PARENTS wishing to help their kids to beat the house price inflationary spiral could call on support from an unexpected source – the taxman. The move will require the parents to buy the home and rent it out, or rent it to the child at market rents. They will need the to charge the VAT also.

To do this they will have to register for VAT as a sole trader before buying the home. This will allow them to claim back at the VAT from the outset. On a 250,000 new home, parents can effectively archive a 32,500 interest-free loan from the VAT man to whom it is paid back over seven or eight years.

Fergal O'Gara, of lowEQ financial consultants, says that if they wish to pass the ownership of the home over to the children before that time, then parents may need to ensure that the full VAT reclaim has been paid back and to deregister with the VAT man. Furthermore if the parent has paid of the mortgage and is gifting the house to the child, then the child may have to pay capital acquisitions tax on the value of a home worth more than 365,000.

The main advantage is that parents can reduce the amount that they need to either borrow or to contribute themselves if they wish to enable their children to buy a home while prices are still affordable.

Over eight years this could mean an estimating on interest and tax of €20,470 on income tax payable on rent from the property. These VAT returns will also reduce the net amount of the rent available to repay the mortgage. As a result the investor may need to make up the difference from their VAT refund in the early years of her investment.