Tax on Rental Income – The Basics

April 14, 2016

Rental Income is taxable under the Irish tax system. For a given year, you can estimate your tax liability using the following formula:

Gross Rental Income  – Allowable Expenses – Capital Allowances = Taxable Rental Income x  Your marginal income tax, PRSI & USC rate = Your tax liability.

Tax on Rental Income.jpg

Allowable Expenses

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 restrictions 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 – Restrictions              

Your mortgage interest deduction is restricted to 75% of the total interest you incur.

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 Private Residential Tenancies Board (PRTB).

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.

Capital Allowances

You can claim an allowance for Wear and Tear on furniture and fittings in your property.   This normally will cover such items as carpets, electrical appliances, central heating, furniture, etc.    The allowance is 12.5% per year, each year for 8 years.

Rental Losses

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.


Don’t Lose Sleep over AirBnB Tax Returns

August 11, 2015

Unfortunately, confusion and panic have greeted this morning’s news that the AirBnB have notified Revenue of income earned by their Irish hosts who welcome paying guests into their homes.

Don't lose sleep over airbnb tax returns

Thousands of Irish homeowners are now registered with AirBnB and many of these people will now worry at the prospect of receiving large tax bills.

However, the situation for most is not nearly as serious as media reports suggest.

Revenue’s guidelines on the subject (updated in a March 2015 eBrief) confirm that providing accommodation to occasional visitors does not qualify for tax exemption, but is subject to Income Tax (along with PRSI & USC) as a trade.

The flipside of this is that it is only the trading profit, and not the gross income received, which is taxable.

This means that an AirBnB host must only pay tax on the profit they earn, after deduction of all expenses.

Such expenses will include the direct costs of each booking, eg

  • AirBnB booking fee,
  • breakfast and other meals provided,
  • cleaning, etc

and also a percentage of the many indirect household costs which relate to the accommodation, including

  • insurance,
  • electricity & phone
  • repairs & maintenance
  • mortgage interest
  • wear & tear on household furniture & fittings.

The extent to which a householder can claim these latter costs depends on how much of each cost relates to business (eg AirBnB accommodation) as opposed to personal use.

For example, in a typical property where the accommodation business is incidental to its use as a family home, I’d expect that the appropriate % of such indirect costs that can be claimed would be very small.

Still, every little counts, and when you deduct all appropriate costs from your gross AirBnB income, you will probably find that the net taxable element is a fraction of the gross sum.

This net amount will be subject to income tax of 20% or 41% (40% in 2015), in addition to 4% PRSI and USC (generally up to 7%).

In addition, the other minor comfort is that we are talking here about current, as opposed to historic, income.

The information given by AirBnB to Revenue relates to the period from May to December 2014.

This income is taxable in 2014 and the deadline for filing 2014 Form 11 & Form 12 tax returns is not until 31 October next, or 12 November if filed on ROS.

This means that AirBnB hosts have plenty of time to regularise their tax situation ahead of the October/November deadlines. Obviously this should also include any such income received before May 2014.

This is a stark contrast to the catch-22 dilemma faced in the past by others with historic undeclared income, where interest and penalties often combined to generate huge liabilities.

My advice to AirBnB hosts? –

  • Firstly, don’t lose any sleep amid the current hysteria.
  • Secondly, get your affairs in order, with professional assistance if you need it, and make sure you file your 2014 (and any earlier) returns by the forthcoming deadline.

Dont Lose Sleep over AirBnB Tax Returns


Why Joan Burton Wants to Hit the Self Employed

August 13, 2013

Some people have been rather upset today to learn that Social Protection Minister Joan Burton is plotting another yet another tax hike on self-employed workers.

According to the Irish Independent, Ms Burton is targeting the self-employed for increased PRSI in Budget 2014, from the current 4% rate to 6%.

Why Joan Burton Wants to Hit Self Employed

However, this news doesn’t surprise me in the slightest.

Why so?, I hear you ask. Isn’t it beyond obvious at this stage that tax hikes increase unemployment? And, surely the Social Protection Minister wants to shorten, not lengthen, the dole queues?

But therein lies the rub, and the cold and cunning method in Ms. Burton’s apparent madness.

When a self-employed worker goes out of business, they normally won’t be entitled to Jobseekers Benefit.

So they don’t become a drain on the social welfare budget.

This explains why Joan Burton is quite happy to target a dwindling pool of self-employed workers for PRSI hikes.

She knows full well that if they lose their livelihoods, they can go hang, fend for themselves, or better still, emigrate.

Meanwhile, on another planet entirely,  the political pensions gravy train rolls on undisturbed.

The Irish Independent report is here.


Have you received your 2012 P60 yet?

January 25, 2013

If you are working in paid employment, you should, around now, be receiving your 2012 P60 Certificate.

Your P60 is a Certificate of your annual Pay, and PAYE Tax, PRSI & USC deductions, for the past calendar year.  Your employer is legally obliged to issue you with your 2012 P60 by 15 February next,  but you may well have already received it recently.

Form P60 Certificate Pay, Tax, PRSI, USC

Your P60 is a very important document and it is essential that you keep it in a safe place.

 You will need your P60:

  • if you are completing a tax return, or making a tax refund claim for 2012.  Revenue may sometimes also require you to forward your P60 to them in order to verify your tax return or claim.
  • if you are making an application for a mortgage or loan, to a bank, credit union or building society.
  • as proof of your income if you  are claiming certain benefits from the Dept of Social Protection.
  • for a variety of other State benefits, eg SUSI Third Level Grants.

In addition, I recommend that you retain all your old P60s indefinitely, in case you need them in the future to verify your PRSI contributions history. This can be especially important for eligibility for the Contributory Old Age Pension.

If you don’t receive your P60 by 15 February next, you should ask your employer to issue it to you, without further delay.  They can do so either via payroll software, or by using the Revenue approved-format P60 templates, which are online in both MS Word and Laser format (the latter presumably for use with laser printers).


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.


Revenue abandon Lenihan’s Professionals’ Tax Plan

March 25, 2011

Revenue have today abandoned Brian Lenihan’s plans to tax employees on professional subscriptions and membership fees.

In an eBrief unveiled this evening,  Revenue confirm that most professional subscriptions will continue to be exempt from tax under Benefit in Kind rules.

This reverses the former Finance Minister’s announcement in last December’s Budget, that the existing Benefit in Kind exemption on these fees would be scrapped from January 2011. This would have meant that where an employer paid a professional membership or subscription fee on behalf of an employee, the employee would have faced a tax, PRSI and USC charge on the amount paid.

Today, Revenue confirm that the exemption will still apply

  • Where the employee is required by law to be a member of a professional body, in order to carry out their work. This includes architects who (under the Building Control Act 2007) must be registered with the Royal Institute of the Architects of Ireland; and Health care professionals who are obliged by the  Health and Social Care professionals Act 2005, to be registered with the Health and Social Care Professionals Council.
  • Where the employer requires the employee to hold a practising certificate or licence, eg accountants  working in professional practices.
  • In certain other situations, where the employee is a member of a professional body which is relevant to their occupation.  This will cover accountants, engineers and others working in professional capacities in industry.

Revenue stress that the BIK exemption applies only where the professional subscription is relevant to the employee’s work. They cite practical examples to show that the exemption will not apply to a qualified architect who works as a HR manager, or a trained solicitor working as a media presenter.

The Revenue eBrief on this subject outlines 11 practical examples which illustrate how these rules will work in practice. Revenue also stress that Benefit in Kind PAYE, PRSI and USC must be charged on all cases not covered by the exemption.

I think this is a very positive move on Revenue’s part. The original plans to scrap this BIK relief were badly thought out, and a very poor appreciation of the much-vaunted ‘knowledge economy’.  It is nice to see Revenue taking action to restore this relief in most cases.

That said, I wonder would  such a u-turn have been politically possible if Mr. Lenihan was still Minister for Finance. Maybe it is time for his successor Michael Noonan to work alongside  Revenue in reversing some of the anti-business and anti-employment measures introduced in recent Budgets – several of which have proved in the meantime to be counter -productive.