Tax on rental income – the key questions answered
Is rental income liable to tax?
Residential property investment is a business, and like any business is liable to taxes.
If you own a rental property in Ireland, you’re legally obliged to file an annual self-assessed tax return with Revenue.
Taxback.com offer a specific landlord tax return service, as part of the service you will have your own dedicated Account Manager who will make sure you don’t miss the annual tax deadline for declaring rental income and ensure you claim all the relevant deductions available to you.
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How is rental income taxed?
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 taxes are landlords liable for?
Landlords are liable for the following taxes:
· Income tax on rental income (incluidng PRSI and USC)
· Stamp duty on property purchase
· Capital gains tax on disposal
Rental income on investment property is subject to income tax. It is therefore vitally important to maintain proper records of rents received and details of expenses incurred. All receipts should be kept for inspection by the revenue if required.
Capital Gains Tax
The sale of an investment property is subject to capital gains tax. The current rate of capital gains tax is 33%. Certain costs are allowable when calculating the liability for capital gains tax:
· Capital spent on enhancements to the property
· Costs incurred in the purchase and sale of the property such as legal fees and estate agents fees.
Can I offset any expenses?
Yes, certain expenses are allowable against rental income when calculating your tax liability.
Certain expenses incurred may be used to reduce the income tax liability on rental income, these include;
· Qualifying mortgage interest (currently 75% for residential property* and 100% for commercial property)
· Management fees
· Advertising expenses
· Estate agent fees
· Insurance premiums
· Legal fees for drawing up leases
· PRTB registration fee
· 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 (see capital allowances)
*A landlord who rents a property to a tenant on social welfare for a period of 3 years where the rent is paid by a local authority (eg HAP or RAS) may apply to the Revenue, after the end of the 3 years to claim 100% rather than 75% deduction for interest on borrowings. The intention to avail of this benefit must to included on the RTB registration form.
Note: Pre-letting expenses are not an allowable deduction. If you do repairs to the property yourself, it is not possible to claim your own labour as a cost.
Important: Properties must be registered with the Private Residential Tenancies Board in order to claim mortgage interest as an expense!
Relief against income tax is allowed on items that are purchased to furnish the property. The current allowance is 12.5% of the cost over 8 years (effective since Dec 2002) For example, if you purchase a suite of furniture for €1,000 a capital allowance of €125 per year can be off-set against the rental income for tax purposes for the next 8 years.
A profit on one rental property can be offset against a loss on another property owned by the same landlord.
Losses on rental income
A loss on rental income can be carried forward to the next tax year but it cannot be offset against tax on other income e.g. PAYE
A loss on rental income can only be carried forward against future rental profits. The loss must be claimed in the relevant tax year and carried forward. If the loss is not claimed in the relevant tax year it cannot be used in a future tax year.
Tax on rental income – how is it 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.
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 2014 must be made by 31st October 2015
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.
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.
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