Over recent years many people who have never had any ambitions to be a landlord, have found themselves reluctantly becoming one. Having outgrown their home for which they overpaid, they are left with no option but to rent it out, as selling is simply not an option.
More recently, there has been a lot of media coverage on the taxing of income derived from letting out rooms in their home through the online booking site Airbnb.
In this edition we will cover the obligations of landlords and ways to ensure you do not pay any more tax on your rental income, than is absolutely necessary.
Once you are in receipt of any income from rental income, in Ireland or abroad, you are legally required to file an annual tax return. There is a misconception amongst some landlords that you only need to file a return with Revenue once you are make a rental profit.
This is not the case, it is just as important to file a return and declare any rental losses, as these declared losses can be carried forward against any future profits. What you perceive to be a loss though, might actually be a profit in Revenue’s eyes as we will see below.
If your rental profit exceeds €5,000 in the tax year, you are required to register for income tax under the self-assessment system. To avoid any late filing surcharges, your obligations are the following:
Pay preliminary tax by the 31st October for the current tax year
File your tax return by the 31st October the following year on a Form 11
Should your profit be less than €5,000, you can continue to file a PAYE tax return annually using a Form 12. Revenue may also allow you to “code on” your rental profit onto your tax allowances. Effectively this involves Revenue reducing your tax credits and tax bands, resulting in you paying your tax on your rental income through your pension over the year.
As mentioned above, what landlords perceive to be profit is very different to Revenue’s view. This is mainly due to the fact that Revenue restrict the amount of your mortgage repayments which are allowable as a deduction to 75% of the interest only. This is outlined in the below example.
* Assuming 80% of the full repayment is interest, restricted to the allowable amount of 75% of the interest only.
As you will see the difference between a landlord’s view and Revenue’s view is €480, and that is just one month. However, other allowable expenses can be used to reduce your rental profit further, examples of just some of these are:
> House Insurance > Mortgage Protection
> Management Fees > Letting Fees
> Repairs & Maintenance > Accountancy Fees
> Bank Fees & Charges > Wear & Tear on furniture**
**Wear & Tear at 12.5% is claimable on any fixtures and fittings each year for a maximum of eight years.
Once your rental profit (if any) has been established, Tax (40%), USC (7%) and PRSI (4%) are due on this profit. If you are over 66 years of age certain reliefs maybe available for both PRSI and USC.
Other landlord Obligations
As if paying your taxes is not enough, landlords do have other obligations to satisfy:
PRTB – You must register your tenancy agreement with the Private Residential Tenancies Board (PRTB). This must be done for every new lease or every four years if there has been no change in tenants. Generally the PRTB will write to you to remind you of this obligation.
If you register a new lease within two months of the start of the lease, PRTB’s charge is €90, it doubles to €180 after two months. This expense is allowable as a tax deduction.
It is important to note that if you do not register your lease with the PRTB, Revenue will not allow you take a tax deduction for your mortgage interest, which could be very costly.
Local Property Tax (LPT) – The payment of the Local Property Tax falls to the landlord. However, Revenue do not allow this expense to be deducted against rental income.
Mortgage Interest Relief – In the event where a person begins renting out their own home, it is important that they immediately cease any mortgage interest relief that they may have been getting from Revenue. Mortgage interest relief is only available for qualifying owner occupiers.
Building Energy Rating (BER) – Landlords are obliged to obtain and make available a BER certificate for their property.
Rent a Room Relief
So the kids have flown the nest, you find yourself with empty rooms in your home and living on your pension. Your most prized asset, being your family home, could also become a source of tax free income for you.
Introduced to increase the availability of residential accommodation, Revenue allow you to rent a room or rooms in your own home without any tax falling due on this income.
In order to qualify the following conditions must be met.
It must be your principal private residence
The income must not exceed €12,000 per calendar year (€10,000 prior to 2015). This includes amount for rent, food, laundry etc.
You must declare this income in an annual tax return
It is important to note that if you exceed the limits set out above, you could be potentially taxed on all of your rental income, not just on the amount that you exceeded the limits by. There are no requirements to register with the PRTB if you are renting out rooms in your own home.
So to conclude, whether you are, or intend to become a landlord, you have a number of obligations and will most likely have to pay tax on your “profits”, although in reality you may not be making any. However, with rising rents and a steady increase in property prices, it is not all bad news!