Figuring out your tax liability if a child moves into property you own

I have an apartment which has been rented out for the last seven years. Now my daughter is moving in to it. She will pay all expenses due on the apartment but no rent.

Will there be any tax liability for either her or me in that particular situation?

Mr GG, email

This is quite a topical issue as the Government is in the process of amending rules on gifts from parents to their adult children.

Effectively you are “gifting” your daughter the value of the rent. That does not necessarily mean that either of you has a tax issue arising from it.

The Capital Acquisitions Tax Consolidation Act, 2003 does say that you are entitled to meet the reasonable expenses in supporting, maintaining or educating a child where such spending would be considered “normal” with regard to your own financial circumstances.

As I do not have any further details of your daughter’s circumstances or of your own circumstances, it is difficult to assess how normal or reasonable the “gift” of rent-free accommodation would be, but it certainly would not automatically incur a tax charge.

In any case it is difficult to be definitive, which is why the Revenue Commissioners and the Department of Finance are currently looking to get the law changed as you will have read elsewhere in the paper.

If any tax liability did emerge in relation to the gift, it would essentially be a charge against your daughter. If that were the case, it would start eating into the lifetime threshold on gifts to a child from parents, which currently stands at €225,000.

From your own point of view, the property is still an investment property, and you will remain liable to income tax on any net rental income and to capital gains tax on the eventual sale of the property.

Can I extend term of tracker mortgage? I bought a house in 2006 using a tracker mortgage of €350,000 with an initial term of 30 years. Over the following three years, I made a number of additional payments in to my mortgage totalling €75,000. (These were in addition to my normal monthly repayments).

With each of these additional payments, I requested that the lending institution reduce my mortgage term and leave my monthly repayments unchanged (I understood this to be the most financially beneficial way for me to pay into my mortgage).

My mortgage balance is now €180,000 and the remaining term is 12 years.

As our family has grown, we are keen to move into a bigger house at some stage between one and three years from now.

The lending institution has advised me that I can transfer the outstanding value of my tracker to a new property loan but that an additional 1 percentage point will be added to the existing 0.8 percentage point margin. This appears to be a good option.

However, can I maximise the benefit of the tracker mortgage by requesting the institution to restore the original term of the loan at this stage?

Does the institution have to restore the original term if I ask them to do so? Or is there anything else that I should consider here?

Mr KK, email

I think you hit the nail on the head when you say that this sounds like a good deal. In an environment where most lenders would not countenance a tracker mortgage – hardly surprising as they continue to struggle to come to terms with the financial cost of their ill-advised lending in the boom, much of it on overly competitive trackers – you seem to have been offered a remarkably attractive tracker rate.

As you note, the 0.8 percentage margin over the European Central Bank rate that you currently enjoy was offered in the last days of the property bubble before the impending reality of the crisis dawned on Irish lenders.

As we come out of the ensuing recession, banks are still remarkably risk-averse and many will argue that getting a loan at all is proving difficult. That your lender is prepared to do so with just a 1 percentage point increase on the ECB margin would seem to indicate that they think you are a very good risk. The fact that you have been able to pay down your loan so aggressively to date will no doubt have encouraged them in that regard.

You are quite right that maintaining your monthly payments and reducing the term of the loan is definitely the most financially advantageous course of action, as long as you don’t require other borrowings

As a mortgage is probably the cheapest money you will ever borrow (in terms of the interest rate that is attached to it), it would not make sense to accelerate payments there only to borrow for other issues at an inflated interest rate.

Can you request that your lender restore your original mortgage term as you move to a new home? Of course you can. Can you insist on it? I can’t see how. The term was reduced at your specific instruction. The bank has complied fully and properly with the instruction you gave and you have effectively knocked 10 years off your 30-year mortgage.

Should you consider anything else? Well yes. You note that the bank has said you can transfer the outstanding balance of your existing tracker towards the new property loan but you will still be paying a higher rate on the rest of the mortgage.

As your existing mortgage balance is €180,000 – and that figure will clearly drop further between now and the time you move home – you are likely to have to borrow more than the outstanding balance to secure your new larger family home.

What rate is the lender offering on the balance of any loan? You will need to work out the “blended” rate on the full mortgage loan and see how that compares with what is on offer elsewhere. You could find that a new lender would offer a more competitive overall rate than your current institution.

So the tracker switch is certainly attractive but it should not blind you to the need to shop around.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice