Landlords: All you need to know about tax on your rental property
Tax for landlords on rental income
In this article, we will cover the basics of income tax as it relates to rental properties.
If you are a landlord, you have to consider the tax implications of letting property.
We will be focus on the income tax implications for landlords. More specifically, how you calculate the taxable profit, how much tax you’ll pay, and when.
Paying tax on rental income
An individual must assess their tax position each year under self-assessment. The tax year in Ireland runs from 01 January to 31 December – i.e. the calendar year matches the tax year in Ireland.
Landlords receiving rental payments from tenants will need to assess their income tax position and reporting requirements with Revenue in the form of a tax return.
If you let out a room in your main home, and live alongside your tenant, rent-a-room relief can be claimed on a tax return. This allows an individual to earn up to €14,000 per tax year ‘tax free’. Aside from this relief however, you must calculate and pay income tax if a rental profit is made.
An individual that moves abroad and lets out their Irish residential property will need to consider additional tax reporting requirements. A non-resident status will require either the tenant withholding a portion of the rental income and remitting it to Revenue, or otherwise you appoint a collection agent in the state to manage your rental income. Often a collection agent is appointed.
How is tax calculated on rental income?
1. Income
When a landlord receives a payment from the letting of a property, they will need to consider whether this is assessable as gross income for income tax purposes.
The following types of payments will be classified as income:
- rent payments, this could be weekly, monthly or yearly
- reimbursement of expenditure incurred, such as utility bills, repairs or cleaning costs
- non-refundable deposits
- money kept from refundable deposits
In many cases you are taxable on the sum you are entitled to receive under a lease agreement.
2. Allowable expenditure
Once rental income for the period has been established, an assessment of allowable expenditure must be undertaken.
Expenditure incurred wholly and exclusively for the purpose of the rental property, which is not capital in nature, can be deducted against rental income. Capital means expenditure that enhances and improves the value of the property.
The following types of expenditure can be deducted against rental income:
- Letting agent and professional fees
- Legal fees on lets of a year or less
- Accountancy fees incurring in relation to the letting business
- Costs of maintenance and repair work
- Utility bills, such as, gas, electricity etc.
- Insurance, such as building and contents
- Rent, ground rent and service charges
- Advertising costs for new tenants
- Services such as cleaning or gardening
- Stationery, postage costs and telephone costs
- Costs of replacing domestic items
Some landlords may incur finance costs, such as mortgage interest. This is also an allowable expense. It is worth noting that it is the interest element of the mortgage payment which is allowable, the capital element is not deductible.
You can also deduct a wear and tear allowance, for furniture or white goods purchased for the property. This wear and tear allowance is allowed over 8 years at a rate of 12.5%.
Once you have collated your income and expenditure, you can deduct the total allowable expenditure from the rental income, in order to calculate your taxable profit arising for the year.
How much tax do you have to pay on rental income?
Your rental profit is subject to tax at your marginal rate of income tax. This means it is added to your other taxable income which arises in the tax year.
PRSI and Universal Social Charge may also apply depending on your personal circumstances.
Rental income tax on multiple property lettings
If you own multiple properties, you calculate your rental profit on a property-by-property basis, and then you will need to consolidate your income and expenditure to calculate your taxable profit arising for a tax year.
Individuals owning property in both the Ireland and overseas will need to keep these income and expenditure streams separate. Effectively you need to treat this as two separate rental businesses for income tax purposes. Further, these profits will be reported separately on your self-assessment tax return.
From a practical perspective, landlords should ideally be keeping their rental finances separate from their personal expenditure. This will certainly aid with reporting and delivery of information if an accountant is dealing with your affairs.
How to pay income tax
Landlords are required to pay income tax through self-assessment in most cases, via Revenue’s ROS system.
Landlords who receive Irish rental income but live outside the state may have tax withheld at source by their letting agent or tenant. The rent is still taxable in the Ireland and Revenue will still require a self-assessment tax return to be submitted.
For a tax return to be issued, an individual will need to register for self-assessment on ROS.
When do you pay income tax?
Where a liability has arisen an individual will need to pay the outstanding tax by 31 October following the end of the tax year. This deadline is often extended by approximately 2 weeks to allow for electronic filing of tax returns.
Declaring losses
If your allowable expenditure is more than your rental income in a tax year, a loss for your property business will arise. These losses will be carried forward and offset against future profits you make on your rental business.
Taxes on selling properties
When selling property, you will need to assess whether capital gains tax (CGT) is payable. This is especially necessary for disposals of properties that are buy-to-lets, i.e not your main home.
Individuals selling UK residential properties will need to be aware of the additional reporting requirements set out by HMRC.
Last updated: 21st August 2024