Updated: May 12
A guide to rental income in Ireland and related tax consequences. A must read for landlords or anyone in receipt of additional rental income.
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Table of Contents
Expenses allowed for deduction
Expenses not allowed for deduction
Taxation on rental profits
Irish property & living abroad
Filing tax & preliminary tax
How MyTax can help
If an individual receives income from the renting of property or land in Ireland, they fall into the self-assessment net. As a result, they are required to file a Form 11 to declare the rental income and pay all related tax.
The rate of tax for rental income profit will vary on an individual’s total income. If the person earns over €35,300 the rental income will be taxed at the higher rate, which is currently 40% PRSI & USC are also liable, which could bring the total tax burden to 52% depending on their total income.
This guide outlines what you need to declare and how you reduce your Rental Income tax burden.
All income from renting out property or land is considered rental income and is taxed as such. Rental Income specifically includes the following;
- Rental of a house or land;
- Rental of a holiday home;
- Rental of a farm;
- Rental of an office and
- Other payments received for temporary rights of property.
Income received from short term lettings, like AirBnB, are discussed in further detail below.
Rental Income from each rental must be specifically analysed and separated when calculating your tax liability.
Any deposits received up front for a rental is not treated as income. However, when this deposit it returned in cannot be considered an expense. If a deposit is not returned and used for repairs, those repairs cannot be deducted.
Expenses allowed for deduction
There are several deductions you can use to reduce your Irish rental tax liability. We will go through the key deductions available to landlords.
The interest you pay on your mortgage can be deducted from your income. In order to claim this deduction, your rental property must be registered with the Residential Tenancy Board (RTB). From 2019, 100% of your interest can be used as a deduction. In prior years, only a percentage of interest could be deducted.
You cannot claim Mortgage Interest between the time you buy the property and the time you first rent out the property.
A range of expenses are deductible if related to the rental. For example;
- Professional Fees such as real estate fees, management fees, legal fees and accountancy fees;
- Local Authority Rates;
- Property Insurance;
- Maintenance & Repairs;
- Utility bills where they are paid for by yourself;
- Certain mortgage protection premiums
- RTB Fees;
- Annual management rates;
- Other expenses where appropriate
Furniture & Capital allowances
Many landlords furnish their properties with furniture and equipment (washer, dryers etc). You are not entitled to claim a full deduction for these expenses, but rather, you can claim 12.5% of the cost per year for 8 years.
If expenses are less than €5,000 and 12 months prior to first letting a deduction is allowable for this period.
Expenses not allowed
There are also several expenses which are specifically excluded as deductions. These are explained as follows;
- Post-Letting Expenses: Expenses which have occurred post letting are not allowable i.e. expenses prior to use or sale of property;
- Capital Expenses: Expenses on property improvements e.g. New Windows. These are considered an improvement on the property and while not possible to deduct from expenses, it will reduce future CGT liabilities.
- Uneconomic Rentals: Expenses in relation to a property rented on a basis that could not be profitable;
- Interest : Interest between purchase and first rent;
- Local Property Tax; and
- Any cost of your own labour when carrying out repairs.
Other expenses may also not be deductible and should be queried with your accountant if in doubt.
Taxation on rental profit
Tax is paid on your net rental income i.e. rental income less deductions. A sample computation would look like the below;
If you make a loss with regards to rentals you are entitled to carry forward that loss and use in subsequent years. However, you are still required to file a return to declare a loss has been made. In future years, capital allowances must be used prior to the use of prior year losses.
If you have multiple rental properties, you can deduct the rental profit on one against the loss on another. Capital allowances must be deducted on an overall basis and not on a property basis.
Short term rentals do not fall under within the Case V (Rental) tax code. These type of rentals can be treated as either a trade or occasional income and is taxed at the appropriate rate per the individual. It is important to consider the following prior to engaging in short term rentals;
- There may be a planning permission requirement;
- VAT Registration may be required if income exceeds a threshold;
- More favourable deductions may be available to you.
Please do not hesitate to get in touch with regards to short term letting tax and compliance requirements.
You are required to pay tax on income received from the rental of foreign properties if you are an Irish Resident (or Ordinarily Resident). If you are not Irish Domiciled (if you are not an Irish National), you may be subject to the remittance basis. This only levies a tax on income you bring into Ireland.
Similarly, to Irish Rentals, you are entitled to deductions from any foreign rental income. This deduction regime is largely aligned with the Irish rental property deduction regime.
Irish Property & Living abroad
If a landlord owns an Irish Property and is no longer a resident, it is the obligation of the tenant to withhold 20% of every payment to the landlord. The tenant is required to pay this over to Revenue. This payment may be paid over annually.
The non-resident landlord is chargeable to income tax and the Universal Social Charge (USC). The non-resident landlord can claim the tax deducted by the tenant, recorded on the form R185, against her/his Irish tax liability. The landlord is required to file an Irish tax return
A landlord may nominate an Irish resident collection agent to collect rent from a tenant. In this situation, the tenant is not required to deduct 20% from every payment. The agent must register as a collection agent and pay the related tax to Revenue. If this approach is used, the landlord is entitled to deductions and an apportionment of tax credits against their rental income.
If you rent a room if your house, you may be entitled to relief on that income. In order to qualify for rent a room relief, the following conditions must be met;
- Relief is up to €14,000. If it is over this amount the letting will not qualify;
- The letting must exceed 28 continuous days (some exceptions are in place);
- You cannot claim the relief if used by child or civil partner, an employer or short term guests (AirBnB).
- The room must be within your sole or main residence; and
- It may be a self-contained unit, but must be connected to the main residence.
It is important to note that you are still required to complete a Form 11 and claim the relief. If not claimed in a timely manner, Revenue may go back and seek a tax payment.
Renting property for commercial use
In general, the same rules apply to commercial units as they do to residential units. However, there are some specific tax points that need to be considered;
- Premium / Up-front lease payments;
- VAT for leases; and
- Other deductions that may be available.
We suggest that you get in touch with MyTax to discuss these nuances in more detail.
Filing Requirements & Preliminary Tax
If you are in receipt of rental income you fall into the self-assessment net and are required to declare the rental income and pay tax each year. If you have a loss or plan to avail of the rent-a-room relief, you must also file a return.
You have the following obligations as a result of earning rental income;
- Complete a Form 11 every year, prior to 31 October;
- Accurately assess and declare your income;
- Pay Preliminary Tax for the following year;
- Pay your current year tax liability; and
- Retain all appropriate records for at least 6 years.
If you are late filing your form 11 you will be subject to a surcharge based on your tax liability and interest on the tax owed.
How MyTax Ireland can help?
MyTax can ensure you are fully compliant with Revenue guidelines on rental income and tax in Ireland, prepare your Form 11 and file it in a timely manner with Revenue.