Is there any issue with giving son an apartment rent-free?

I have an investment property in D1 which has been let out in units for many years. My son (with his girlfriend) has been living in one of the apartments for the past three years.

I do not charge them rent as they are saving to buy their own house. Current market rent would be around €1,000 per month. Do I or they have any tax liability due as a result of this arrangement?

Mr N.S., email

You don’t, but they might. Revenue tightened up the rules quite a bit on parental financial support for adult children in 2014. Essentially, once they are no longer in full-time education, Revenue considers that they should be supporting themselves.

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Clearly a young couple looking to put aside money to save a deposit for their own home will be grateful for any help they receive. But they could be leaving themselves exposed.

If the rent would be about €1,000 a month, they are effectively getting a gift from you of €12,000 a year.

There are two options here. In the absence of any alternative, the €12,000 – or whatever the detailed sum will be – is considered a gift and is treated under the capital acquisitions tax regime. Your son is, as of now, entitled to receive a total of €310,000 in gifts and inheritances between his parents, so the €12,000 per annum could be offset against this limit.

He will pay no tax – as long as he has not already received gifts or an inheritance from a parent of more than €310,000 – but it will reduce what he can inherit tax-free later on.

Small gift exemption

That’s not necessarily a problem. If their financial need is now, there is little point in them holding on for a promised inheritance. Better to give them a leg-up now.

But it might not come to that. You are entitled to give – free of any tax – €3,000 a year to anyone. This is called the small gift exemption. So you could give €3,000 to both your son and his girlfriend. That would reduce the sum at issue to just €6,000 a year.

If your wife is still alive, she too can separately gift each of them up to €3,000 a year. Between you, it would have the effect of gifting the young couple a max of €12,000 a year, neatly offsetting the current market rent and getting rid of any longer-term tax issue, which seems to be the aim of your decision to allow them live there rent-free in the first place.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice