2nd home daughter renting rooms - tax liability?

davindub

Marcusm wrote: »

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.

But the property is not Hannaho's daughter's, he is allowing her to use it for the purposes of her education. He can't really distance himself from this, it is not an arms length transaction.

Basically the upshot of this is that the daughter is receiving income that Hannaho would be expected to pay income tax on, but by placing the income in his daughters name, he is saving on income tax.

davindub

Noemi Moldy Apprentice wrote: »

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.

A Revenue auditor can actually make a decision that the transaction is for the purposes of the avoidance of income tax (or other tax).

As regards radar, Revenue do select returns for enquiry, some random, some declare too little income for their trade or rental, etc.. (as far as I know, they don't publish the list of criteria).

IRtax

IRtax wrote: »

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.
.

Not applicable when the ops children are in full time education, there is no CAT liable.

davindub wrote: »

A Revenue auditor can actually make a decision that the transaction is for the purposes of the avoidance of income tax (or other tax).

As regards radar, Revenue do select returns for enquiry, some random, some declare too little income for their trade or rental, etc.. (as far as I know, they don't publish the list of criteria).

I don’t think I’ve ever heard of someone I know get an audit and I know plenty of self employed people, farmers, trades men etc (many of which would do plenty of cash in hand work). I can’t see the chances being anything but tiny for a paye worker or a student to get an audit, especially a student.

davindub

Noemi Moldy Apprentice wrote: »

Not applicable when the ops children are in full time education, there is no CAT liable.



I don’t think I’ve ever heard of someone I know get an audit and I know plenty of self employed people, farmers, trades men etc (many of which would do plenty of cash in hand work). I can’t see the chances being anything but tiny for a paye worker or a student to get an audit, especially a student.

Nox that means very little, you can hardly be ignorant that Revenue do send inquiries and conduct audits of those exact same categories, and if you don't know that, I am sure even within the landlords on this forum, some will have received enquiries or had an audit for reasons they never established.

Marcusm

davindub wrote: »

But the property is not Hannaho's daughter's, he is allowing her to use it for the purposes of her education. He can't really distance himself from this, it is not an arms length transaction.

Basically the upshot of this is that the daughter is receiving income that Hannaho would be expected to pay income tax on, but by placing the income in his daughters name, he is saving on income tax.

If Hannaho was “placing the income in his daughter’s name” then it would not be a s821C issue but a simple case of failure to report and he would be exposed to criminal penalties. If Hannaho grants his daughter the right to use the property for no cost then income cannot be imputes to him for the purposes of income tax as the arm’s length principal simply does not apply - s835C does not apply unless one of them is a company. Provided Hannaho does not cause any subletting to arise and has no financial interest in any rent arising thereunder, I do not see it as susceptible to recharacterisation as a diversion by him of rent to which he would be entitled. By permitting his children to live there rent-free, no rent can be imputed to him. THey would then have occupation of the premises and if they choose to sublet, any rent is theirs in a similar manner to many head tenant arrangements in the rented residential sector.

davindub

Marcusm wrote: »

If Hannaho was “placing the income in his daughter’s name” then it would not be a s821C issue but a simple case of failure to report and he would be exposed to criminal penalties. If Hannaho grants his daughter the right to use the property for no cost then income cannot be imputes to him for the purposes of income tax as the arm’s length principal simply does not apply - s835C does not apply unless one of them is a company. Provided Hannaho does not cause any subletting to arise and has no financial interest in any rent arising thereunder, I do not see it as susceptible to recharacterisation as a diversion by him of rent to which he would be entitled. By permitting his children to live there rent-free, no rent can be imputed to him. THey would then have occupation of the premises and if they choose to sublet, any rent is theirs in a similar manner to many head tenant arrangements in the rented residential sector.

Arms length can of course apply when considering the substance of transactions. As we are talking about a transaction giving control of a property to someone else to give them an income he would otherwise be providing after income tax, you can assume any words I use refer to this.

You cannot compare this to the daughter renting a property elsewhere and creating licences.

Honestly, you can bicker all you want but this is high risk.

Claw Hammer

Marcusm wrote: »

If Hannaho was “placing the income in his daughter’s name” then it would not be a s821C issue but a simple case of failure to report and he would be exposed to criminal penalties. If Hannaho grants his daughter the right to use the property for no cost then income cannot be imputes to him for the purposes of income tax as the arm’s length principal simply does not apply - s835C does not apply unless one of them is a company. Provided Hannaho does not cause any subletting to arise and has no financial interest in any rent arising thereunder, I do not see it as susceptible to recharacterisation as a diversion by him of rent to which he would be entitled. By permitting his children to live there rent-free, no rent can be imputed to him. THey would then have occupation of the premises and if they choose to sublet, any rent is theirs in a similar manner to many head tenant arrangements in the rented residential sector.

If Hannaho allows his daughter to reside in the property and she uses the property to generate an income, then either she is taxable on the income or Hannaho is. She is his agent in the property. She has no legal interest in the property. She cannot claim rent a room relief in the absence of a legal interest in the property. She is effectively being gifted the income. If hannaho doesn't get proper tax advice and goes ahead with this scheme he may well find itself taxed on the income and his daughter taxed as a gift on the same income.

Claw Hammer

Claw Hammer wrote: »

If Hannaho allows his daughter to reside in the property and she uses the property to generate an income, then either she is taxable on the income or Hannaho is. She is his agent in the property. She has no legal interest in the property. She cannot claim rent a room relief in the absence of a legal interest in the property. She is effectively being gifted the income. If hannaho doesn't get proper tax advice and goes ahead with this scheme he may well find itself taxed on the income and his daughter taxed as a gift on the same income.

You are just making stuff up.

This would be clearly stated were it true, but there is absolutely no stipulation in rent a room relief to back up your “theory”.

Marcusm

davindub wrote: »

Arms length can of course apply when considering the substance of transactions. As we are talking about a transaction giving control of a property to someone else to give them an income he would otherwise be providing after income tax, you can assume any words I use refer to this.

You cannot compare this to the daughter renting a property elsewhere and creating licences.

Honestly, you can bicker all you want but this is high risk.

I’m not bickering; I’m making cogent arguments based on experience going back to the McGrath schemes, the introduction of the predecessor of s811C as s86 FA1989 and decades dealing with avoidance transactions across numerous jurisdictions in professional practice and industry. There is certainly not a high risk here provided Hannaho is not entitled to the rent, does not require his daughter to sublet etc.

davindub

Marcusm wrote: »

I’m not bickering; I’m making cogent arguments based on experience going back to the McGrath schemes, the introduction of the predecessor of s811C as s86 FA1989 and decades dealing with avoidance transactions across numerous jurisdictions in professional practice and industry. There is certainly not a high risk here provided Hannaho is not entitled to the rent, does not require his daughter to sublet etc.

But he is entitled to the income arising from the property, he has not leased the property to the daughter and it is still his property. Mere words do not change the substance here which is he is providing for his daughters education but attempting to do so from income he would otherwise be taxed on.

Have you professional experience in that particular income tax situation under 811C? Or even a similar one in this exact jurisdiction? If so explain.

Certainly if you have decades of experience in creating (or advising on) tax avoidance schemes that is a particular skillset and I would respect that, but I doubt you would be sharing that knowledge for free?

Claw Hammer

Noemi Moldy Apprentice wrote: »

You are just making stuff up.

This would be clearly stated were it true, but there is absolutely no stipulation in rent a room relief to back up your “theory”.

What backs up yours?

Claw Hammer

Claw Hammer wrote: »

What backs up yours?

The lack of any evidence to say its not allowed and the fact that it is perfecty within the regulations.

The ops children are staying in his home with his consent, in order words a word of mouth agreement that they can rent rooms off him. They could always scribble something down on paper and sign it if that would make you happier.

After that it's just rent a room relief same as anyone else.

Marcusm

davindub wrote: »

But he is entitled to the income arising from the property, he has not leased the property to the daughter and it is still his property. Mere words do not change the substance here which is he is providing for his daughters education but attempting to do so from income he would otherwise be taxed on.

Have you professional experience in that particular income tax situation under 811C? Or even a similar one in this exact jurisdiction? If so explain.

Certainly if you have decades of experience in creating (or advising on) tax avoidance schemes that is a particular skillset and I would respect that, but I doubt you would be sharing that knowledge for free?

He is not entitled to income from the property if he allows his daughter to occupy the property to his exclusion.

august12

Marcusm wrote: »

He is not entitled to income from the property if he allows his daughter to occupy the property to his exclusion.

Marcusm, would you mind giving me your opinion on my query yesterday at 20.30, page 3, just to clarify, my son lodges the mortgage amount to my account which then goes towards the mortgage each month, unsure of the implications of all of this.

Neowise

august12 wrote: »

Marcusm, would you mind giving me your opinion on my query yesterday at 20.30, page 3, just to clarify, my son lodges the mortgage amount to my account which then goes towards the mortgage each month, unsure of the implications of all of this.

The monies lodged into your account is rental income. It does not matter if this is or is not equal to the mortgage amount.

Neowise

Neowise wrote: »

The monies lodged into your account is rental income. It does not matter if this is or is not equal to the mortgage amount.

If you were/are wsorking and already on top rate of tax, and there were no exemptions, which there may be or may not be, then the monies after tax would not be enough to cover the mortgage payments.

Marcusm

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.

It is hard to see how his payments are anything other than compensation to you for the occupation of the property, ie rent. At best you will get tax relief in respect of the interest element of the mortgage payments.

JimmyVik

sure I know a married couple who have shared two houses between them.

He travels up to Dublin and stays 5 days per week in their house in Dublin.
She lives with the kids in Cork.

He travels back and stays in the house in Cork from Friday to Monday.

They found it better to separate. Now the Dublin house is his PPR and the Cork house is her PPR. And there are 2 students renting rooms in the house in Dublin under the rent a room scheme.

brisan

JimmyVik wrote: »

sure I know a married couple who have shared two houses between them.

He travels up to Dublin and stays 5 days per week in their house in Dublin.
She lives with the kids in Cork.

He travels back and stays in the house in Cork from Friday to Monday.

They found it better to separate. Now the Dublin house is his PPR and the Cork house is her PPR. And there are 2 students renting rooms in the house in Dublin under the rent a room scheme.

Is he a TD ??

Claw Hammer

Marcusm wrote: »

He is not entitled to income from the property if he allows his daughter to occupy the property to his exclusion.

How could his daughter exclude him from the property? The daughters no legal interest in the property.

brisan

Claw Hammer wrote: »

How could his daughter exclude him from the property? The daughters no legal interest in the property.

As the occupier she has a legal interest
Any landlord who rents out a property is excluded from the property except in certain circumstances
https://www.rtb.ie/during-a-tenancy/maintenance-inspections-and-access/inspections-and-access

Claw Hammer

brisan wrote: »

As the occupier she has a legal interest
Any landlord who rents out a property is excluded from the property except in certain circumstances
https://www.rtb.ie/during-a-tenancy/maintenance-inspections-and-access/inspections-and-access

She has no legal interest and is not an occupier. She is neither a freeholder or a leaseholder. She is a licencee of her father. That link is irrelevant since it only applies to properties under the remit of the rtb.

brisan

Claw Hammer wrote: »

She has no legal interest and is not an occupier. She is neither a freeholder or a leaseholder. She is a licencee of her father. That link is irrelevant since it only applies to properties under the remit of the rtb.

If she is living full time in the property with the owners consent she is an occupier.
The owner is allowed give his child (providing they are under 25 and in full time education ) rent free occupancy of the house with no tax liability.

Claw Hammer

brisan wrote: »

If she is living full time in the property with the owners consent she is an occupier.
The owner is allowed give his child (providing they are under 25 and in full time education ) rent free occupancy of the house with no tax liability.

She is not an occupier she is the agent of the owner at the most. She has no legal interest in the property.
She could possibly be described as a permissive occupier but that would be simply on a licence.

august12

Marcusm wrote: »

It is hard to see how his payments are anything other than compensation to you for the occupation of the property, ie rent. At best you will get tax relief in respect of the interest element of the mortgage payments.

Thanks for that, I was hoping for something more positive, sometimes you try to do your best for your kids to get them on the property ladder and it somehow comes back to bite one in the ass.

davindub

Marcusm wrote: »

He is not entitled to income from the property if he allows his daughter to occupy the property to his exclusion.

And your experience in dealing with these type of transactions?

IRtax

Nox please read my comment again. I was replying to august not the op.

Noemi Moldy Apprentice wrote: »

Not applicable when the ops children are in full time education, there is no CAT liable.



I don’t think I’ve ever heard of someone I know get an audit and I know plenty of self employed people, farmers, trades men etc (many of which would do plenty of cash in hand work). I can’t see the chances being anything but tiny for a paye worker or a student to get an audit, especially a student.

Marcusm

Claw Hammer wrote: »

She is not an occupier she is the agent of the owner at the most. She has no legal interest in the property.
She could possibly be described as a permissive occupier but that would be simply on a licence.

davindub wrote: »

And your experience in dealing with these type of transactions?

This is tiresome; in order to formalise her occupation of the property he can grant her a lease for nil consideration (documented as a deed to ensure its validity in the absence of consideration) but even Revenue would not look for this level of documentation in circumstances such as these. The question is who the tenants pays the rent to and respects as landlord and whether that person retains/uses that rent.

Hannaho has shown an ability to understand the basic arrangements and it is up to him/her to formalise it.

Claw Hammer

Marcusm wrote: »

This is tiresome; in order to formalise her occupation of the property he can grant her a lease for nil consideration (documented as a deed to ensure its validity in the absence of consideration) but even Revenue would not look for this level of documentation in circumstances such as these. The question is who the tenants pays the rent to and respects as landlord and whether that person retains/uses that rent.

Hannaho has shown an ability to understand the basic arrangements and it is up to him/her to formalise it.

Her status in the property is one thing. The issue is whether she is getting a gift of the rent from her father consequent on the provision of the accommodation.

Claw Hammer

Marcusm wrote: »

The question is who the tenants pays the rent to and respects as landlord and whether that person retains/uses that rent.

Hannaho has shown an ability to understand the basic arrangements and it is up to him/her to formalise it.

You could receive rent as an agent for another person. Given that the daughter has no legal interest in the property unless she gets a lease, any rent received would be as agent for the father. A zero lease is artificial avoidance.