Home economics: Answering your property questions
Our property expert advises on the tax implications of renting to a family member and on how a Personal Insolvency Arrangement might help a person in arrears on a buy-to-let property.
Question: We are selling our large family home and will be buying a full duplex unit (i.e. the two-storey townhouse which we will live in, and the one bedroom ground floor apartment underneath it), with the proceeds costing €350,000 plus €240,000. We plan to rent out the apartment and our son has expressed an interest in taking it while he tries to save for a house deposit. We wouldn't be comfortable charging him full rent, and don't need to. My wife would be delighted with the security of having him there. Does a legal or tax issue arise for either of us in this scenario?
Sinead replies: There's no particular issue legally with you renting to your son instead of a stranger and I can see why it makes sense. You retain control of the tenancy as landlord and have the comfort of him being nearby.
Irrespective, you must register the property with the Private Residential Tenancies Board (PRTB) which costs €90 and I'd advise you follow normal rental procedures, e.g. a rent book, written agreement, etc. You will have a tax liability on the rental income, so make sure you file returns annually for it.
The only other issue which would arise from a tax standpoint is the reduced rent. Revenue would take the view that any discount you give your son over normal market value may be deemed a gift from you to him. While there's no problem gifting money (or the equivalent) to your son during your lifetime, any such gifts would be cumulative and affect the amount of inheritance he is allowed receive tax free upon your passing, under Capital Acquisitions Tax rules.
Anyone can gift anyone else €3,000 per year tax free under the Small Gifts Exemption (i.e. €6,000 from you and your wife), so bear that in mind also.
Question: I find myself at my wits' end with my bank. I have a buy-to-let which hasn't been rented (or the mortgage paid on it) for 18 months. At this stage, I don't care if they take it back, however I would be terrified of losing my family home which they seem to believe is up for grabs. I'm strongly leaning towards going bankrupt but worry that I would lose it anyway. My family has no idea I'm in this mess and I don't know where to get help. I have a job, but am on reduced hours and give the bank whatever I can afford.
Sinead replies: I can tell from your tone that you are stressed and it must be very difficult trying to deal with this without the support of your family.
However, there are many people in the same situation as you, so you are not alone. I have contacted the Insolvency Service of Ireland (ISI) who suggested the following: firstly, contact a Professional Insolvency Practitioner. They have a register on their website www.backontrack.ie or call them at 076 106 4200.
Their job is to liaise with the bank on your behalf and find a mutually agreeable solution. While a possibility, this very rarely involves giving up the family home, as courts are loathe to allow it, so don't worry.
Under a Personal Insolvency Arrangement, for instance (which isn't bankruptcy), you hand back the keys to the buy-to-let, some of your debt would be written-off and the remainder of what you owe will be restructured into manageable repayments.
You will be solvent at the end of the arrangement and will have a fresh start.
If it is the case that a PIA is not right for your particular situation, bankruptcy is a viable solution and it is good news that the term for bankruptcy has recently been reduced to one year.
The Ryan review
When IBRC (the re-named Anglo Irish Bank) was divvying up its loan portfolio for sale, it marketed the bundles as Stone, Rock and Salt to investors.
So, are we to take anything from the fact that Nama's latest securitised debt bundles are called Emerald and Ruby? Have things improved that much? Are these the gems of the pack?
Whatever the quality of the stock, it's worth noting that they include €4.7bn of loans between them and 489 properties, mostly residential, ready to be flogged to investors.
It's understood much of the residential content comprise Dublin-based apartment blocks, so the sale comes at a good time if they can be put back on the market by the new owners - most likely one of the so-called Vulture Funds. But the timing is a little unfortunate for them, given the bad press meted out to Goldman Sachs over its turfing out of tenants from Tyrellstown after buying a block of apartments from an Ulster Bank sell-off.
Nama will, no doubt, strive for the best price available, however it's curious that the Government, wringing its hands over the housing crises, simply doesn't acquire the properties on behalf of the State and give housing agencies or local authorities the wherewithal to redeploy them as social and affordable housing.
It certainly doesn't have to pay top dollar and Nama already has a social housing remit.
Is there nobody putting two and two together?