Will renting out our mum’s house come back to bite us?

My mother, who is unwell, has been living with my sister in Dublin for over three years. In that time, her house in the west has lain more or less empty. We have power of attorney. I stayed for a few months and a young couple who were her new neighbours approached us last year and asked to rent it for six months while they were getting work done on their house. We agreed.

Now, a friend of a friend of my sister’s has approached us with a similar request. This woman has two young children, her relationship has recently broken up and she is desperate to find a house. My sisters say they are happy to rent the house to her for six months. However, I am worried.

The house is my mother’s house. I am worried that the house is also 60 years old and probably needs to be rewired. What if there was an accident? Who would be liable?

I want to help this woman also and I am very aware that there is an accommodation crisis but I don’t want us to make an emotional decision before knowing first what all the implications are, including our legal liability to a tenant, tax implications and whether it would affect our Fair Deal Scheme Application if we ever needed that?

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Ms E.M.

You’re right to pause. Too often, for the best of reasons, people make decisions that can have long-term implications without thinking them through. And that can lead to all sorts of unintended consequences.

In this case, there are a number of key issues. Chief among these are issues of tax, liability and longer-term access to State supports should they be necessary.

The first thing to note is that, because the property is your mother’s and in her name, it is she who will be liable — or those who have the legal right to manage her affairs.

Many people in Ireland have organised “power of attorney” — more accurately in situations like this, an enduring power of attorney. The key thing, however, is that the power of attorney is only a theoretical backstop until it is registered with the High Court and thereby activated.

This is a specific legal process that likely takes a couple of months even if everything goes smoothly and will cost a reasonable sum. The point is that, only when the power is activated, can the attorneys —whichever one or more of the family members or others nominated by your mother when she drew up the document — take control of her affairs.

In Ireland, it is far more common even where such power of attorney has been drawn up and signed that families informally take over day-to-day management of an infirm relative’s affairs rather than go through the formality of registering the legal document. It’s not an abuse of power for most people, simply the most pragmatic way of getting things done. However, unless the power of attorney is registered, your mum will be responsible — and liable — for all decisions relating to her home, even ones that you or other family members make for her.

All of which is a long way of saying that if you are going down the path proposed by your sisters, you had better make sure the power of attorney is fully registered and check in the document precisely what powers it confers to the named attorneys.

Once that is done, there are several basic tax issues here.

First, she will likely be liable to income and universal social charge (though not PRSI if she is over 66) on any rent secured on this property.

Then, there will be a potential capital gains tax bill on the eventual sale of the property. Family homes —known as principal private residences in Revenue terms — are free of tax so it would not have been an issue while your mother lived there, or even while it lay vacant after she moved to your sister’s. But it does become an issue once the property is rented out.

It is not something I intend to work through in detail here. I have written about how capital gains tax is assessed pro rata in such circumstances several times previously so it should be accessible to you. In brief, if the house is sold in her lifetime, you pay tax on the proportion of the gain your mother makes on the house corresponding to the fraction of her period of ownership for which it was rented.

The bigger issues for you as a family may come, as you suspect, under her/your responsibility as landlords.

First up, if you are renting the property out, you will need to register with the Residential Tenancies Board annually. Second, as you suspect, landlords have certain responsibilities. Most of these are outlined in the Residential Tenancies Act 2004, and also in section 18 of the Housing (Miscellaneous Provisions) Act, 1992, as amended by the Housing (Miscellaneous Provisions) Act 2009 and, succinctly in the Housing (Standards for Rented Houses) Regulations 2019. I have no doubt the lawyers among our readership will let me know quickly if there is further legislative reading required on the subject.

And yes, they include ensuring that the property is up to a certain standard in a whole range of areas, including wiring. If the property was not up to standard and an accident happened, you could find yourselves liable.

Local councils police this, largely on referral from tenants, and failure to meet the standards can lead to notices requiring you to carry out specific works. Failure to do so can lead to both penalties and, ultimately prosecution, though this is very rare.

There were 17,600 inspections of privately rented accommodation carried out in 2021, the most recent year for which data from the Department of Housing are available. Of these, almost 80 per cent did not meet the required standards. The number of inspections was the lowest in four years so you can assume it will rise as we move on from Covid-19 lockdowns.

Your mother — or whoever holds the registered power of attorney — must also ensure both that an insurance policy is in place to cover the cost of damage to, or loss of, the building. Having said that, insurance may be cheaper for you with someone in situ. You are obliged to inform your insurer if the property is vacant and, in my experience, a standard buildings policy will not cover vacant premises; you normally need specialist (and more expensive) cover.

Contents cover will be harder to get in the case of a rented building but if your mother’s contents remain in the property, you will want to ensure they too are covered. Any contents cover you secure will cover only your mother’s contents, not any items belonging to the tenant who will be responsible for organising their own cover.

Finally, according to the legislation, you will need to ensure your policy includes liability cover indemnifying your mother (or the attorney) for at least €250,000 against any claim relating to the premises.

In relation to the six months, I am assuming this is an attempt to limit tenant rights. Under current legislation, you can end a tenancy during its first six months without having to give a specific reason as long as you give the tenant 28 days notice in the correct form.

After that, tenants have security of tenure and you are limited in your scope to force them to leave – with intent to sell or to move a family member into the property the most widely cited of the five valid reasons for requiring a tenant to vacate.

I’m conscious of your sister’s commendable instinct to help this woman and her family get back on their feet but your mother, or the attorney(s), will need to ensure the rent set for the property is appropriate to the market rate for the area There are two reasons for this. If it is too low, the tx authorities will cnisder that you are making a gift of the difference to this woman and her family and that could create tax issues for them. On your own family’s side, if the attorneys hold the power, they are obliged to act in their mother’s interest and, in the case of renting, that would mean getting the proper market rent on the house.

Rent earned now will not affect any future application for Fair Deal if your mother required long-term nursing home care. However, works to bring the property up to the required standard for renting could certainly enhance its value and that could affect the contribution required from the property for the first three years of her care – the limit on any Fair Deal contribution from the capital value of a person’s home..

If someone is renting the property at a time when your mother applies for Fair Deal, under recent changes to the rules, only 40 per cent of the rental income will be taken by way of a contribution to her care – compared to 80 per cent of most other income. This measure was specifically brought in to encourage people to rent out homes when they no longer need them because they are in nursing home care as a step to address the accommodation crisis of which your family is so clearly aware.

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