QUESTION: I have a son who lives in my original family home, which I spent money doing up. I live in my own, separate, house. The problem is, he has never paid me a penny to live in the house, either to rent, or buy it out, with his girlfriend, who is also living there. He has paid nothing and is 12 years living there. They have good jobs. I own this house. Can you suggest how I will go about getting my son to rent or buy the house from me?

AISLING ANSWERS: Your concern is well founded and an issue that I come across frequently in practice. Often a grandparents’ house can be used as a stepping stone by adult children when they are in the process of saving towards buying or building their own house. Naturally conflict can arise if it is not clear on which basis they are occupying the property, or indeed for how long.

It is not clear from your query whether there is farmland adjoining the house and who is the intended beneficiary of the farm. When it comes to succession planning, I would always ask the question: ‘If the farmhouse was sold to someone outside the family, could the new owners potentially impact on the running of the farm in terms of complaining about noises/smells etc?’

If the answer to this is yes, then the farmhouse should not be separated from the family farm. Thus the question arises as to whether the house is ultimately going to be transferred to your son and his partner and, if so, when this will happen and how much they will pay for it.

Free Use of Property

Another factor to be mindful of is the tax consequences of free use of property. Where a child aged 25 years or more has free use of a dwelling house indefinitely, a taxable annual gift arises equivalent to the market rent receivable. So, for example, if you could earn €1,000 per month rent on that house, your child and his spouse are regarded as getting a gift of €12,000 per annum. However, a person can get a gift of up to €3,000 per person tax-free each year under the Small Gift Exemption. So, for example, if the house was in yours and your spouse’s name, each of you are gifting €3,000 to your son and spouse each year, which is sheltered by the small gift exemption.

Capital Gains Tax

If you were to sell or even gift the house to your son and his spouse, there will be Capital Gains Tax (CGT) implications. This tax arises for the owners but is normally picked up by the child if they are not paying the market value for the house.

Generally the only relief that is available is on your own dwelling house which can qualify for Principal Private Residence (PPR) Relief. However, this house is regarded as second house. That said, some PPR Relief maybe available where the house was at any time occupied by a “Dependent Relative”, which means:

– A relative of the individual, or of the husband or wife of the individual, who is incapacitated by old age or infirmity from maintaining himself or herself or:

– A person who is the widowed father or mother (whether or not incapacitated by old age or infirmity) of the individual or of the spouse of the individual or:

– A person who is a father or a mother of the individual or the wife or husband of the individual who is a surviving civil partner or who is not subsequently married or entered into another civil partnership.

It is a condition of the relief that the dwelling house must have been the sole (not merely the main) residence of the relative. It is a further condition that the house should have been provided gratuitously (rent-free and without any other consideration). The gain is applied pro-rata for the years in which the house was occupied by the dependent relative.

For example, if the current market value of the house was €100,000 and the house was valued at £60,000 when you inherited in 1995, applying indexation and converting to euros gives a taxable gain of €7,296. However, on the basis that a dependent relative resided in the dwelling house from 1995 until 2014, for example, accordingly 19/29ths of the gain is exempt, 10/29ths of the gain is taxable and thus the CGT liability is reduced to €2,660.

Capital Acquisitions Tax

Depending on whether you are being paid the market value for the house, will determine whether there is any gift liable to Capital Acquisitions Tas (CAT, gift/inheritance tax). The maximum amount you can give your child is €335,000, anything in excess is taxable at 33%. The maximum amount you can gift a son/daughter-in-law is €16,250, so for that reason normally the house is transferred to the child alone rather than into joint names.

Further the property cannot be put into joint names for three years, otherwise gift splitting occurs.

Stamp Duty

The rate of stamp duty on residential property is 1% of the market value. However, if the house is transferred with land and the child qualifies for Young Trained Farmer Relief, the house and lands maybe exempt from stamp duty.

It is important to assess the tax and legal implications as part of any deal. It is worth highlighting that the house could be sold at market value or less to provide a lump sum, or indeed you could retain the property and charge market rent or less to ensure that you as the owner can live independently from a financial and emotional perspective.

Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors does not accept responsibility for errors or omissions howsoever arising.