Home Economics: Answering your property questions
Advice from our property expert on implications of renting a room and on the tax consequences of building a 'granny flat' on your home for a parent.
Question: I bought an apartment with my sister five years ago. I am moving in with my fiancé and I want to rent out my room in the apartment. My sister is fine with it, as a mutual friend is moving in, but how does this work tax wise? I'll be the 'landlord', but where does my sister stand?
Sinead replies: This is one of those questions which looks quite straightforward but in fact is very complex, and what seems clear to you may not reconcile with the strict letter of the law.
Barry Flanagan of Taxback.com advises that you ask your local Revenue office for specific clarification but his general view is, "Practically, the "leaver" assumes responsibility for the tax arising on the rental profit and reports the full rent received/allowable expenses on their own tax return. This is the most logical approach and, I believe, the most common.
However, there is a possibility that Revenue would take a stricter line, and decree that the rent arising accrues equally to the joint owners of the property. This would mirror the treatment of a married couple, ie, if the property is owned 50/50, then 50pc of the income and expenses should be reported as arising to each spouse.
In your case, there is an argument to be made that the rental income arises only to the "leaver", as it arises in respect of the portion of the property rented out by them. Revenue may not accept this interpretation, however.
Your sister, who remains in the property could consider whether "Rent a Room" relief may be available on her portion of the rent receivable. Provided she qualifies, an amount of up to €12,000 per year can be received tax free. This could also have the benefit of cutting the income receivable for the "leaver" in half, reducing the tax due.
I think you should get a specific Revenue line in writing before your tax return is due which is October 31 in the year following the liability.
Question: My elderly father is coming to live with me and we are selling his house to pay for the construction of a 'granddad' annex costing €48,000, and putting the rest safely away for him. I am a nurse and can best keep an eye on him here, but he also wants his independence. His house is valued at €240,000 and my siblings are happy with this arrangement. However, I'm concerned that when he eventually passes, his will passes everything 'equally' to the three of us, and I might be viewed as having disproportionally benefited, as I will have this flat paid for with his money. What way should we proceed?
Sinead replies: This sounds like the perfect scenario, particularly given you are a nurse and can care for him as well as house him.
Susan Cosgrove of Cosgrove Gaynard Solicitors says, "The one way around this issue is to ensure that your father's will specifically contains an instruction to state that section 63 of the Succession Act 1965 does not apply.
"This relates to what is called "advancement" and essentially by inserting a brief provision in a will, that you are all deemed to start with a clean slate and so no previous advancement, so to speak, will be taken into account.
"From a tax perspective, however, it is worth speaking to your accountant as the amount, if deemed a gift previously, could use up your tax-free threshold and leave you with a sizable Capital Acquisitions Tax (CAT) bill.
"If, indeed, you want to take this money as a share of your inheritance though, you can document the amount in the shape of a loan (possibly interest-free), repayable from any future inheritance.
"Indeed, your father's will can be amended to state that S63 does apply and refer to this amount, which will be deemed to be a contribution towards your one-third share of the estate".
The Ryan Review
When you run consumer sentiment surveys, the answers given by respondents often jar with each other. What people feel is often different to reality. So, the latest MyHome.ie survey asked them if they expect house prices to rise in the coming year. An unsurprising 76pc said yes, despite the sagging market, particularly in Dublin.
A quarter said they hoped to purchase a house in the next year (good luck with that), but three in 10 admitted that they don't have the deposit together.
Another 51pc said the strict lending rules would force them to hold off. The most sought-after house was still a three-bed semi with nearly half saying it was because of the garden, despite the planners telling us they really should all be happy in duplexes with communal green spaces.
I was interested in the 40pc who said lowering the deposit rate was a step forward. This, of course, is a skewed response; if you ask people who want to buy, but don't have the money, a significant proportion are likely to consider the solution is lowering the requirements. The Central Bank priority, however, is to take a helicopter view, meaning what's good for society may not be good for individuals.
The consequence is that rents remain high and supply sluggish. It's hardly a win-win. Whatever the rights and wrongs of that picture, the stat that made me smile was the 4pc who said that a nearby pub was a better amenity than a park or playground (3.6pc). Priorities, eh?