Tax can be complicated for anyone, and adding a rental property into the mix can make things even more confusing.
However, to make sure that becoming a landlord will make financial sense for you, you must have a clear idea of the various tax implications of renting out a property.
To help you make sense of it all, here are a few of our tax tips for first-time landlords in Ireland.
Is the Rental Income From My Property Tax-Free?
Rental income from property is generally not tax-free.
It is typically subject to income tax and needs to be reported to the Revenue Commissioners, the Irish government agency responsible for customs, excise, taxation and related matters.
There’s a lot to think about for first-time landlords, and putting in the time and effort to get to grips with your taxes is essential for your financial success. If you would like some assistance getting set up as a landlord in Ireland, we would be delighted to help.
Tax Return For First-Time Landlords
In addition to registering for and declaring your income tax, first-time landlords in Ireland should also understand the significance of their rental income and associated expenses.
Your rental income includes the rent you receive from your tenant, along with any funds received for services such as cleaning, waste disposal, or laundry.
Simultaneously, you’re allowed to deduct certain expenses incurred during the rental period like maintenance costs, insurance, and management fees.
These will decrease your taxable rental profit.
Getting familiar with the specifics of these incomes and expenses can help you accurately calculate and declare your rental profits while ensuring you take advantage of all applicable deductions.
You Need To Pay USC And PRSI (If You Are An Irish Tax Resident)
In addition to income tax, you are liable for 0.5% to 8% Universal Social Charge (USC) and 4% PRSI. The rate of USC you have to pay will be the top rate applicable to your total income, though chances are it will be at 8%.
You will also be subject to a 3% surcharge if your non-PAYE income is more than €100,000 a year.
If you are not an Irish resident, read our post on Tax Requirements For Non-Resident Landlords In Ireland.
You Are Responsible For Local Property Tax (Not Your Tenants)
Almost all residential properties are subject to Local Property Tax (LPT), which is calculated depending on its market value.
In almost all cases, it is the owner’s responsibility to pay LPT and there are only a handful of rare scenarios where the tenant would be responsible.
These include situations where:
- The tenant has a long-term lease (of more than 20 years) or a life tenancy
- The tenant occupies the property on a rent-free basis over an extended period and without challenge to their right of occupation
Note that you are not allowed to claim LPT as an expense when completing your tax return.
Read our guide to income tax for rental income in Ireland as well.
You May Be Required To Pay Preliminary Tax
Preliminary tax is essentially a payment towards your bill for the current tax year which you are liable for if you are a ‘chargeable person’. For your first year as a self-assessed tax payer, you are not required to make a preliminary tax payment. However, you can choose to pay preliminary tax of 90% of your tax due for the current year if you like. This will help to reduce the amount you need to pay in the year that follows.
If you choose not to pay anything, then you may end up with a ‘double’ tax payment in the second year. This is because even though you are not required to pay during your first year, the first year is still subject to tax.
For example, say you rent out a property for the first time in 2021 and decide not to pay. In 2022, you would have to submit your tax return and pay tax for 2021 but your tax bill for 2022 would also be due.
Amid these financial considerations, don’t forget the influence of Ireland’s rent pressure zone laws on your rental income. In these zones, annual rent increases are limited, which can directly affect your profitability. Thus, understanding these laws is crucial to accurately forecast your tax obligations and plan your finances effectively.
You Need To Register With The RTB
It is a legal requirement for landlords to register with the RTB (Residential Tenancies Board). However, this is also very important for tax purposes, as if you don’t register you can’t claim tax relief for mortgage interest against your rental income. It costs €40 annually to register (providing you do so within one month of a tenancy starting) and you can claim the fee as a tax deduction.
There Are Lots Of Expenses You Can Claim
Though there are a few restrictions on what expenses you can claim against your rental income, there is plenty of opportunity to lower your tax bill. Allowable expenses include things like ground rent, rates you pay to the local authority, insurance premiums, maintenance, repairs and more.
Enlisting the help of an property consultant who has experience in dealing with landlords will ensure that you minimise your tax bill as much as possible.
There’s a lot to think about for first-time landlords, and putting in the time and effort to get to grips with your taxes is essential for your financial success. If you would like some assistance getting set up as a landlord in Ireland, we would be delighted to help.
All services provided by Prestige Property Consultants not only offer you peace of mind but will likely save you a lot of money in the long run, all services is also tax-deductible.
