Renting out a Property - Top Tips

Renting out a Property - Top Tips

With the October 31^st deadline fast approaching, we highlight some key areas of tax that property owners should be aware of in order to comply with their responsibilities. We’ve also outlined some Top Tips to keep you on the right side of the taxman and to help you reduce your bill!

 

Principal Residence vs. Investment Property

 

It’s important to note the difference between your principle private residence and an investment property for both income tax and capital gains tax purposes.

 

Top Tips! – Principal Private Residence (PPR)

 

If you rent a room in your principal residence to a third party you may be entitled to earn up to €10,000 tax free (this is referred to as Rent a room relief). If the money you generate exceeds this then the total amount becomes taxable.

 

When you sell your private house you should not have to pay any capital gains tax

 

Top Tips! – Investment Property

 

If you rent out an investment property there is no relief available, the entire rental profit is subject to tax. You will however,  be able to reduce the taxable profit by claiming rental expenses incurred such as mortgage interest, repairs and maintenance and accountancy fees.

 

When you sell your investment property the entire gain will be subject to capital gains tax. This gain can be reduced by including professional, solicitor and auctioneer fees etc.

When is a tax return required?

 

You will not be required to file and income tax return if you are claiming Rent a room relief, or if you sell your principal residence.

 

You will be required to file a tax return if you let or sell an investment property.

There are conditions in both cases and in some instances, there may be reliefs available but the above can be taken as a general rule.

Top Tip!

There is a common misconception that when a property is let, it only needs to be declared on a tax return once it is profitable. This is not the case. Your investment property information needs to be returned regardless of whether it is profit or loss making.

 

By declaring this information now to Revenue you can easily carry the loss forward to offset against future Irish rental profit.

 

If you don’t return a tax return and the correct loss information, Revenue may simply disallow this at a future date.

 

 

 

 

Local Property Tax (LPT)

 

The LPT applies to investment properties in Ireland. It should be noted that Revenue are pooling all this information and cross referencing people who have paid the LPT against the rental income details of their tax return. This is making it easier for Revenue to identify non compliance with both LPT and the declaration of Rental income.

 

Revenue are also enforcing surcharges on income tax returns where the LPT has not been paid, making it even more important to file and pay your LPT and income tax on time.

 

 

Overseas properties

If you are an Irish resident, any rental income or gain on the sale of an overseas property will also be subject to the Irish tax regime. You will be able to claim deductions to reduce your rental profit or gain in the same manner as you would for your Irish property.  

You may also be liable to tax in the foreign country and should consult an accountant in the relevant country. If you pay tax abroad, you will be able to offset this against your Irish tax, provided Ireland has a double tax treaty with the foreign county.

Any loss on foreign rental property is restricted to your foreign portfolio it cannot be offset against Irish income.

LPT does not apply to foreign investment properties.

 

Mortgage interest repayments

Mortgage interest incurred can be claimed as a deduction against your rental income however this relief is restricted to 75%. You cannot claim relief on any of the capital repayments you make against your mortgage.

Top tip!

You will need to register with the Private Residential Tenancies Board, (PRTB). If you are not registered with the PRTB you will not be allowed to claim mortgage interest relief, so it is important you do this.

Joint Ownership

Revenue will normally treat rental income from a property held in joint names as if it belonged in equal shares. However, if you actually own the property in unequal shares and are entitled to the income arising in proportion to your investment, then you have the right to be taxed on that basis. You must simply contact the Revenue Commissioners to put this into place. However, do note that they will expect to see some evidence to support your claim for the income apportionment.
 

 

 

 

 

 

Moving out and renting your home

Moving out of your property converts the house into an investment property rather than your Principal private residence. Any rental income (less any tax deductible expenses such as mortgage interest) on the let of your former home is taxable and would need to be declared on your tax return.

Top Tip!

You may wish to operate a separate bank account for rental activities, to improve efficiencies from an administrative perspective.

 

 

It is recommended that you speak with a professional such as your local TaxAssist Accountant before making any significant purchases or decisions about your property portfolio. Their advice could save you a lot of unnecessary tax being paid to the Revenue Commissioners!

Last updated: 26th September 2014