Rental Income

blast06

Hi,

Quick couple of questions that someone may be able to help clarify. Apologies if these are borderline stupid !

Take a scenario where i have say 12K rental income and the interest on the mortgage is also 12K. Also, lets assume i have 2K of expesnes from house insurance, wear and tear, etc.
So, does tax calculation work like:

12K rental income - 2K expenses = 10K taxable income
75% of 12K interest paid = 9K.
Mean the revised taxable income is 10K - 9K = 1,000.
And given that i am on top rate of tax, then my liability is €410.

OR
==

Is it:
12 rental income - 9K (75% of 12K interest paid) = 3K taxable income.
41% of the 3K = €1230 tax liability.
However, with 2K expenses then my real return is €1230 - €2000 = a loss of €770.


I was almost certain it was the first scenario but a guy awas arguing black and blue with me at lunch today that it was the 2nd scenario (or maybe we're both stupid !)
In either case, how is rental income handled for someone that is self-employed, i.e.: their rate of tax is 12.5% ?

rugbyman

I thinkit is the former.Finished my returns last week with an advisor and that was the case.
however from Jan to march of 2009 you a re allowed 100 % of the interest.

so one quarter of your 12 K interest equals 3,000.

add that to 75% of the remaining 9k , 3000 plus 6750(75% of 9,000) equals 9750
so you owe tax on 12000(rent) minus 9750 (interest), minus 2000 (expenses) equals 250.,

Regards,Rugbyman

rugbyman

i think/know youare wrong that the rate of tax for self employed is 12.5 %

Rugbyman

NCG

Rugbyman is correct - on both. It makes no difference whether you are employed or self employed, the same income tax rate applies. If you had a company owning the property and earning rental income, it would be a different matter.

blast06

Thanks for the replies.
I would have missed that re Jan to March 2009 ! No doubt in the next budget the interest relief rate will be cut to 50%.

Re the rate for self employed versus PAYE ...... how does that work then when you consider that you could have a PAYE worker earning less than ~36K and thus not paying 41% tax and thus their income rental rate is also at 20% up to the ~36K income threshold.

On the issue of a company owning the property ..... what rates do they pay ? If its lower than 41% then why wouldn't anybody who had a mortage free house setup up a company and transfer the property to it ?

NCG

I don't quite understand your PAYE point, but you pay income tax on your total income from all sources (PAYE, self-employment, rental, investment, etc) so there would be no difference.

Re companies - there are many issues involved in holding properties individually or through a company, but generally people hold them individually to avoid a double tax charge on disposal (where the company would have to pay CGT and the shareholder would have to pay further income tax or CGT to withdraw the proceeds from the company). There are many variations depending on the circumstances though - that is really an area where one needs professional advice.

Accountancy

The rate of tax for self employed is not 12.5%.
They are taxed at the same rate as anyone else.

Rugbyman is correct in his calculations of the taxable income but the rate of tax you pay will depend on if you are in the high tax bracket or not.
If you are on the higher rate you will pay the high rate on the rental profit. You will also pay prsi on it.
HTH

mathepac

Have a look here - http://www.irishlandlord.com/index.aspx?page=documents&folder=Tax+Guides+%26+Forms there are links to useful guides from Revenue etc. This is as close to definitive as you're going to get without consulting a professional accountant.

I have no connection with the site other than finding it useful (regular use is free, but the do have an online shop)

Sand Wedge

In addition to the tax you will have to pay, you will also have to pay the income levy and PRSI on your rental profits!

blast06

you will also have to pay the income levy and PRSI on your rental profits!

Just coming back to this as filling in form 11.... and will be hit by another few bob by the looks of that comment !
So does below look right (not taking any replies as tax advice of course ! - just trying to ensure i have the correct methodology)

Rent = 14,000
Interest on mortgage = 12,355
Relief on rent thus = 10,037 (100% of 25% of interest for Jan-March plus 75% of 75% of interest for April to December)
Valid receipted expenses = 1,005
Thus taxable income of 12,995 - 10,037 = 2,958.
41% (PAYE) plus 2% income levy (need to check my rates !) plus 4% PRSI = 47% of 2,958 = 1,390.26
Loss brought forward from 2008 = 885
So final liability is 1,390.26 - 885 = €510.26

If all of above is correct, then my final question is can i claim 12.5% of value of furnishings in house (i lived in it for 2 years before renting it out) - say €1,000 (if so, then do i have to provide evidence of ownership of this furniture?) ... thus taxable income reduces to €1,958 = €920 .... minus 885 loss brought forward equals a mere €35 liability ?

nompere

You've made a couple of mistakes.

Losses forward serve to reduce the amount of income on which tax will be charged, not the tax itself.

Health Contribution (you forgot that one), PRSI and Income levy are charged on the gross income before losses and before capital allowances as well.

PRSI is 3%. Income levy is likely to be in the region of 2%. Health Contribution is likely to be in the region of 4%.

Tax at 41% of €2073 = €850
Levies at 9% of €2958 = €266

Total payable €1116.

blast06

Great ... thanks for clarifying.
And can i also use the "12.5% of value of furnishings" ? and if so then does it reduce the taxable income or the final liability ?

Also, on your calculations below it seems the 'loss forward' can not be used to reduce taxable income for levies whereas receipted expenses can ?

nompere

blast06 wrote: »

Great ... thanks for clarifying.
And can i also use the "12.5% of value of furnishings" ? and if so then does it reduce the taxable income or the final liability ?

Yes - you are entitled to capital allowances. It's only on expenditure incurred, so you might need receipts. Anything that is already more than eight years old won't qualify - you are deemed to have claimed allowances every year after you bought something even if you couldn't actually use the allowance.

blast06 wrote: »

Also, on your calculations below it seems the 'loss forward' can not be used to reduce taxable income for levies whereas receipted expenses can ?

You've understood the essential difference between current expenses and losses forward.


Capital allowances are allowable for PRSI and Health levy purposes but not for Income levy.

Now you know why I've virtually no hair left!

yosemite_sam

I have a question, are mortgage repayments on a foreign property allowed to be offset against rental income?

dbran

yosemite_sam wrote: »

I have a question, are mortgage repayments on a foreign property allowed to be offset against rental income?

Yes. But they are subject to the same restriction as of 75% of the cost incurred since 7/4/09.

Kind Regards

Legend100

just to clarify Dbran's point, its the interest element you can claim, not mortgage repayments

yosemite_sam

Would the same rule apply here on a rental property?

Legend100

Yes same rules apply for both foreign and domestic rental income.

Only extra difference for domestic rental income is that the irish property must be registered with the PRTB for the interest to be allowable as a deduction

oh and just to note someing after re-reading your question: you can only claim the foreign interest against foreign rental income. you cannot claim the interest on the foreign property against your rental income in ireland and vice versa

blast06

Hi, back on this one with another couple of questions !

I have a holiday home in Ireland for which i received approx €1,000 in rent during 2009 when i let it for a 3 week window to friends. Now while the is completely and utterly untraceable even if i didn't declare it, i will do so nonetheless.
I have no idea how to calculate the liability though. My question is whether my assumption below is correct:

I only stayed in the house for approx 3 weeks during 2009 (1 2 week stint plus a few weekends) so can i reduce my taxable income by deducting 50%* of the annual ESB plus heating charges plus refuse expenses (no mortgage) ?
Say the 50% is €500 (heating has to be turned on for an hour a day during cold spells plus 'effluent treatment system' on 24/7 !!) then my taxable income is €500 meaning ~€250 liability ? Can i take it a step further and claim half of the annual 12.5% capital allowance - which would effectively mean no liability ?

* Note i am saying 50% as the house was occupied for 6 weeks of which 3 weeks were stays by me and my family.


Related question ..... my wife is probably going to take a redundancy package from work so if i were to rent out the house full time in a year or 2 (after she no longer gets the job seekers allowance) could we transfer the house into her name (currently joint names) so that the rent would be her only source of income and thus little to no liability ?

nompere

blast06 wrote: »

Hi, back on this one with another couple of questions !

I have a holiday home in Ireland for which i received approx €1,000 in rent during 2009 when i let it for a 3 week window to friends. Now while the is completely and utterly untraceable even if i didn't declare it, i will do so nonetheless.
I have no idea how to calculate the liability though. My question is whether my assumption below is correct:

I only stayed in the house for approx 3 weeks during 2009 (1 2 week stint plus a few weekends) so can i reduce my taxable income by deducting 50%* of the annual ESB plus heating charges plus refuse expenses (no mortgage) ?
Say the 50% is €500 (heating has to be turned on for an hour a day during cold spells plus 'effluent treatment system' on 24/7 !!) then my taxable income is €500 meaning ~€250 liability ? Can i take it a step further and claim half of the annual 12.5% capital allowance - which would effectively mean no liability ?

* Note i am saying 50% as the house was occupied for 6 weeks of which 3 weeks were stays by me and my family.


Related question ..... my wife is probably going to take a redundancy package from work so if i were to rent out the house full time in a year or 2 (after she no longer gets the job seekers allowance) could we transfer the house into her name (currently joint names) so that the rent would be her only source of income and thus little to no liability ?

If it was only let for 3 weeks then you can deduct 3/52 of the expenses. The rest of the time it's available for your use, even though you didn't use it.

Any capital allowances will similarly be restricted. Capital allowances are deducted from income, not income tax.

Your other question requires proper professional advice. The variables are too many.