Friday 20 October 2017

'Would there be tax bills to pay if I rent out our holiday home and gift it to my children?'

John Cradden

I have a family home in Dublin and I also have a holiday home in West Cork. I hope to gift the summer house to my children in my will.

The summer house is used only for family holidays - it was never used as an investment or rented out. Would myself or my children face any CAT or CGT bills should I gift the summer home to them? Should I decide to let the summer house out before gifting it, would any tax bill arise from letting it out?

Edward, Rathfarnham, Dublin 14

If you gift the house to them during your lifetime then it is a deemed sale at market value and you could owe CGT (Capital Gains Tax) on it if you have made a gain when comparing the market value to the cost price that you paid for the house.

If there is going to be a gain on a gift, then you could consider leaving it to them in your will. No CGT bills arise for assets passing under a will. For CGT purposes your children are considered to have acquired the property at its market value, which will be the cost price for them if they sell it in the future.

However, CAT (Inheritance Tax) could arise and will depend on the market value of the property at the time and what other gifts or inheritances your children have received from you or your spouse since December 5, 1991. The current parent-to-child CAT tax-free threshold is €310,000 (recently increased in the Budget with effect from the October 12, 2016). If the total value of all gifts/inheritances received by your children is less than €310,000 for each child, then no inheritance tax will arise.

The letting out of your summer home will give rise to rental income and you will have to pay tax on your rental profit for each tax year that the property is let out for. You can deduct costs incurred by you when calculating your rental profitl such as, advertising for lettings, property insurance, and wear and tear on fixture and fittings.

I am a PAYE worker but last year I did a little bit of casual work in event management that I did during the weekends and some evenings after work. A friend told me that if the income I received from this was below a certain threshold (he thought it was €5,000 but wasn't 100pc sure) then I wouldn't have to pay tax on this. Is this correct?

John, Cork City

Unfortunately, your friend is not correct. If you made a profit from the event management you have to pay tax on it. The limit of €5,000 is a reporting requirement for year 2016 (previously €3,174 ) which, if exceeded, means you are obliged to make a self-assessment tax return to pay the tax owed on your profit.

If the income is below the €5,000 (applicable from 2016 only) you are not obliged to make a self-assessment tax return but are still due to pay tax on the income under general rules. For example, if the Revenue wrote to you requesting you to complete a tax return, then you would have to include the event management income on the tax form.

The tax deadline for sending in tax returns for the year 2015 (when a lower limit of €3,174 applied) due under self-assessment rules is the November 10 next provided you do it online and pay your taxes via the Revenue Online Service (ROS) . If you miss this deadline you are liable for a penalty of 5pc for tax returns filed before the end of this year and 10pc if later than this. The penalty is based on the amount of tax that you owe for the year.

When completing your tax return you can claim all costs incurred by you in connection with the event management activity. This type of income falls under self-employment activity and is declared in this section in your tax return form. Typical expenses would be phone bills, some motor and travel and perhaps use of home as an office, as well as any other direct costs incurred for the event management service.

I work as a part-time childminder looking after two young children in my home along with my own two children. I earn just around €13,000 for this. I know the tax-free threshold for this kind of work is €15,000 gross but do I need to inform Revenue of this all the same? If I took on another child next year that might push me over this 15k threshold. Would I need to start recording any expenses for childcare work now?

Caitlin, Drogheda, Co Louth

The tax exemption applies if your total income from the child care service does not exceed €15,000 a year.

You have to claim this exemption on your tax return each year. If the income exceeds €15,000 no tax exemption is allowed.

The child care service provider must notify the HSE that they are providing such services in their home and provide a copy of the notification to the Revenue in support of the claim for the tax exemption.

If you go over the limit of €15,000 then you have to declare it as a normal self-employed activity under our self-assessment tax rules. You can of course claim a deduction for all expenses incurred by you in providing the service. Typical expenses would be materials for playtime/painting/videos for the children and the cost of meals. Special insurance for carrying out this activity would be another. If you engage helpers then you are an employer and responsible for operating the PAYE tax system on their salary payments.

I am thinking of doing Airbnb rentals in my home but while I know now I can't avail of the rent-a-room scheme, how is any income I might get from it taxed?

Katie, Cashel, Co Tipperary.

There is a lot of confusion about Airbnb income. Is it rental income and subject to tax under the somewhat narrow rules for taxing rental income? Or is it a trading activity subject to tax under normal self employment rules? The difference is important for the claiming of expenses as tax deductions.

The self-employment treatment is the correct one although a lot of people are declaring the Airbnb income as rental income. At the end of the day it may not make much difference but it should be easier to claim expenses under the self-employment rules.

However, using your house for the self-employment activity could endanger the capital gains tax exemption for a sale of your residence so this needs to be borne in mind as well.

There are a number of properties let out full time on Airbnb and this is clearly a self-employment activity. Owners should be aware that VAT registration may apply.

Also, if the activity was carried on a limited company the profit would be taxable at the 12.5pc tax rate as against the top personal tax rates, so for full-time Airbnb operators this is something they should consider.

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