More and more Irish adults are living at home than ever before: recent figures from the Central Statistics Office show that almost seven in 10 adults are still sleeping in their childhood bedrooms at the age of 25.
That’s no surprise perhaps, given the ever-increasing cost of renting in Ireland. A double room in Glasnevin, Dublin 11, is listed on Daft for €950 a month, while in Ballincollig, Cork, you’ll pay about €800 a month for a double room, according to Daft.
Allowing a child to stay at home rent-free then will mean savings of about €10,000 a year for them. But should there be a financial burden to pay when living at home as an adult? And if so, how much? Or should parents allow their offspring to save as much as possible? And what about the potential tax implications?
Against a background of ever-rising housing costs, the CSO survey is the latest sign of shifting habits among Irish households.
“It was once expected that as soon as it was physically possible, people would leave the family house,” says Nick Charalambous, managing director of Cork-based Alpha Wealth. “But the reality is that they just can’t afford to either buy or find a place to rent. It’s a big issue for a lot of people – the squeeze in the property market is causing this reality.”
This means that adult children are at home for longer. Ireland has one of the older “typical” ages for leaving the family home. Figures from Eurostat show that, in 2023, the average age in Ireland for moving out was 28. This compares to just 22 in Sweden and Finland. Italy and Spain are at the higher end, with a typical age of 30.
Given the increasing cost of living, for many families the issue of getting adult children, who are earning an income themselves, to contribute to the family pot is not up for negotiation.
Others, who may not need the money themselves, may like the idea of encouraging their adult offspring to assume some level of financial responsibility and budgeting.
So should you charge them even if you don’t need the funds yourself?
To charge rent – or not
Charalambous says the amount families ask their children to contribute will vary widely, depending on each family’s situation. Few are likely to ask their child to pay the full whack of market rents, as otherwise it would negate the financial incentive to stay put.
“Some parents request nothing, while others follow a traditional guideline of asking for a third of their child’s take-home pay,” he says. This would mean that someone bringing home €1,500 a month after tax would give up €500 of this to their parents.
Another approach Charalambous sees is when households divide expenses by the number of occupants. For example, if there are three people in the house, each contributes a third of the total household costs, which would cover, food, electricity, the mortgage, etc.
He often advises parents to follow a simple budgeting principle.
“Save a third, spend a third, and use a third for necessary bills. This same framework can be applied to young adults living at home.”
Readers responding to a Guardian article on the topic last year offered some suggestions. One family charged their children 10 per cent of their take-home pay the minute they started working, be that in a part-time job while in school, or college, or full-time employment. Another charged a third of their take-home pay, while another asked their son and his wife to pay rent when they moved back into the family home. In that case, the parents saved the resulting funds, as they felt “they [the son and his wife] shouldn’t get used to having too much free cash, so paying rent kept them in the real world and the lump sum helped them when they needed cash”.
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Others responding in the Guardian argued that looking for any contribution was wrong: “Charging them needless rent to maintain their sense of adult dignity is not helpful,” one said, while another pointed to the “venal, commercial demands made on family” by charging them rent to live at home.
In reality, those who can afford to do so tend to follow this approach. Charalambous says that “more and more parents are not taking any payment from their children”.
“They feel sorry for them, as they can see it’s a different environment to when they themselves bought their first home,” he says.
However, contributing towards the expense of running a home is a valuable life lesson. “I’m very much in favour of the habit, even though the parent may not require the funds,” says Charalambous.
Some parents might fear that allowing their children to stay at home so they can save may ultimately mean that the child will end up with little in savings, as their funds end up going elsewhere. To counter this, Charalambous says a good idea is to charge the child a contribution, and save this on their behalf, returning it when they do eventually move out.
What is important is to start as you mean to go on, and talk about such issues.
Charalambous has first-hand experience of this; his 20-year son, who is attending university, has just started a part-time job. Rather than the son contributing to the household, Charalambous finds himself still supplementing his son’s income.
Where a tax issue can arise is where families might have an investment property that they offer to a child either free of rent, or at a discounted rate. This is seen as financial support for an independent adult child
“Even bringing up the topic of money can be difficult,” he says. “It’s important to try and approach this topic as soon as possible – and I’m saying it as a parent!”
Otherwise tensions can arise, for example when a child is spending money the parent wants them to save for their future.
“This can be the biggest bugbear for the parent,” says Charalambous.
Tax implications
But does accepting rent, or offering non-financial support by allowing an adult child to live at home, have implications for tax and inheritance planning?
Tax adviser John O’Callaghan, director of taxplanner.ie, says it is “relatively straightforward” when it comes to a child – adult or otherwise – living in the family home.
“There is no taxable benefit from living in the home,” he says, which means that there is no tax issue should you not charge rent.
[ Is a room rented under rent-a-room scheme restricted by RPZ rules?Opens in new window ]
Revenue guidance on the issue says an adult child living at home “does not give rise to a gift by the owner of the property to the family member”. So there is no need to try to attribute a value to “bed and board” provided by parents to a child – including that child’s spouse or partner.
And if you do charge your child rent, it is typically a sum that will go towards the expenses of the house, such as groceries, heat and broadband. As such, it’s not something Revenue would likely deem to be a taxable event.
Now if the rent is at a rate that is similar to market rents, such as charging €1,500 a month or so, it might result in an income tax bill for the parents – which would potentially negate the benefit of the rent in the first place.
And remember, the rent-a-room scheme, which allows you to earn €14,000 a year tax-free by renting a room in your home, does not apply between relatives.
But what if you take a larger sum as rent, and save it for your child?
According to O’Callaghan, this could be seen as a loan – the money is going to the parents and, after a certain period of time, it is paid back to the child. To be sure of this approach, it would be advised to draw up a loan contract, so it is not seen as a gift.
However, many parents choose not to tell their children upfront that this is the approach they are taking, and such a contract could give the game away.
With more adults living at home for longer, the dwelling house exemption is another issue that may come more into play.
This allows for a capital acquisitions tax exemption on the inheritance of a family home, provided that certain requirements are met.
“The big condition is that [the person inheriting has] no interest in other residential property,” says O’Callaghan, adding that “you must also have lived in the home for three years before the date of inheritance, and you don’t acquire an interest in another property” at the same time as you inherit the home.
Where a tax issue can arise, however, is where families might have an investment property that they offer to a child either free of rent, or at a discounted rate. This is seen as financial support for an independent adult child and Revenue tightened the rules on such benefits in response to perceived abuse of a previous regime.
Revenue says the free use of the house should be treated as a gift, “equal to the annual rental value each year”. Or if a discounted rent is charged, the difference between this and market rate will be considered a taxable gift.
Availing of the small gift exemption (which could amount to as much as €6,000 from two parents to a child each year) can help close the gap on this, before a child starts to hit their €400,000 tax-free threshold on gifts and inheritances.
But, as O’Callaghan notes, living rent-free in Dublin for a number of years, where market rent could be €30,000 a year, will eat away at someone’s entire €400,000 Capital Acquisitions Tax-free threshold.
In such cases, O’Callaghan suggests it can make more sense to simply transfer the investment property to the child.
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