Foreign landlord & tax

Lenny

Hi, I've been viewing a place wich was advertised for €835, now I've offered €800 a month
The landlord lives in France and its a friend looking after the letting for him.
Now I haven't asked anything about tax, but from reading in this topic
http://www.boards.ie/vbulletin/showthread.php?t=2055558698&highlight=landlord+abroad
I dont want to maybe claim rent relief at the end of the year to get a few quid back, but I also don't want to be stung for a bill.
So how do I know if the LL is paying the 20% tax?
After I sign the contract do I withhold the 20% or do I mention it before the contract, which may lead to the price of the rent going up?

The_Conductor

The Revenue Commissioners have a nice little section who deal with this.
Essentially- once the landlord is non-resident, you are liable to deduct witholding tax and forward same to the Revenue Commissioners. Unless the Landlord appoints an agent who does this for him- the onus is legally on you, as tenant, to ensure that the landlord's tax is paid. It is unfair- but its the law.......

Lenny

So after signing the 1 year lease contract, do I then mention this to the "friend" who is looking after the lease?
If he says that the tax is being paid(most likely will) how do I check?

The_Conductor

Lenny wrote: »

So after signing the 1 year lease contract, do I then mention this to the "friend" who is looking after the lease?
If he says that the tax is being paid(most likely will) how do I check?

You would need to ask him to confirm his status as an agent for the landlord. Given the responsibilities and obligations it entails- there is no good reason that anyone would willingly do this.

At the end of the day- if you have his PPSN, the Revenue Commissioners would either confirm that you should be paying witholding tax (at 20% of gross rent) or that you should not. In the absence of confirmation- I wouldn't make any deduction for a few months, until the position was clarified- on the basis that a single month's rent would account for 5 months tax due?

S>

Lenny

Ok thanks for your advice, maybe I should justgo the "I was never told" route. The friend has accepted our offer so we will be
moving in in a few weeks. So I am enitled to ask for the LL prsi number? She may be registered for all I know, as i see they had stated they would accept rent allounce

Victor

Lenny wrote: »

Ok thanks for your advice, maybe I should justgo the "I was never told" route.

Revenue won't accept that.

antoinolachtnai

If you are paying the money to the Irish resident person, you should be fine, by my reading. If you are paying it to the French resident person, you will need to deduct.

mmalaka

sorry to hijack this...

my landloard lives in UK...I pay the rent to his Irish account. I reminded him about the Tax. not sure if he is paying it....
My question is:
Is it correct to say if I do not claim rent relief I should be ok? i.e. I will not be asked about that tax?

The_Conductor

mmalaka wrote: »

sorry to hijack this...

my landloard lives in UK...I pay the rent to his Irish account. I reminded him about the Tax. not sure if he is paying it....
My question is:
Is it correct to say if I do not claim rent relief I should be ok? i.e. I will not be asked about that tax?

If at any stage in the next 12 years the Revenue Commissioners decide to audit the income generated from the rental property- and the landlord has not been paying Irish tax on the income- you are tenant, will be legally liable to pay any tax demand alongside penalties and interest, upto the original 20% witholding tax, plus interest.

The onus is on the tenant to pay witholding tax- if their landlord is not tax resident in Ireland. You will not escape this legal obligation by not claiming rent relief- it may delay the process a little- but there is a section in the Revenue Commissioners dealing specifically with rental properties- so it would simply be a matter of time before they got to you.

It is unfair that tenants are penalised in this manner- the legal onus, as it stands, is wholly on the tenant.

Note- this deduction of witholding tax for non-resident landlords, is not related specifically to the residential sector. Any services provided by a non-resident are subject to this deduction.

In relation to another above post- ignorance is not acceptable to the Revenue Commissioners in any event. You would be forced to pay. You would hae a legitimate claim against the landlord for any demands from the Revenue Commissioners- however that would be a civil matter between you and the landlord- you would be the party answerable to the Revenue Commissioners.

mmalaka

thanks for ur reply...

It is not fair that I need to follow this with the landlord...

what If I left the house whould I be still asked for the time I sued to rent the house?

The_Conductor

mmalaka wrote: »

what If I left the house whould I be still asked for the time I sued to rent the house?

Yes, you would.
Its not really fair that the onus is on the tenant- but thats the law.
I'd seriously advise anyone considering renting to immediately knock any possible properties off their list, where their landlord is not resident in Ireland. Aside from the tax mess- if anything does go wrong- its far easier to get it sorted if the landlord is down the road than if he/she is in Spain/Portugal/France/UK (where-ever).

Lenny

I've never met my potenal future home owner that I will be renting.
In saying appartantly the person I've been dealing with seems quite genuine, has briefly told me that he looks after the appartment & her house that she rents out, she worked in the banks and was quite high up, so maybe I'd be wrong in assuming that she would be paying tax( as she may already know that the onus is on the tennant to pay the tax & not her, and she'd get away with it) but how can the revenue know that I've been told she is forign if its not in the contract, and I've been dealing with someone that calls himself the landlord?
he seems a nice guy like, he said he'd get us what we want, he is giving us a budget to go out and get our own bed & microwave and a few other bits & bobs, whats to stop him giving me a fake prsi number & me sending it off to get checked out an itcomes back to be someone elses, could I be in trouble for that?
Or another route could be maybe getting the thoms directory and looking up the owners name & submitting that?

The_Conductor

Lenny- there are very simple VAT and PPSN number checkers that Revenue use on any numbers quoted to them- a false PPSN would be immediately apparent. In any event- there is a register of all property bought and sold- on which deeds were stamped- they are more likely to work from this.

Andrews Tax Consulting

Theory and Practice, in theory the above posts are correct in identifying that the tenant is responsbile for accounting for the withholding tax. In practice, this has never been applied by Revenue. Further, even if - and this is possible - they were inclined to pursue tenants for withholding tax to non-res landlords they would apply an economic benefit test on a case by case basis before taking any action. The likelihood that they would go after tenants paying rents on rented residential property is - in my view - negligible. That's the practical bit - but as the theory goes - never say never.

As a doctor might say - if I was taking the lease I wouldn't be concerned.

Derek
http://www.andrewstax.ie

D3PO

Andrews Tax Consulting wrote: »

Theory and Practice, in theory the above posts are correct in identifying that the tenant is responsbile for accounting for the withholding tax. In practice, this has never been applied by Revenue.

i read last year of a case that was taken by revenue against a tennant.

theory being put into practice ....

The_Conductor

Andrews Tax Consulting wrote: »

Theory and Practice, in theory the above posts are correct in identifying that the tenant is responsbile for accounting for the withholding tax. In practice, this has never been applied by Revenue. Further, even if - and this is possible - they were inclined to pursue tenants for withholding tax to non-res landlords they would apply an economic benefit test on a case by case basis before taking any action. The likelihood that they would go after tenants paying rents on rented residential property is - in my view - negligible. That's the practical bit - but as the theory goes - never say never.

As a doctor might say - if I was taking the lease I wouldn't be concerned.

Derek
http://www.andrewstax.ie

Check this forum- we have two posters who claim to have been pursued by Revenue posting here. When you retrospectively claim rent relief- its now on the checklist Revenue use.

silja

If a foreign landlord has an Irish letting agency dealing with his house, is it still the tenant who is responsible for the tax or the agency? I am currently looking for a letting agency for a Dublin flat as we moved abroad, and most agencies don't mention this tax at all in their paperwork, but one agency says as they are acting as the foreign landlord's legal Irish agent, they will collect 20% of the rent for the tax and declare it to the Revenue yearly, and that the landlord can then make a claim to the revenue for any tax relief due.

The_Conductor

It is the legal responsibility of the tenant to ensure that witholding tax is paid for non-resident landlords- without exception.

If a letting agent agrees to act as a tax agent on behalf of the non-resident landlord- the onus is then transferred from the tenant, to the agent.

In both instances a flatrate deduction of 20% of the gross rent must be forwarded monthly to the Revenue Commissioners. At the end of the relevant tax year a balanacing statement issues to the landlord, and he/she may then submit their annual tax return, and in most cases will be due a reimbursement from Revenue.

3DataModem

smccarrick wrote: »

Yes, you would.
Its not really fair that the onus is on the tenant- but thats the law.
I'd seriously advise anyone considering renting to immediately knock any possible properties off their list, where their landlord is not resident in Ireland. Aside from the tax mess- if anything does go wrong- its far easier to get it sorted if the landlord is down the road than if he/she is in Spain/Portugal/France/UK (where-ever).

Can you please qualify this?

Any landlords "who have not hired an agent shofar confirmed to you in writing that they are the agent and will be withholdingthe tax on the landlords behalf"

sharpsuit

I have dealt extensively with this issue and helped people who have been charged with the tax liability of their overseas landlord. The withholding provision is a mechanism for Revenue to collect tax from the rental income of an overseas landlord when they would otherwise not be able to. It is not a mechanism to penalise the tenant.

The Minister for Finance issued a statement on the 18 December 2008, acknowledging this. He said that the withholding provision only applies as soon as the tenant is aware of his/her obligation to withhold 20% of the rent or becomes aware of where the landlord lives.

Tenants have nothing to fear from applying for rent relief. If they weren't aware of the provision, they must not be penalised (as per the Minister's statement).

If a tenant is currently in rented accommodation and becomes aware of the provision, they should start withholding 20% of the rent and forward this to Revenue with a completed R185 form. They are not in rent arrears as they are complying with an obligation imposed on them by the Taxes Consolidation Act.

sharpsuit

Ombudsman Annual Report for 2009 also deals with this issue:

6.2 Unfair income tax deduction rule for tenants of non-resident landlords. Highlighted first in 1998.

A complainant, who was a non-national, contacted my Office as she had been told that she was liable for arrears in tax which she should have deducted from her rent payments to her landlord. Under Section 1041 of the Taxes Consolidation Act, 1997, where rent is paid directly to a non-resident landlord (including payment directly into a bank account held by the landlord), there is an obligation on the tenant to deduct income tax at the standard rate (20%) from their rent payment and remit this to Revenue. This obligation also falls on tenants where a claim for rent allowance is received and in such cases the tenant must deduct tax from payments to the non-resident landlord. However, if the landlord has an agent in the State to whom the rent is paid then no tax obligations arises for the tenant.

Back in 1998, the then Ombudsman, in his Annual Report, expressed concern over the obligation which was being placed on tenants to withhold tax on the rent paid to a non-resident landlord. In particular he queried whether it was:

“reasonable to expect a residential tenant, who may be elderly or have little experience of tax affairs, to be either aware of, or have the capacity to manage, this type of requirement”.

He also correctly pointed out that there was also a difficulty in that tenants may not even be aware that the landlord's "usual place of abode is outside the State". He suggested that these questions might be considered in any legislation review.

I am concerned that over a decade later, the situation has still not been satisfactorily addressed by Revenue and that tenants may find themselves liable to pay outstanding tax and penalties where they have unwittingly failed to deduct tax from their non-resident landlords. This could cause difficulties and distress for vulnerable tenants such as the elderly, persons with literacy problems, persons who are unfamiliar with the tax system, and foreign nationals who may have limited understanding of English."

Newsite

Hi all,

Just looking to get clarification on this as took a few phone calls to Revenue to get a proper answer I semi-understood.

I have been renting from a non-resident landlord since 2006. Only became aware of this withholding tax thing when I filed a Rent1 form for rent relief.

Now, let's say my rent is 500 per month. This means I have to withhold 20% which is €100 per month. Now, seeing as it's now July obviously I won't have covered the full 20% per month for all of 2010 if I start withholding 20% per month now. Therefore, I need to make up the shortfall by withholding more than 20% from here on in. So, I should perhaps not pay rent for the next 2 months (this would mean 1000 withheld) and then pay 300 in rent the following month (this would mean 1200 withheld and sorted for 2010).

Correct?

D3PO

Newsite wrote: »

Hi all,

Just looking to get clarification on this as took a few phone calls to Revenue to get a proper answer I semi-understood.

I have been renting from a non-resident landlord since 2006. Only became aware of this withholding tax thing when I filed a Rent1 form for rent relief.

Now, let's say my rent is 500 per month. This means I have to withhold 20% which is €100 per month. Now, seeing as it's now July obviously I won't have covered the full 20% per month for all of 2010 if I start withholding 20% per month now. Therefore, I need to make up the shortfall by withholding more than 20% from here on in. So, I should perhaps not pay rent for the next 2 months (this would mean 1000 withheld) and then pay 300 in rent the following month (this would mean 1200 withheld and sorted for 2010).

Correct?

its month 7 of the year. If your rent was 500 why would you withold completly the next 2 months rent i.e 1000 when you should only have witheld 700 to this point ?

antoinolachtnai

That sounds roughly right, only thing is:

you are witholding the tax for the second half of 2010 too soon. You should not withhold it until it is actually incurred, i.e, the withholding for december should be withheld in december, not in August/September as you propose.

what about 2006, 2007, 2008 and 2009? Are the revenue ok with not getting their money for that period? And your landlord definitely doesn't have and doesn't want someone in Ireland to collect the rent?

athtrasna

Have you raised the issue with the landlord? It's possible they were returning a tax return each year using an Irish address? Not sure you can just withold rent without having at least flagged it with the landlord.

-maccer-

I rent a house with a non resident landlord and became aware of the issue with non resident landlords immediately after I moved in. A friend of a friend was pursued by the revenue because she had a non resident landlord.

I subsequently contacted my landlord and got him to appoint an Irish agent. After ringing the revenue helpline I was advised to contact the revenue by letter and tell them I was paying rent to an agent. I found the revenue commisioners to be less than cooperative abut eventually after a number of letters between them and me got them to put it in writing to me that I paid rent to an agent. Went to claim my rent relief in January and got zero response from the revenue commisioners. Forgot about it and sent a second claim about a month ago including my correspondence from January. Have recieved no reponse from them yet. I can only assume they find the case too complicated to process or couldn't be bothered. I will send them one final letter and then if they don't respond I will make a complaint to the tax ombudsman.

I have claimed rent relief a number of times in the past and always received the payment promptly.

Based on my personal experience I would never rent a property again with a non resident landlord. A lot of unecessary stress and effort required on your part. Steer clear....

Newsite

To follow-up

I notified the landlord about this after Revenue got back to me. Had to ring Revenue 3 times to get any sense out of them on it. I asked if them if they would be looking for tax that should have been withheld in the previous years too and I was told that it would only apply for this year. I think this is because they know it would be completely unreasonable for them to look for rent for previous years where someone had no idea this rule applied. Also there was a case a while back where Brian Lenihan said that nobody should be held liable for tax due for periods where they didn’t know this rule was in existence.

I’m going to pay 300 euro monthly instead of 500 for the rest of the year. So I think I should be fine withholding this 1200 euro for 2010 and then file the form at the end of the year.

Does anyone not agree?

Thanks for your help


EDIT: Just saw sharpsuit's helpful post above, don't know how I missed it before. Going by what you are saying sharpsuit, should I only withhold 20% of monthly rent from June this year (I only became aware of this in June) - and not for the entire year retrospectively?

sharpsuit

As a matter of preference, I would backdate to the start of the year as this demonstrates your bona fides to Revenue.

The statement from the Minister for Finance provides that liability for withholding on the part of the tenant can only arise only he or she becomes aware of the rule. In your case, this is June.

How far back you backdate only matters if the landlord claims you are in rent arrears for the monies you are withholding. A claim for rent arrears for monies withheld to comply with the Taxes Consolidation Act has scant chance of success - it is not the role of the PRTB to interpret this piece of legislation.

The landlord can, of course, relieve the tenant of their withholding obligation by appointing an Irish-based agent to account for the taxes owed.

Newsite

sharpsuit wrote: »

As a matter of preference, I would backdate to the start of the year as this demonstrates your bona fides to Revenue.

The statement from the Minister for Finance provides that liability for withholding on the part of the tenant can only arise only he or she becomes aware of the rule. In your case, this is June.

How far back you backdate only matters if the landlord claims you are in rent arrears for the monies you are withholding. A claim for rent arrears for monies withheld to comply with the Taxes Consolidation Act has scant chance of success - it is not the role of the PRTB to interpret this piece of legislation.

The landlord can, of course, relieve the tenant of their withholding obligation by appointing an Irish-based agent to account for the taxes owed.

Thanks. So here's the deal with the landlord - he's not all that bothered at all. He just said to withhold whatever and that he'd maybe need my tax number at the end of the year. He was onto Revenue about his own tax but didn't get much response out of them.

That's it.

So here's my plan -

Normal monthly rent is 500 eur in 2010. Instead, I will pay 300 eur per month starting from this month. This means that on 31 Dec 2010, I will have withheld 200 x 6 = 1200 eur which is the amount due to be withheld for the year (100 x 12).

Sound ok?

sportloto86

sharpsuit wrote: »

The Minister for Finance issued a statement on the 18 December 2008, acknowledging this. He said that the withholding provision only applies as soon as the tenant is aware of his/her obligation to withhold 20% of the rent or becomes aware of where the landlord lives.

Tenants have nothing to fear from applying for rent relief. If they weren't aware of the provision, they must not be penalised (as per the Minister's statement).

If a tenant is currently in rented accommodation and becomes aware of the provision, they should start withholding 20% of the rent and forward this to Revenue with a completed R185 form. They are not in rent arrears as they are complying with an obligation imposed on them by the Taxes Consolidation Act.

I am foreign national and have claimed rental tax relief couple of times but was not aware of obligation to withhold 20% of the rent if landlord lives abroad, not until I requested receipt for rent paid...

My last lease was signed in May 2009 and I was aware that landlord is going abroad. Rent agreed and documented in lease was €1100 per month. No mentioning of the deductions or obligations regarding tax payable.

When my lease was up landlord sent me a copy of new one for my approval and that's when I requested receipt for rent paid. Landlord replied that he has no idea what I'm talking about...
This sounded fishy and I searched for answers on web. Only then I discovered that I am liable for tax deduction and landlord can openly call me stupid and live happily ever after.

I handed my notice to landlord and moved out in June. I would like to sort this thing out as I always paid my duties and cannot imagine this other way. Any chance of getting link to that "Minister for Finance issued a statement on the 18 December 2008" as google search didn't help.

Suggestions how to handle this case to avoid huge bills will be much appreciated as I have family to feed.

sportloto86

Bump for suggestions.

sharpsuit

Statement by Minister for Finance below.

You cannot do anything to withhold rent at this stage because you have moved out of the dwelling. This might only become an issue if you apply for rent relief.

If and when you apply for rent relief, you will have to include the address of the landlord. In the past, this is when Revenue would deduct your tax credits to account for the portion of the rent that should have been withheld by the tenant. This should no longer happen, in particular as you were not aware of the obligation. [In the past, certain Revenue districts were inappropriately penalising tenants and this should now have ceased.]

When you apply for rent relief, you should complete the Rent 1 form and also include a cover letter that you only became aware of the withholding obligation at the end of the tenancy and that you left because you felt he was not Revenue-compliant.

They should award you the rent relief and Revenue will now be aware that the dwelling in question is rented out by an overseas landlord, ensuring future compliance. If they do seek to penalise you, please post again here.

DÁIL QUESTION

NO 104

To ask the Minister for Finance his plans to reform the practice of the Revenue Commissioners in situations in which a tenant is paying rent to an overseas landlord, in order that there is direct contact from the Revenue Commissioners with the landlord and that the tenant is not penalised for failing to discharge the landlord's tax obligations; and if he will make a statement on the matter.


- Mary Upton.

* For WRITTEN answer on Thursday, 18th December, 2008.
Ref No: 47583/08

REPLY


Minister for Finance ( Mr Lenihan) :

I propose to answer questions 103 and 104 together. The operation and impact of tax law as it applies to the legal obligation on a tenant, who pays rent to a non-resident landlord, to deduct income tax from the rental payments is monitored and reviewed on an ongoing basis as part of the normal work of my Department and the Revenue Commissioners.

I am informed by the Revenue Commissioners that the withholding of tax on rental income by tenants of non-resident landlords acts to promote greater compliance and deter evasion in this area, having regard to the obvious risk factors associated with non-resident taxpayers. The provision also ensures that a minimum tax payment is made by such landlords which might not be the case if the provision were removed.

The Revenue Commissioners accept that this provision might not be well known to some tenants and as a consequence could give rise to some practical difficulties. In recognition of this, where a tenant acts in good faith and is genuinely unaware of the obligation to deduct tax or of the residence status of the landlord, Revenue will only seek to apply the legislation from a current date. There is no question of such tenants being penalised for past failures to withhold tax from rental payments. This practical approach is reflected in Revenue’s operational instructions in this area. In this context Revenue are prepared to review the specific case outlined by the Deputy. If the person forwards details of the assessment to Gerard Moyles, Customer Services, Galway County District, he will be pleased to assist. He can be contacted at 091535952 or by email at gmoyles@revenue.ie.

On the general issue raised by the Deputy there are a number of factors that need careful consideration, not least to protect the Exchequer from loss of revenue through tax evasion. The removal of the obligation to withhold tax would create a situation where it would be easy for non-resident landlords to evade tax. Revenue would have no way of recovering the tax due as Revenue would not be in a position to force such non-residents to make a tax return and to declare their income.

I have to ensure that Irish income tax is capable of being collected and, having consulted with the Revenue Commissioners and considered the matter, I am of the view that the current position, whereby tenants operate a withholding tax on such rental payments coupled with the Revenue practice of accepting the good faith of tenants who were genuinely unaware of their responsibilities or of the residency status of their landlords, remains the most effective approach in this area. An alternative arrangement that would avoid opening up opportunities for tax evasion simply does not present itself at present.

mmalaka

sharpsuit wrote: »

Statement by Minister for Finance below.

You cannot do anything to withhold rent at this stage because you have moved out of the dwelling. This might only become an issue if you apply for rent relief.

Is this mean that as long as I did not apply for the rent relief....I would be not asked about the tax?

sportloto86

Thanks a lot for advice sharpsuit. I hope I will not have to post here again but it's much better to be prepaired for battle.

silja

One more question: does the Foreign Landlord tax apply even if a residential landlord wouldn't pay tax, ie rental income is below 10'000 a year?

I have a large one bedroom flat in Dublin city I am looking to rent out as we'll be living abroad for a few years. With the current economic situation, I think I'd get just about around the cut-off, which would be 833 euro- well, I am hoping to get a bit more but if it means the 20% tax does not apply under the 833 euro a month, I'd happily price it below that to avoid the tax

The_Conductor

silja wrote: »

One more question: does the Foreign Landlord tax apply even if a residential landlord wouldn't pay tax, ie rental income is below 10'000 a year?

I have a large one bedroom flat in Dublin city I am looking to rent out as we'll be living abroad for a few years. With the current economic situation, I think I'd get just about around the cut-off, which would be 833 euro- well, I am hoping to get a bit more but if it means the 20% tax does not apply under the 833 euro a month, I'd happily price it below that to avoid the tax

The 10k cutoff only applies for the rent-a-room scheme. Any landlord who is not physically resident in the property they are letting- has to make a tax return declaring the income and pay any taxes due. Its entirely possible that you may have no tax due on low levels of rental income- however you still have to do a full tax return, declaring the income and offsetting your eligible costs against the income, before determination of tax due.

Note: in the context of a personal tax return- income, other than your rental income, may eat up any tax credits you have, and may push your rental income into a taxable band........

Ps- you still need to do an Irish tax return- if you have income originating in Ireland. We have reciprochal tax agreements with numerous other countries to minimise the risk of double taxation (all EEA States and the US have reciprochal agreements).

S.