Tax is charged in respect of any rents received from the letting of any property within the State.
Therefore it is a requirement for any individual who rents a property situated Ireland in whether Irish resident or not to file an Irish tax return with the Revenue Commissioners.
There are a number of different items to examine with regard to the computing of the net rental income assessable to tax.
In calculating the rental income that is chargeable to tax, the following expenses may be deducted:
I. Rent payable on the property
II. Rates payable on the property
III. Goods provided and services rendered in connection with the letting of the property
IV. Repairs, insurance, maintenance and management of the property
V. Interest on borrowing taken out to purchase, improve or replace the property
In relation to point (v) above, interest is deemed to accrue on a daily basis and from 01/01/2002 – 06/04/2009 100pc of this interest was allowed as a deduction from rents. From 07/04/2009 however, only 75pc the interest will be allowed as a deduction from residential property lettings. The 100pc deduction will remain for those letting commercial properties.
Interest accruing prior to the first letting of a property is not deductible.
It should be noted that interest will not be allowed as a deduction for the 2006 tax years onwards unless the property in question has been registered with the Private Residential Tenancies Board (”PRTB”).
In the case of a company, this requirement becomes effective for accounting periods beginning on 1 January 2006.
VI. Capital Expenditure
Capital allowances may be claimed on the provision of fixture and fittings where:
- The expenditure is incurred wholly and exclusively in respect of a property which is or is to be let as a furnished property, and
- The furnished property is provided for letting on bona fide commercial terms in the open market.
From 04/12/2002 the rate of capital allowances (ie, wear and tear) to be claimed on qualifying capital expenditure is 12.5pc on a straight line basis.
For example, if an individual purchases an item qualifying for capital allowances, eg, a kitchen unit for €1,000 for use in a rental property, then a deduction of €125 can be claimed each year for eight years from the gross rental income.
The claiming of capital allowances effectively spreads the tax deduction available on an item over a period of eight years, rather than claiming all of the cost in the first year.
It should be noted that where there are rental losses coming forward from the prior year, then the capital allowances must be deducted before these losses when computing the net rental income.
VII. Expenditure on Rented Accommodation
This applies to ‘Section 23′ rental properties, provided a certain set of conditions have been met.
VIII. Accountancy fees incurred in the preparation of the rental accounts.
IX. Certain mortgage protection premia taken out since 2002.
Where an individual rents a room (or rooms) in their principal private residence located in the State, and the gross income received, including sums arising for food, laundry and similar goods and services, does not exceed €10,000 (from tax year 2008 et seq.), this income will be exempt from income tax. Where the income exceeds 10,000 then the entire amount is taxable.
Example: Joe is renting a room in his home to Mary, a student. Mary agrees to pay Joe €1,000 per month for the nine-month college year, including food and laundry and her portion of bills. As this amount is below the threshold of €10,000 then this amount is exempt from income tax for Joe. If Mary paid Joe €10,001 for the nine months, then the entire amount would be taxable. It should be noted that Mary is entitled to a credit for the rent paid at the standard rate of income tax i.e.
The relief is available to individuals only. There is no deduction for expenses incurred in ascertaining the rental income, and if the income does not exceed the €10,000 yearly limit, then the profits/(losses) are deemed to be nil.
This income is not subject to PRSI, Health Contribution or Income Levy, but must be included in the individual’s Income Tax return.
Rents paid to Non-Residents
Rents payable directly to persons whose usual place of abode is outside of Ireland must be paid under deduction of tax at the standard rate (currently 25pc) and the tax must be paid over to Revenue.
The tenant should give the landlord a Form R185 to show that the tax has been deducted. The landlord is chargeable on the gross rents less any allowable expenses, and will receive a credit for the tax deducted at the standard rate.
Rents paid to an agent in Ireland acting for the non-resident landlord will not be paid under deduction of tax and the agent will be assessed to tax in the name of the non-resident landlord in the same manner as if the non-resident landlord were resident in Ireland.
Rental losses incurred in a year of assessment can be carried forward and set off against rental profits for any subsequent year of assessment.
As noted above, rental capital allowances arising in a year must be deducted in priority to rental losses brought forward from a prior year.
Reducing Tax Liability
With interest rates at historic lows, many individuals may have found that their taxable rental income is higher than a few years ago. This is exacerbated also by the claimable interest now restricted to 75pc of interest paid. Instead of paying tax at one’s higher rate, it may be worth considering investing money in improvements to the property which will reduce the taxable amount accordingly.
Non Principal Private Residence (’NPPR’) Levy
This is a €200 levy on any property other than your principal private residence. For 2010, this applies to properties owned at 31 March 2010. The final deadline for payment of the above charge is 30 June 2010. A late payment fee of €20 per month applies. It should also be noted that this levy is not deductible from rental income.
It should be remembered that the €200 levy is applicable on each non principle private residence an individual owns and applies to residential but not commercial property. It is payable to the local authority in which the relevant property is situated.
Simon is the Principal of SB Tax Consultants and specialises in the areas of corporate and personal tax planning work and the preparation and filing of returns for both companies and individuals.
Monday, 13 September 2010, 2:46pm
By Simon Ball