Individuals with rental income pay Income Tax, PRSI & USC in Ireland. For any given year, you can roughly estimate your tax liability using the following formula:
Income Tax liability = Gross Rental Income – Allowable Expenses – Capital Allowances = Taxable Rental Income @ Your marginal income tax rate
PRSI liability = Gross Rental Income – Allowable Expenses = Net Rental Income @ 4%
USC liability = Gross Rental Income – Allowable Expenses = Net Rental Income @ Your marginal USC rate
You can deduct the following expenses in arriving at your taxable rental income.
- Mortgage Interest paid “on monies borrowed for the purchase, improvement or repair” of the property (note the restriction below)
- Mortgage Protection policy premiums
- Water rates, Ground rent, Service charges, Waste Collection charges etc
- Insurance costs
- Management & rent collection costs
- Advertising Costs
- Legal fees for drawing up leases or collection of unpaid rent
- Accountancy fees relating to rental income
- Repairs, decorating and general maintenance
- Cleaning & related costs
- Cost of any unreimbursed services or goods provided to tenants by the landlord i.e. electricity, heating, etc
Mortgage Interest – A Pitfall to Avoid
Mortgage interest is only allowed as a deduction against rental income on a residential property if you have complied with your legal obligations under the Residential Tenancies Act, including registering tenancies with the Residential Tenancies Board (RTB).
Once you’re RTB-compliant, you can claim a full deduction for your mortgage interest.
It is generally not possible to claim for the following expenses:
- Pre-letting expenses, apart from auctioneer’s letting fees, advertising fees and associated legal fees
- Capital expenditure.
You can claim an allowance for Wear and Tear on furniture and fittings in your property. This will usually cover such items as carpets, electrical appliances, central heating, furniture, etc. The allowance is 12.5% per year, each year for 8 years.
You can only offset a rental loss against other rental income, in current or future years.
It is not possible to offset such losses against other non-rental income sources (e.g. PAYE, business profits etc).
Self-Assessment Tax Collection
The tax due on rental income is normally collected under the Self-Assessment system. A PAYE taxpayer with low rental income can arrange to have their tax collected via the PAYE system if Revenue agree to adjust their tax credits and standard rate cut-off point accordingly.