yes, it applies to house owners/occupiers and people renting a house and occupying it.

Neither daughter is renting the house.

Claw Hammer

Claw Hammer wrote: »

Neither daughter is renting the house.

They are renting it rent free by occupying it. What is necessary in your eyes to define "renting"?

This scenario has been discussed in the past on here and it was always the consensus that rent a room can be claimed by the occupying child in this scenario.

Neowise

Treppen wrote: »

Can you avail of the €14 k allowance even if you don't own the house?

yes.

In most cases, you do not have to own the property

source: can't post links yet but you can check on citizensinformation.ie › rent_a_room_scheme

Marcusm

Claw Hammer wrote: »

If the daughter is renting out rooms in a house she does not own and is not paying rent for, the the rent is a gift from her parents. It would seem that if each child gets rental income it would support an argument that the rent is maintaining them in college.

The entitlement to occupation of the home is the gift to the daughter and this is an exempt gift for CAT purposes while she is under 25 and in full time education. The daughter occupies the property as her sole or main residence and if SHE chooses to gain financially by renting out rooms then, subject to other rules concerning rent-a-room relief including no short lets, she is entitled to avail of the relief up to 14k.

Marcusm

JustAThought wrote: »

Isn’t this for the OWNER occupier. They technically have to be both. Unless you have gifted your house to your 17yo child and daughter. Social welfare /revenue will be all over it like a rash once they spot the ages. Might obviously affect your childrens college grants Should they be in receipt of any not to mention you own situation getting scrutiny.

It doesn’t have to be an owner occupier; if a renter sublets then they are entitled to claim rent a room relief for the subtennat’s tent if they meet the relevant test. The requirement is that you are receiving the rent in respect of your sole or main residence; your status in that residence is not (generally) important.

davindub

Marcusm wrote: »

The entitlement to occupation of the home is the gift to the daughter and this is an exempt gift for CAT purposes while she is under 25 and in full time education. The daughter occupies the property as her sole or main residence and if SHE chooses to gain financially by renting out rooms then, subject to other rules concerning rent-a-room relief including no short lets, she is entitled to avail of the relief up to 14k.

While you are correct about CAT and the rent a room relief, this has a high risk of being determined a transaction created for income tax avoidance by the parents.

https://www.charteredaccountants.ie/taxsource/1997/en/act/pub/0039/nfg/sec0811-nfg.html

OP this is something you need tax advice on.

august12

I have a similar situation as the OP but in my case, my son is living with his wife in my second property which has a mortgage, he is covering the monthly mortgage and it's my intention to transfer ownership to him in a few years when mortgage is paid, what's the tax implications here, the mortgage is about half the value of the property, the remainder will be a gift from me to him. I'm not sure what to do re tax returns as last year will be first year of tax liability, due by October this year.

Marcusm

davindub wrote: »

While you are correct about CAT and the rent a room relief, this has a high risk of being determined a transaction created for income tax avoidance by the parents.

https://www.charteredaccountants.ie/taxsource/1997/en/act/pub/0039/nfg/sec0811-nfg.html

OP this is something you need tax advice on.

I genuinely don’t think s811C is at all in point provided Hannaho leaves it to his daughter to decide whether or not to sublet the property and whether to enforce the rent etc.

davindub

davindub wrote: »

While you are correct about CAT and the rent a room relief, this has a high risk of being determined a transaction created for income tax avoidance by the parents.

https://www.charteredaccountants.ie/taxsource/1997/en/act/pub/0039/nfg/sec0811-nfg.html

OP this is something you need tax advice on.

I think high risk is a big exaggeration. The chances of this even coming onto revenues radar is tiny and then they will have a hard job proving something is not above board. They can’t just decide to disallow perfectly legal reliefs being availed off.

IRtax

The difference between market rent on the property and the payment of the mortgage is a benefit received by your son. This may be less than the 3k gift exemption per year per parent so might not eat into your sons life time annual category A threshold which he would be using when you transferring or gifting the property to your son.

The rent you should be returning is the market rate of rent in your tax return I believe.

august12 wrote: »

I have a similar situation as the OP but in my case, my son is living with his wife in my second property which has a mortgage, he is covering the monthly mortgage and it's my intention to transfer ownership to him in a few years when mortgage is paid, what's the tax implications here, the mortgage is about half the value of the property, the remainder will be a gift from me to him. I'm not sure what to do re tax returns as last year will be first year of tax liability, due by October this year.