Home economics: answering your property questions
Advice on tax implications of inheriting a property abroad and how a deed of exchange can allow a legal swap of properties.
Question: Our father died in 2015 and left his apartment in Portugal (where he lived since retirement in 2001) to my brother and I. We have decided to rent it out. How is this declared/taxed and do we have to alert both Portuguese and Irish authorities? We will both be holidaying there for four to six weeks a year and will this affect it?
Reply: Assuming you are both Irish residents and domiciled, you are taxable on your worldwide income in Ireland, says Barry Flanagan of www.taxback.com, including income from the property in Portugal.
If it is owned jointly between you, then the income and expenses should be split 50/50 and reported on your respective returns. If your total non-employment income is below €50,000 and your net non-PAYE income (i.e. the rental profit) is below €3,174 in 2015 (€5,000 in 2016), you should complete a Form 12 tax return. Form 11 is required if your income is over those thresholds. He adds that you should compute your rental income/loss in accordance with Irish rules (i.e. as if the property was located in Ireland) - see leaflet IT70 from revenue.ie. However, losses cannot be offset against any Irish rental profits, but can be carried forward against future foreign rental profits.
Any loss should be reported on the return. It is also important to note that the rental income will also be taxable in Portugal and a return will have to be filled out there too.
However, a Double Taxation Agreement (DTA) exists between both countries, providing relief for such cases. In most instances, the tax will ultimately be due in Portugal and a Foreign Tax Credit will be claimable in Ireland, though this must be reviewed on a case by case basis.
Question: My wife and I would like to swap houses with our son as the move would suit both parties for various reasons. Both houses would be valued at approximately €240,000. My house has no mortgage whereas my son's has. How do we go about this swap and what are the legal and financial implications?
Reply: There's no problem in principle with your plan. However, it isn't quite a straight-forward process and you need a belt-and-braces approach so that the swap doesn't come back to bite you at a later date.
The first consideration is the mortgage. This doesn't affect you, but your son is, in effect, breaking his contract. The bank will want to be satisfied as to the house's value, and will require a survey.
The insurance will need to be amended, and if he has a tracker mortgage, they may seek to switch this to a variable rate, which would have a detrimental impact on his repayments.
Revenue's concern is that they want to be sure a 'gift' isn't being made, in terms of asset value.
You say both homes are worth around the same, but it would be a good idea to get this down on paper, from say, three local estate agents.
That way, the transfer won't be seen as you conferring a more valuable asset to your son or vice versa. You will therefore require the paper trail. If say, it turned out that your house was worth more than your son's, that difference would be deemed a gift to him from you. While he is allowed receive up to €250,000 tax free under Capital Acquisition Tax thresholds, this is a cumulative figure towards future inheritances he receives.
Solicitor Susan Cosgrove of Cosgrove Gaynard adds: "A deed of exchange would allow you to legally swap the properties. Alternatively, separate deeds of assurances can be executed regarding each property the same way as if you were selling to a third party.
"In both circumstances, stamp duty is chargeable on the market value of the property. It should be noted that under law society regulations, a solicitor cannot act on both sides of a transaction and so there will be legal fees on both ends. There will be ancillary costs of searches and registration again based on the value of the property."
The Ryan review
Now that we'll have a new Government, it will be interesting to see whether it pays any attention to voters' pre-election concerns on housing or whether, indeed, it can speed up the pace of building both in the social and private sector given so many delays and much obfuscation in the months leading up to the election.
In a survey undertaken by Daft.ie prior to last Friday, 62pc of respondents claimed housing was a top issue for them.
Supply, high prices, credit challenges and the lack of traction in moving were concerns.
Seventeen per cent said money worries had caused renters to move within the last year, with a further 29pc considering this. But the most depressing statistic were the 40pc who felt no political party or grouping would sort out their worries over housing.
With the modular homes still not in place (planning objections abound), developers turning a wry eye to breaking ground (levies on unused development land won't now be enforced until 2019), and a weary public frustrated by rent hikes and variable mortgage rates at odds with their European counterparts and the luckier tracker customers, it's a big ask for the incumbents to effect change.