Finally, High Court Rules NPPR IS Tax-Deductible

January 16, 2017

The High Court has ruled that the Non Principal Private Residence (NPPR) charge is a deductible expense against rental income  for Income Tax purposes.

The NPPR was levied at a rate of €200 per residence for the years from 2009 to 2013.  It was very unpopular and was widely seen as unfair and discriminatory against property owners, not least because of the outrageous penalty charges for late payment.

On top of this, Revenue claimed the charge was not tax-deductible, as it did not meet the definition of “a rate levied by a local authority” as set out in tax legislation.

Capital Gains Tax Deadline 2010

This did not make sense to me, nor to many other accountants and tax professionals, but without proper clarification it was widely deemed to be dangerous and perhaps irresponsible to claim the NPPR charge as a tax deduction.

Late last year, a man named Thomas Collins bravely challenged this anomaly in the High Court, and Ms. Justice Reynolds ruled in his favour on 28 November last. The decision has now just been published.

Its timing is unfortunate in that the Revenue “four-year rule” on tax refunds means that taxpayers who followed Revenue’s own guidance and opted not to claim tax deductions for the annual NPPR charges up to and including 2012 cannot now do so, as the time limit for 2012 claims expired on 31 December 2016.

Ironically, had the High Court decision been made public when it was made in November, this would have allowed a one-month window for taxpayers to seek deductions for their 2012 NPPR charges. This wasn’t done and the window is now closed.

It is still up to everyone who has yet to claim a tax deduction for their 2013 NPPR charges on rented properties to do so by the end of 2017.

Notwithstanding this, it is clearly unjust that it is now too late to claim the appropriate deductions for the 2009, 2010, 2011 and 2012 charges.

Hopefully somebody as equally brave and diligent as Thomas Collins will go to the High Court and successfully challenge this injustice.


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.


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?


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


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


How to Pay the NPPR Charge by 30 June Deadline

June 14, 2012

Saturday, 30 June, is the final deadline for payment of this year’s  €200 Non- Principal Private Residence (NPPR) charge.

You can pay this charge online at http://www.nppr.ie.  Thankfully the online payment facility is excellent and easy to use.

If you have used the website to pay your liability in earlier years, just login on the homepage and you will be prompted for your Account Reference code and PIN password. If you don’t have these details handy, click on the ‘Lost Account Ref’ and ‘Lost PIN’ buttons and these will be emailed to you. You will need your PPS number to retrieve your Account Reference code.

NPPR charge deadline

Once you log in, you will see details of your registered property or properties. Then follow the remaining links and pay by credit card or laser/debit card.

If you haven’t used the site before, go to the ‘New Customer’ area of the home page, click on the ‘New Account‘ button and follow the steps to enter your personal and property details and pay the charge. In my experience, the process should take only about 5 minutes or so. If you have queries, you can access more detailed instructions by following the  FAQs (frequently asked questions) link on the NPPR homepage.

From 1 July onwards, an extra charge of €20 per month will apply to late payments.