Noonan’s Useless Tinkering With Landlords’ Interest Relief

January 6, 2016

Finance Minister Michael Noonan has recently moved to restore the full 100% interest tax deduction to landlords who rent properties to tenants availing of social housing supports – but only after a waiting period of 3 years.

At present, a residential landlord’s income tax deduction for interest paid is restricted to 75% of the interest they incur on borrowings used to purchase, extend or refurbish a rental property.

noonan

The 75% restriction dates from 2009 when the late Minister Brian Lenihan adopted a number of tax measures aiming to discourage investment in rental residential property in the wake of the Celtic Tiger crash.

Unsurprisingly this policy has since proven disastrous. Today, not only do we have severe housing shortages in most major towns and cities, with spiralling rents to match, but new property investment remains at a standstill.

So the problem is set to get worse – much worse – before it gets better.

In these circumstances, I would have expected Minister Noonan to finally bite the bullet and roll back his predecessor’s failed policies.  An obvious, and relatively straightforward start would have been to restore the interest deduction against taxable rents to 100% of the interest cost.

This, the Minister has done, in an amendment to the 2015 Finance Bill – but only for a very narrow range of landlords and only after a 3-year waiting period.

From 1 January 2016, a landlord can enjoy the full 100% interest deduction where they provide accommodation to tenants in receipt of social housing supports, eg Department of Social Protection Rent Supplement, and the Housing Assistance Payment (HAP) and Rental Accommodation Schemes (RAS) operated by local authorities.

However they can only claim the additional 25% interest deduction after 3 years (ie starting in 2019), and subject to a number of additional and as yet unspecified, conditions.

For example, if you’re a landlord availing of this new relief, and your annual interest cost is €10,000, you can claim the following tax deductions for interest incurred:

2016  Claim:  €10,000 @ 75% = €7,500

2017  Claim:  €10,000 @ 75% = €7,500

2018  Claim:  €10,000 @ 75% = €7,500

2019  Claim:  €10,000 @ 75% =  €7,500

              + 2016 25% interest        €2,500

              + 2017 25% interest        €2,500

              + 2018 25% interest        €2,500

Total claim                                    €15,000

In my opinion, this is ridiculously complicated, so much so that it’s actually unworkable.

It’s time for the Minister to act decisively and scrap the interest restriction altogether, instead of this timid and probably counterproductive tinkering.

Such a move would help to relieve the notoriously heavy tax burden on landlords, and also assure anyone considering a new property investment in the next year or so that the Government won’t rip them off on a whim whenever it suits them to do so.

Is this too much to ask?


Non-Residents: How to Avoid a 20% Tax Deduction on Your Irish Rents

March 14, 2013

If you are an Irish non-resident with Irish rental income, your tenants must deduct 20% tax from the rents they pay to you. If you appoint a ‘Collection Agent’ you can avoid the headaches that this can involve.

The Irish Income Tax code requires tenants to deduct 20% tax on rents paid to a non-resident landlord. This requirement does not apply if you nominate an Irish-resident person as  your ‘Collection Agent’.

Rental Property

The ‘collection agent’ effectively acts as your nominee for Irish tax purposes.  It is possible for a family member or close friend to act as your ‘collection agent’ as they normally don’t have any duties  to perform in this capacity, although some people prefer to nominate their letting agent.

Take note that, if you have engaged a letting agent who is collecting the rents and engaging with tenants on your behalf, they are not actually obliged to deduct 20% tax from you, once you nominate either them or another Irish-resident person as your ‘Collection Agent’ for Revenue income tax purposes.

Acting as a ‘collection agent’ doesn’t affect or impact upon the nominated person’s own tax affairs in any way. It is still your responsibility, as property owner, to file your annual tax return and pay your tax liability each year.

If no ‘collection agent’ is appointed, the tenant must deduct tax at source from the rents and pay it to Revenue. As you can imagine, this sort of situation can get messy, especially if the tenant deducts 20% from the rent payments but ‘forgets’ to pay the deductions to Revenue.  In my experience, this potential nightmare is best avoided.

The ‘collection agent’ regulations may seem complex, but thankfully once everything is done properly, they are relatively straightforward – they only get complicated if the landlord fails to file tax returns or pay tax bills, in which event Revenue chase the ‘collection agent’  for them.

See my previous blog post: Irish Property, Living Abroad – What To Do About Tax  or Revenue’s Guide to Rental Income.

Ease your Irish Tax Return worries by getting in touch with Thomas McGibney & Company today.


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