Irish Property, Living Abroad – What To Do About Tax

December 24, 2012

Do you live outside Ireland but own an Irish property? Are you worried about Irish Income Tax or Property Taxes? If so, read on…

If you own an Irish property but live in Northern Ireland or overseas, you will be liable to Irish Income Tax on your rental income, in addition to Property Taxes on the property.

Income Tax

As a non-resident landlord with Irish rental income, you are subject to a series of special Income Tax rules.

1. You will first need to register yourself as property owner for income tax with Revenue, with effect from the date you first start renting the property. Ideally, you should register with Revenue as soon as you first receive rental income although it is possible to register retrospectively.

Irish Property, Living Abroad & Tax – What To Do

2. You should also register with Revenue a person you nominate as your ‘Collection Agent’ for Revenue income tax purposes.

3. Once your rental commences, you will need to register your tenancy/tenancies with the Residential Tenancies Board (RTB).  Otherwise, you will not be entitled to claim mortgage interest as a deduction against taxable rental income. Since May 2009, the amount of mortgage interest you can claim as a deduction against rental income is capped at 75% of the total interest charge.

4. If you are currently receiving mortgage interest Tax Relief at Source (TRS) on the property, you will need to contact Revenue TRS Unit to have this cancelled.

You will be liable also to repay to Revenue any TRS you have been paid since you vacated the property.

To engage with Revenue TRS unit, you will normally just need your PPS number, mortgage account number and your property address. I have always found them to be efficient and helpful.

5. After the end of each year, you (or your accountant) need to complete a Rental Profit & Loss Account  and income tax return, and file these with Revenue.

The Irish Income Tax system works on a calendar year basis, ie each tax year starts on 1 January and ends on 31 December.

It may transpire that you have little or no tax liability for each year (particularly if there is a large mortgage and you have registered with the PRTB) but you won’t know this for certain until each year’s tax return is prepared.

If you are not entitled to any Irish tax credits as a non-resident, your Income Tax liability will normally be a flat 20% of your rental profit for the year. (A higher tax rate of 40% applies to any excess profit over €33,800 in 2016 & 2017).

You may also be liable for Universal Social Charge or USC on your rental profit, but you should be exempt from PRSI on the basis that you are non-resident.

6. Your tax return for any given year is due for filing by the following 31 October, and this is also the payment deadline for any tax liability you have. For example, you must file your 2016 tax return and pay the liability by 31 October 2017.

The deadline for filing a 2015 return was 31 October 2016, with corresponding deadlines for earlier tax years.

Going under!

If you have a number of annual tax returns outstanding, it is important that these are completed and filed at an early date, in order to minimise the risk of Revenue applying interest or penalties or late or non-filing.

In my experience, once an individual makes a decent effort to bring their tax affairs up to date within a reasonable timescale, Revenue are generally helpful and co-operative.

A 5-10% tax surcharge automatically applies to late-filed returns, eg a liability of €500 is increased by 10% to €550.

Revenue routinely apply this surcharge when processing late-filed returns, but if late returns are filed voluntarily (eg without prompting from Revenue & in advance of any Revenue audit notification or warning being issued) they may, in individual cases, opt not to charge additional penalties or interest.

However, if you find yourself in this position, you need to tread very carefully.

If Revenue believe you have underpaid tax, or made incomplete tax returns, they have extensive powers to impose more serious penalties and interest charges, and they reserve the right to initiate prosecution for suspected evasion.

For this reason, I recommend that you seek professional assistance if you are filing late or are uncertain as to what to do.

Property Tax

In  addition, all owners of Irish residential  property are obliged to register and pay an annual Local Property Tax (introduced on 1 July 2013)  Interest and penalties apply to late payments.

Updated 16 January 2017


This Saturday is Capital Gains Tax Deadline Day

December 13, 2012

Next Saturday, 15 December, is the deadline for payment of Capital Gains Tax on disposals in the period from 1 January to 30 November 2012. If you made a Capital Gain during this period, you must pay your Capital Gains Tax liability by Saturday, or face possible interest charges for late payment.

Capital Gains Tax (CGT) normally arises on the sale of property or other assets. However a liability can also arise on other occasions when an asset changes hands, for example when an asset is gifted or exchanged for another non-cash asset.

CGT can also arise in certain other situations where a capital sum (eg insurance proceeds) is derived from an asset.

Capital_Gains_Tax Deadline 2012

The rate of CGT for the period January-November 2012 is 30% of the Capital Gain. The increased rate of 33% announced in the recent Budget 2013 applies only to disposals after Budget Day, 5 December.

If you have a liability for January-November 2012, you must, by Saturday:

  • Calculate or estimate your liability.
  • Send a cheque or draft for that amount to the Collector General, FREEPOST, Francis Street, Limerick.
  • Attach to your payment,  a CGT payslip which includes your name, address and PPS number.

If you expect to have a liability but don’t yet know the exact amount, you should nevertheless pay your best estimate by Saturday. In order to avoid becoming liable for interest charges, I would recommend in such situations that you should consider paying a little more than your expected liability.

Therefore when you finalise your Capital Gains Tax position by filing an Income Tax Form 11 or Capital Gains Tax Form CG1 Return for 2012, Revenue will refund you the amount you have overpaid.

The Revenue.ie website includes some useful guidance on Capital Gains Tax but I recommend that you seek professional assistance if you suspect that you may have a CGT liability.


Festive Strikeoff for 145 Co-op & Friendly Societies?

December 7, 2012

In a new, get-tough policy, the Registrar of Friendly Societies has published a list of 145 societies which are to be removed from the Register on 21 December next.

The list includes a range of agricultural, community and other co-operatives, and registered friendly societies, all of which are governed by the Industrial and Provident Societies Acts, the Friendly Societies Acts, and the Trade Union Acts.

Registry of Friendly Societies regulates Agri & other co-operatives

The Registrar states that each of the societies concerned has “violated Section 14 of the Industrial and Provident Societies Act 1893”, by having “failed to send annual returns to the Registrar.”

If you are a member or officer of, or are otherwise responsible for, a Co-operative or Friendly Society, you should check the list carefully to ensure that your Society is not included.

You can check the current status of any registered Society online on the RFS website. Obviously, if your Society is facing removal from the Register, you should ensure that all outstanding returns are filed immediately.

For more information on the Registry of Friendly Societies, see their 2011 Annual Report.


Budget 2013 – Some initial thoughts

December 5, 2012

Some of my initial thoughts on (a rather unimaginative) Budget 2013:

Local Property Tax

I predict that the new Local Property Tax will create much difficulty for the Government within the coming year.

While Revenue will provide “valuation guidance”, this is likely to be tailored more to their own objectives (ie, raise as much tax as possible) than those of the property owner (the opposite) and will not be a particularly appetising option. The alternative option to hire “a competent valuer” to value one’s property will rankle with many people, especially as auctioneers and valuers:

  1. will, (quite properly), charge a fee for their services.
  2. as a group, have a long record of overvaluing properties (one of the main contributors to the Tiger-era bubble)
  3. have a vested interest in renewed property price inflation.

NPPR €200 Property Charge

Given the mess that the local councils have made of collecting the Household Charge (HC) and NPPR, it is quite correct that the new tax will be collected by the Revenue Commissioners. However, as with the HC & NPPR, I think it is a serious error to make the owner, not the occupier, liable. Quite simply, I believe that people should be encouraged, within reason, to own their own homes and the property market is likely to remain in the doldrums if individuals and families are incentivised to rent rather than own their homes.

The €50,000 ‘bands’ for the property tax are too narrow and in my view are a temptation to evasion. A wider band, of €100,000 or €150,000 would have generated the same tax revenue with a lot less scope for undervaluation.

It seems that  a minimum rate of €90 will apply to properties valued under €100,000. This may be okay for someone living in a €100,000 property (which may be more numerous than the Minister expects, given the quoted prices on local and online property listing), but a €90 charge is scarcely justifiable in the case of a person living (or more precisely existing) in poverty in a semi-derelict, low value property.

Among the Property Tax payment options is the facility to pay in cash. This is rather  ironic in the light of Revenue’s stated determination to stamp out the cash economy and the government’s wider policy to move towards a cashless society.

The facility for voluntary deferral of the Property Tax entails an interest charge of 4% p.a.  This is not the highest interest charge on the planet, but given the fact that people who opt for deferral will only be doing so on the basis that they are already in straitened circumstances, the fact that they are facing an additional interest charge will only add to their woes.

It is good that the Household Charge is being abolished  from 1 January 2013, but it is an absolute, and gratuitous, disgrace that the NPPR Charge on non-owner occupiers will be charged for 2013 in addition to the Property Tax. Another example of double taxation.

Business

I predict that the much touted “10 Point Tax Reform Plan” for SME’s will make little or no difference to almost all firms.

Budget 2012 Business Reliefs

The 3 Year Corporation Tax Relief for Start Up Companies has already been significantly diluted in earlier Budgets, and I honestly see little point in continuing with it, except perhaps for political window-dressing purposes.

The €250,000 increase in the VAT cash receipts basis threshold  (from €1 million to €1.25 million) is indeed a welcome measure, as is the doubling of the “initial spend” eligible for the R&D tax credit (from €100,000 to €200,000).

However the extensions to the Foreign Earnings Deduction for work related travel will need to be dramatic if they are to be of any use to Irish businesses. The Budget 2012 measure which allowed for this Deduction to apply only for travel to Brazil, Russia, India and China was laughably restrictive.

News of a long-awaited diesel rebate for hauliers, to apply from 1 July 2013, is very welcome, but the devil will be in the detail.

I fear that the new “PlusOne initiative” to employ long-term unemployed workers will be more window dressing.  The Irish economy needs small businesses and sole traders to hire more workers. If every one of our 270,000 sole traders (as per 2010 figures) and many more small companies, employed one extra person next year, our unemployment problem would be well on the way to being resolved. However this is unlikely to happen and I fail to see the logic in telling a young graduate (or even a not-so-young non-graduate) that they must rot on the dole for 6 months before an employer can be incentivised to hire them.

Farming

The extension of the farmers’ 25% & 100% Stock Relief incentives is a perennial feature of almost every Budget.  Sadly this Budget contains little else for the agricultural sector. The Stock Relief concession for beef production farm partnerships, and the  new farmland Capital Gains Tax relief for farm restructuring purposes are welcome but will have limited impact.

Film Industry & Tourism

The Budget promises an extended Film Tax Relief Scheme until 2020, with a new “tax credit model” in 2016 which will replace the current ‘‘high earner’ investor-driven incentive. Again the devil will be in the detail.

The 9% VAT rate for the tourism industry will continue  in 2013, but will this survive post-The Gathering into 2014?

Property

The Property Tax exemptions for “new or previously unoccupied homes” by 2016, and for 2013 first-time buyers, underline what I see as the key structural problems of the Property Tax, ie discouraging first time buyers and others from buying or trading up. The exemption for residences in “unfinished estates” may prove controversial if this is applied in practice in a fashion as arbitrary as the corresponding Household Charge exemption. Some people living in luxury estates found themselves unexpectedly exempt from the HC on the basis that their estates included a couple of vacant sites or unsold homes, while their neighbours in less salubrious neighbourhoods had to stump up the €100 charge.

Pensions

The continuation of tax relief on pension contributions at the 41% marginal rate of tax is welcome and a small, if significant, victory over the reactionary voices calling for the effective destruction of pension cover for private-sector workers. The measure to curb the relief on on pension pots projecting income of over €60,000 per annum is a sensible one, as are the scrapping of the 2012 private pension levy after 2014 and the ending of the reduced USC charge for high-earning over-70s.

I remain unconvinced of the wisdom behind allowing individuals to withdraw up to 30% of their AVCs. Withdrawals will be charged income tax at marginal rates and I fear that many people will erode their long-term financial security in a desperate attempt to pander to unreasonable demands from their banks or other lenders.

Budget 2013

PRSI

The increase from €253 to €500 in the minimum annual self-employed annual PRSI contribution is a reasonable move, as such contributions are invariably good value for self-employed people, yielding a contributory old age pension amongst other benefits. However the increased cost will by its nature exclusively hit low-income self-employed people many of whom will have to cope with property tax and other financial pressures.

The abolition of the weekly €100 PRSI-exempt allowance for employees makes sense from a crude mathematical viewpoint,  but again will impact, disproportionately but not exclusively, on low earners.

From 2014, PRSI will apply to employees’ rental income, investment income, dividends and deposit interest. In my view this is long overdue, as it has already applied to the self-employed for many years.

Income Tax 

The only Income Tax measure mentioned in the Budget Speech relates to Maternity Benefit, which will be treated as taxable income from 1 July 2013. The question remains as to why Maternity Benefit remains exempt from the USC.

Excise Duties

There is a most welcome absence of the threatened increases on excise duty on diesel and petrol.

The excise duty hikes on beer, cider and wine will do nothing for our struggling hospitality sector in the year of The Gathering, and makes something of a mockery of the special 9% VAT rate on tourist enterprises.

Capital Taxes

The rises in the Capital Gains Tax (CGT) & Capital Acquisitions Tax (CAT) rates from 30% to 33%, and the cut in the CAT threshold, each make sense at first glance but ignore the fact that they both discourage property owners sell or gift properties. As Minister for Finance, Charlie McCreevy, sharply increased the revenue from both tax headings by cutting the rates to 20%. This experiment is worth repeating and might yield surprising results.


Budget 2013: The Key Points

December 5, 2012

The main points of Minister Noonan’s Budget 2013 Speech, announced this afternoon:

Noonan Dec 2012

Business

The Minister announced a new 10 Point Tax Reform Plan which “includes measures that will make a real difference to SMEs”.

These include:

  • Reforms to the 3 Year Corporation Tax Relief for Start Up Companies
  • Increasing the cash receipts basis threshold for VAT from €1 million to €1.25 million and changes to the Close Company Surcharge.
  • A doubling of the initial spend eligible for the R&D tax credit  from €100,000 to €200,000
  • Extensions to the Foreign Earnings Deduction for work related travel.

In addition, a diesel rebate is to apply for hauliers from 1 July 2013.

A new “PlusOne initiative” will encourage employers to hire long-term unemployed individuals. This will replace the existing Revenue Job Assist and Employer PRSI Incentive schemes.

Farming

The 25% & 100% Stock Relief incentives will continue until 31 December 2015.

A wider range of registered farm partnerships (eg beef production) can now avail of an enhanced 50% rate of Stock Relief.

A new Capital Gains Tax relief will apply on disposals of farm land for farm restructuring purposes. This once-off relief  will apply from  January 2013 to December 2015,  and is subject to EU approval.

Film Industry & Tourism

The Film Tax Relief Scheme is extended to 2020, and the scheme will move to a tax credit model in 2016. These changes are aimed to ensure that production companies and not ‘high earner’ investors, will now benefit from the tax relief.

The 9% VAT rate for the tourism industry will continue  in 2013.

Property

A three-year Local Property Tax exemption will apply to:

  • All new or previously unoccupied homes bought before the end of 2016.
  • Purchases of any homes in 2013 by first time buyers.
  • Residences in unfinished estates.

In addition, the Budget 2012 Capital Gains Tax incentive for properties bought before 31 December 2013 means that they will be exempt from Capital Gains Tax if held for at least seven years.

New “Real Estate Investment Trusts” will allow commercial property investors “to finance property investment in a risk diversified manner”.

Pensions

  • Tax relief on pension contributions will only apply to schemes delivering a pension income of up to €60,000 per annum. This will apply from 1 January 2014.
  • Tax relief on pension contributions will continue at the marginal rate of tax.
  • The 2012 Pension Levy will cease after 2014.
  • the reduced rate of USC for over-70s earning over €60,000 will cease from 1 January 2013.
  • Top Slicing relief will no longer be available on ex-gratia lump sum termination /severance payments, where the non-statutory payment is over €200,000.
  • Individuals with AVCs may in 2013 withdraw up to 30 per cent of their value. Withdrawals will be subject to marginal rate income tax. This will apply for 3 years after Finance Act 2013 is passed.

PRSI

The minimum annual self-employed annual contribution will rise from €253 to €500.

The weekly €100 PRSI-exempt allowance for employees is being abolished.

“Unearned” trade or profession income will be subject to PRSI in 2013

From 2014, PRSI will apply to rental income, investment income, dividends and deposit interest.

Local Property Tax

The Local Property Tax will commence from 1 July 2013. Its main features are as follows:

  • It will be collected by the Revenue Commissioners
  • Owners of residential properties, including rental properties, will be liable for payment.
  • The tax will be payable on the basis of the self-assessed market value of the property. The Revenue Commissioners “will provide valuation guidance”.  Alternatively, “a competent valuer” can be used.
  • The tax will be 0.18% of the market value up to €1m, and 0.25% on values over €1m.
  • Properties valued between €100,000 – €1m will be charged “at the mid-point of valuation band of €50,000 width” eg where the value is between €150,001 and €200,000, the tax will be calculated at 0.18 per cent of €175,000.
  • Properties below €100,000 will be charged at 0.18% of €50,000.
  • Properties valued over €1 million will be liable at 0.18% on the first €1m and at 0.25% on the balance.
  • Payment options  will include direct debit; credit & debit cards, cash (!!)  or “deduction at source” from salary,pension or “certain State payments”.
  • Exemptions largely correspond to exemptions from the Household Charge.
  • A “system of voluntary deferral arrangements” will apply to
    • individuals earning up to €15,000, & couples earning up to €25,000.
    •  individuals earning whose “gross income less 80 per cent of mortgage interest” is below €15,000, (€25,000 for a couple).  Marginal relief will apply where the income is up to €10,000 over the income limit
  • Interest will be charged on deferred amounts at 4% per annum. Deferred property taxes and interest will have to be discharged on the sale/transfer of the property.

The Household Charge is abolished  from 1 January 2013 and the NPPR Charge will end on 1 January 2014.

The Revenue Commissioners will “strictly enforce”  the Local Property Tax and collect any unpaid Household Charge for 2012.  Unpaid arrears will rise to €200 per property from 1 July 2013.

Income Tax 

The only Income Tax measure mentioned in the Budget Speech relates to Maternity Benefit, which will be treated as taxable income from 1 July 2013. Maternity Benefit will remain exempt from the USC.

Excise Duties

There is no increase on excise duty on diesel and petrol

Immediate rises from midnight tonight:

  • 10 cent on a pint of beer or cider & on a standard measure of spirits
  • €1 0n a  standard 75cl bottle of wine
  • 10 cent on a pack of 20 cigarettes
  • 50 cent on a 25g pack of “roll your own” tobacco

VRT and motor tax will rise from 1 January 2013.

Carbon tax will apply to solid fuels at a rate of €10 per tonne from 1 May 2013, and €20 per tonne from 1 May 2014.

Capital Taxes

DIRT on deposit interest rises from 30% to 33%

Capital Gains Tax (CGT) & Capital Acquisitions Tax (CAT) rates similarly go from 30% to 33%

Capital Acquisitions Tax (CAT) thresholds are cut by 10% from midnight tonight.

Corporation Tax

The Minister remains fully committed the Corporation Tax tax rate of 12.5%

The Minister has confirmed that Ireland has agreed a new Inter-Governmental Agreement with the United States in relation to the US Foreign Account Tax Compliance Act, commonly, (if unfortunately), known as FATCA.


Burying Bad News: VAT on Swimming, Gyms in 2013

December 5, 2012

Back in 2001, an aide to Tony Blair’s Labour UK government got into serious bother when, in the immediate aftermath of the September 11 attacks, she emailed colleagues, saying “It is now a very good day to get out anything we want to bury.”

I’m wondering has someone in Revenue been thinking likewise this morning.

With Budget 2013 only hours away, a Revenue eBrief has confirmed that VAT will be charged on public or community swimming pools, gyms and other sports & leisure facilities with effect from 1 January 2013.

This means that if you decide to improve your state of health, get fit, or lose weight by swimming or visiting a local gym in the New Year, you will now be charged VAT for the privilege.

Gym exercise

It also means that children (including children with special needs) will also be charged VAT on swimming lessons, physical education, summer camps and similar activities in public facilities.

The updated Revenue VAT manual confirms that VAT will apply to

“Facilities for taking part in sporting or physical education activities (including) premises used, designed or adapted for taking part in sporting or physical education activities, such as, swimming pools, gymnasiums, leisure centres, bowling alleys, driving ranges together with lands let for fishing and shooting and outdoor centres that cater for water and adventure activities”

The rate of VAT to be charged is 9%. A whopping 23% will apply to related services (equipment hire etc) when these are subject to a separate charge.

This being Budget Day, this cruel VAT charge will go largely unnoticed, as we all inevitably focus on the various tax and public spending measures in the Budget.  Therefore the clever timing of the announcement is set to insulate both Government and Revenue from a storm of protest that might otherwise have engulfed them.

It still pays to bury bad news.