Free use of property
Budget 2021 originally changed the deemed interest on interest free loans to the borrowing rate. Previously it had been the available deposit rate. This could have had a serious impact for parents lending money to children e.g. for a house deposit. The new rate could easily have triggered a taxable gift of the interest foregone each year.
Following representations, the Minister has decided not to proceed with this measure pending further consideration.
However, the issue of free use of property is still one that needs continual attention. In particular, the provision of rent-free accommodation could cause problems for parents. A taxpayer might provide rent-free accommodation e.g. in a Dublin investment property for a child trying to save for a house deposit or going to work away from home.
With current high rents, the benefit could exceed the Small Gift Exemption and thus create a taxable gift. In the case of children, this would most likely not lead to an immediate tax liability. It would erode their CAT threshold.
Also, if the child is cohabiting or married, their partner will be receiving a gift from the parent(s). They will only have the €16,200 stranger-in-blood threshold. A liability could arise very quickly.
CAT is self-assessed so a taxpayer might feel that Revenue would not detect free use of property.
We had a recent case of a deceased lady whose estate contained a second property. Revenue queried the use to which the property had been put, as they had no record of rental income being declared by the deceased taxpayer. Revenue also have access to Stamp Duty records and can therefore establish the ownership of additional properties.
If a close company provided a rent-free property it will be caught by the anti-avoidance provisions for payments to associates of participators. This would treat the payment as a distribution. The recipient would then be liable to Income Tax/PRS I/USC on the distribution.
Gifts from a company
S 43 CATA 2003 operates a look-through for gifts from a close company. These are deemed to be a gift from the shareholders of the company. Therefore, there is the possibility of double taxation, as there is no credit for any tax due under the Corporation Tax close company provisions.
Care education and maintenance
The provision of normal care education and maintenance support and education to children is exempt. Therefore, the provision of rent-free accommodation for a child attending third level education would be exempt. This would not apply to the gift of the property in its entirety.
Keep in mind, it only applies to children. It would not apply to grandchildren or the partners of children. Grandchildren might qualify if the grandparent was acting In Loco Parentis i.e. if the parents were deceased.
Benefits to children over 25 do not qualify.
If you have any clients who are providing the use of property to relatives/friends, a review might be useful, in order to address any potential liabilities. We would be happy to advise further, if required you can contact John or Trevor here: Contact Us