Taxation is a very complex issue, Revenue has produced a guide called A Revenue Guide to Rental Income which can be viewed here
Is rental income liable to tax?
Residential property investment is a business, and like any business is liable to taxes. As a landlord you must file a tax return even if you only have one property and make a loss. Many landlords make a loss but still end up paying tax due to the penal way rental income is treated for tax purposes.
How is the tax on rental income calculated?
Rental Income is taxable under the Irish tax system. For most cases of rental income, the amount taxable can be calculated as follows:
Gross Rental Income less Allowable Expense less Capital Allowances = Taxable Rental Income.
What expenses can I offset against tax?
Certain expenses incurred may be used to reduce the income tax liability on rental income, these include:
- Qualifying mortgage interest (currently 80%)
- Management fees
- Advertising expenses
- Estate agent fees
- Insurance premiums
- RTB tenancy registration fee
- Legal fees for drawing up leases
- Mortgage protection policy premium
- Accountants fees for preparing rental accounts
- Refuse and other service charges – if paid by the landlord
- Cost of repairs and maintenance – this covers repairs and general maintenance of a property, however it is not possible to claim for your own time, for example, cutting the grass
- Wear and Tear
What expenses cannot be claimed for?
- Pre-letting expenses i.e. expenses incurred prior to the date on which the premises was first let apart from auctioneers letting fees, advertising fees and legal expenses incurred on first lettings.
- Post letting expenses i.e. expenses incurred after the period of the last letting are not allowable
- Expenses incurred in the letting of premises on an uneconomic basis are not deductible.
Expenses incurred in the period between lettings are deductible provided the landlord was not in occupation of the premises during the period and a new lease is granted.
How is tax on rental income paid?
Profit on rent is taxed on an actual tax year basis. Individuals taxed under the PAYE system who have rental profits must make a tax return under the Self Assessment system. Your accountant can complete this tax return for you.
What records must be kept for tax purposes?
You must keep full and accurate records of your lettings from the start. You need to do this whether you send in a simple summary of your profit/ loss, prepare the accounts yourself or have an accountant do it for you. All supporting records such as invoices, bank statements, cheque stubs, receipts etc should be retained. You must keep your records for six years unless your revenue office advises you otherwise.
When must the tax return be made?
The return must be made by October 31st of the following year. For example a tax return for rent received in 2016 must be made by 31st October 2017
How can I reduce my costs?
Residential property investment is a business activity and like any business, costs should be tightly controlled and reduced where possible. A landlord can cut costs and improve the financial return on his investment by focusing on the following:
- Get the best mortgage deal
- Avoid rental voids
Review your mortgage and insurance costs at least once a year to ensure you are getting the best available rates.
How are non resident landlords taxed?
On receipt of the annual tax return, profit from rent i.e. rent received less allowable expenses will be assessed. The landlord is entitled to claim relief for expense, which are usually allowed in arriving at the rental profit. The landlord is also entitled to a credit for the tax deducted by the tenant. Form R185 should be submitted by the landlord with the tax return to obtain credit for the tax retained.
What is the rate of capital gains tax?
Profits from the sale of an investment property are liable to capital gains tax at a rate of 33%. The chargeable gain is calculated by deducting any allowable expenditure form the amount realised on the disposal (sale).
The allowable expenditure may include:
- The cost of acquisition of the property and any costs of acquisition such as solicitors / auctioneers fees
- Any costs incurred in improving the value of the property
- Any costs of disposal such as solicitors / auctioneers fees
Expenditure on the costs of acquisition and improvement may be adjusted to take account of inflation. Where a disposal is made on or after 1st Jan 2003, the indexation relief will only apply for the period of ownership of the asset up to 31st Dec 2002. No relief is due if the period of ownership is less than 12 months.
Consult your accountant for more details.
If landlords and tenants are to have reasonable rents, good quality property, and an adequate supply, the Government need to sort out the tax treatment of the private rental sector to encourage more investment in it. Approximately 20% of all housing is in the rental market.
Please lobby your public representatives (TDs, Senators and Councillors) for fair treatment.