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New to the landlord game - Don't ignore your tax bill!
Don't ignore your tax bill
Given the current housing crisis facing the country and almost daily updates on the state of the rental market, landlords have been faced with a huge increase in new rules and regulations to abide by when dealing with tenants.
Between Rent Pressure Zones and the Residential Tenancies Board landlords both new and seasoned face a continuous struggle to keep up to date with the numerous changes.
The one constant, however, is that if you are renting out property in Ireland you must report your income and expenses to the Revenue Commissioners each year or face the prospect of fines and penalties for not doing so.
So what steps should you take…
Register with Residential Tenancies Board
It is a legal requirement that each new residential tenancy must be registered with the Residential Tenancies Board providing them with all relevant information e.g. length of lease, rent charges, address of property, details of tenant etc.
Besides the obvious legal obligation, you must register with the RTB in order to be able to deduct any mortgage interest paid by you against your rental income.
Failure to do so can result in revenue disallowing the interest and leaving you with a vastly increased tax bill.
Ensure that you are getting the most from your mortgage interest
The biggest tax deduction you are likely to have as a landlord is your mortgage interest repayment and it is also the area of most confusion.
For most people their monthly mortgage repayment will be made up of a capital repayment and an interest repayment – only the interest element qualifies for tax relief against your rental income.From 2009 – 2016 only 75% of the mortgage interest paid in the tax year could be offset against your rental income. For 2017 this was increased to 80%, with a further increase in 2018 to 85%.
From 01 January 2019 the deduction for mortgage interest paid has been fully restored to 100%.
Pay your Local Property Tax
It is the obligation of the landlord and not the tenant to ensure that the correct Local Property Tax has been calculated and paid on each property that they own.
Revenue can impose severe sanctions for those who fail to pay their property taxes on time –they can withhold a tax clearance cert which can be very damaging to any other business interest the landlord may have.
They can also impose a 10% surcharge on your income tax liability if local property tax returns are not completed and paid in full – often leading to charges far in excess of the local property tax itself.
Keep copies of all invoices and expenses
If Revenue ever do come knocking and looking to audit your rent calculations they will expect to find detailed summary documents and copies of invoices for each expense you claim in your tax return.
In the absence of these invoices, Revenue are well within their powers to disallow the expenses and look for additional taxes along with interest and penalties.
A separate file should be kept for each tax year and it is also advisable to set up a separate bank account for income and expenses related to the property. This can avoid any confusion as to what was paid and when at a later date.
Don’t indulge in DIY – get an expert involved
“I make the same mistake with my taxes each year – I try to do them myself!”
The rules around the taxation of rents change each year and it can be difficult to keep up with all the changes.
The Revenue guidelines around what expenses can and cannot be claimed are quite strict and getting it wrong can mean costly unforeseen bills landing on your doorstep.
By engaging with your TaxAssist Accountant you have the peace of mind of knowing you are dealing with an expert who will ensure that you are paying the right amount of tax.
Your accountancy fee is also an allowable deduction against your rental income so the true cost will be a lot less than you might think!
Frequently Asked Questions
Landlords need to register each of their tenancies with the Residential Tenancies Board (RTB) every year. This must be completed within one month of the anniversary when the tenancy began.
Yes, if you rent out a property you need to file a Tax Return each year and you will pay income tax on the difference between the rents you have charged in a tax year, less any allowable expenses and charges.
Yes, if you make money from renting with Airbnb you need to file a Tax Return. Also, where an Airbnb host generates income of €40,000 per annum they must register for and charge VAT at the appropriate rate and file the appropriate VAT Returns.
If you are an Irish resident, any rental income earned on an overseas property will also be subject to the Irish tax regime. You will be able to claim deductions to reduce your rental profit in the same manner as you would for your Irish property.
No, Local Property Tax (LPT) cannot be claimed as a deduction from your rental profit.
You need to make a Tax Return on your investment property regardless of whether it is profit or loss making. However, you should know that if you make a loss in one year this loss can be carried forward to reduce any future rental profits hence lowering your tax bill.
You may be able to reduce your taxable profit by claiming rental expenses incurred such as mortgage interest, repairs and maintenance, insurance and accountancy fees.
Capital allowances are an annual allowance for expenses incurred on capital items. An example of a capital item would be if you purchase a new boiler. Because this is considered a capital item for the property, the cost of this will be allowed over eight years.
From 2018 a new deduction of up to €5,000 per property for pre-letting expenses of a revenue nature are allowable subject to the property being vacant for a period of 12 months or more.
If you sell a property which is not your principal private residence you will be liable to capital gains tax (CGT) on any gain you make on the sale.
As part of Budget 2024 the Minister introduced a new landlord tax relief for the years 2024 to 2027. For these years, tax relief at the standard rate of tax will apply to a certain amount of rental income. Find out more
NLWT stands for Non-Resident Landlord Withholding Tax. The new NLWT system enables tenants or collection agents to make Rental Notifications (RN) when making payments to a non-resident landlord.
Date published 19 Jul 2017 | Last updated 21 Aug 2024
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
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