My son has come home from abroad and is now working in Dublin. Though well paid, he cannot afford to buy a house at the moment. He is staying with us while he saves money to buy his own place but is contributing a monthly amount in rent.
What I would like to do is set this aside for him in an account so that it could help towards a deposit when he does look at buying. But I don’t want him to know this. Can I open an account in his name? What tax implications are there to such an arrangement?
Mr S.C., Dublin
* This is such a common scenario that I am astonished that it has not crossed my desk before now. While it is great for parents to see a child returning from abroad to work in Ireland, the reaction for the adult child can be somewhat more ambivalent.
No-one wants to move back in with their family after they have established an independent life. At a practical level, it can be difficult for both sides to work out new boundaries as each asserts their independence in an environment where parental fiat has held sway. But, more than that, once a child has made the jump to independent living, there is a sense of failure in stepping back.
So it is great that both you and your son are at one on this issue.
The problem is the practicalities.
Put simply, modern money laundering rules are designed specifically to ensure the banks know and can stand over who they are dealing with. That means, critically, that they will not allow you set up an account in any name other than your own, or that of your business.
If you want to set up an account that is in your son's name, either they will have to open the account or they will have to be present with you when you set up a joint account in both your names.
The upside of a joint account is that it can avoid any potential tax issue. It can be stated clearly in the documentation establishing the account that the money belongs to the son and therefore there is no issue with him ultimately drawing it down.
The downside of this approach to a joint account is that, clearly, your son will know it exists which I get the impression you would rather keep from him, at least at this point. And they would presumably know what it is for.
Your son is already saving, so there is always the likelihood if you have to let them know what you plan to do that they will simply say that they can put the money that would otherwise be rent into their own savings account.
If they are a good diligent person with their finances, well and good, but many people struggle to, not least at times like this, with Christmas looming, or with an invite to an exotic wedding for friends. And that would undermine your efforts to help them onto the housing ladder.
If you decide to establish an account in your own name into which your son contributes and which you ultimately intend to give back to him, it could be seen as a gift back from you to the son and eat into his lifetime limit – currently €335,000 – that he can receive from his parents without facing a bill for capital acquisitions tax (inheritance or gift tax).
An upside of either approach, in terms of future mortgage borrowing, as Bank of Ireland mentioned when I raised this general query with them, is that it would establish your son's ability to make regular payments from his income and his discipline in doing so. That's the sort of record that can work in your favour when you are trying to persuade a bank to part with funds that they are not going to see back in full for 20 or more years.
So is there not a way that you can pay this young man’s money into an account in his own name without his knowing so that it is subsequently available to him as a surprise and welcome boost to his financial resources when he does look to buy a home.
* I thought there might be slightly unconventional solution, involving playing around the rules in a way the Central Bank would certainly not be happy with. That was based on a premise that the new "challenger" banks – outfits like N26, Revolut, Starling and Monzo – might not as yet be as rigorous in the information they seek in registering for an account. That won't work either as the challenger banks are subject to the same money laundering and "know your customer" rules as their more traditional counterparts.
Revolut and Starling have both been in touch to outline their registration requirements.
For Revolut, aside from seeking a customer’s name, email, physical address and a mobile to which they send activation details, they will also require a selfie and formal photo identification and passport details.
Starling, which does not as yet operate in Ireland, notes that applicants have to download the Starling app on their phone and submit a government-issued ID document as they fill in the application. They also have to submit a video recording of themselves, which is checked against the government ID. They add that, in certain circumstances, they can request additional information.
Both note that the procedures are specifically designed to ensure that people cannot “onboard” – i.e. register – family members, or anyone else, under false pretences. Starling says that if someone tried to open an account pretending to be someone else. it would know “and we may have to report them to the authorities”.
No doubt, similar arrangements are in place at N26 , Monzo and others to ensure the same security over their registration process.
Personally, I’d stick with the joint account option and spin him a yarn that the purpose is to ensure that, if anything happened to you, he would have access to some funds that were not frozen.
One last thought: I’m not sure Revenue has ever got around to the tax situation on money paid by a child to their parents for rent and upkeep but there is a distinct chance it would count as income for you, the parents, and that opens up a whole world of tax issues in itself. We might return to that at a later date.
* This article was edited on November 20th to clarify the position on registering with online challenger banks.
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.
