Tax deduction when renting from non-resident landlord

rich.d.berry

I have a few questions about this. I have been renting a property from a landlord who lives in England now since April 2010. I have only recently found out about my obligation to deduct 20% in tax. I have spoken to the landlord about this and made him aware of it as well.

He has suggested that because his mother still lives in Ireland she can act as his agent if I pay the full sum into her account instead of into his.

Would his mother be entitled to act as his agent?

What about the rent already paid directly to him? Do I face a huge tax bill? If I had deducted 20% since April 2010 I would have collected over €3000 already.

Do I face penalties on the tax not deducted for 2010?

Am I entitled to take 100% of the rent for November and December and pay that to Revenue for tax purposes, or would this place me in breach of my rental agreement?

I'm asking all these questions to see what options are open to me. Any advice will be gratefully received.

I know that I have to complete a form R185 on which I have to state the date the rental agreement started.

Merch

you would have to seek professional advice to be 100% but as far as I am aware he could nominate his mother as an agent. If she didnt have sufficient earnings then no tax may be payable anyway, but thats not a worry for you.
If that is the case you do not deduct anything nor do you have to contact revenue, its up to the landlord to keep his/her tax affairs in order. You dont need to do the job for the revenue or the landlord
You will not be hit with a bill for someone else's liability in any situation.

Also, you are not allowed to deduct anything from the rent for tax purposes or anything (I'd say that is unless you have some agreement with the landlord to take something to decorate or something like that?)

Kristopherus

If this is a private residence, you are not entitled to deduct anything from the rental payment. You are discharging your obligation by paying the rent. What the landlord does after that is his affair. What you can do is claim tax relief on the rent you paid, which is a totally different thing to what you are talking about.Afaik this relief was greatly reduced/changed in the 2011 budget, so waht you can/may claim for is/may be 2009 & 2010.Have a good look at revenue.ie to see what the current policy is.

mrs vimes

Merch wrote: »

You will not be hit with a bill for someone else's liability in any situation.

Also, you are not allowed to deduct anything from the rent for tax purposes or anything (I'd say that is unless you have some agreement with the landlord to take something to decorate or something like that?)

Kristopherus wrote: »

If this is a private residence, you are not entitled to deduct anything from the rental payment. You are discharging your obligation by paying the rent.

OP is correct that he is liable to pay over tax on rent paid to a non-resident landlord unless the rent is paid to an agent in the state.

He can indeed be held liable for the landlord's tax if he fails to do so.

The Ombudsman doesn't like it at all as he considers it very unfair on tenants but that's the law at the moment.

rich.d.berry

Thanks for the replies.

However, what you say about not deducting for tax is at odds with what Revenue publish in a document that can be downloaded here http://www.revenue.ie/en/about/foi/s16/income-tax-capital-gains-tax-corporation-tax/part-45/45-01-04.pdf?download=true.

Specifically it says:

Where rents are paid directly to a person whose usual place of abode is outside the State, the tenant is obliged to deduct income tax @ the standard rate from the payment (section 1041 TCA 1997). The tenant then gives the landlord a certificate of the tax deducted on form R 185. The landlord is entitled to claim relief for expenses which are usually allowed in arriving at the rental profit and may be entitled to a proportion of personal allowances. Note: Payment into a bank account in the name of the landlord is payment directly to the landlord. The tenant should deduct tax from the rent @ the standard rate and account for this tax to Revenue. Strictly, the tenant should make a return immediately after the tax was deducted and pay over the tax deducted.

Where rents are paid to a person whose usual place of abode is in the State, for example to an Irish based estate agent, acting on behalf of a non-resident landlord, the tenant is not obliged or entitled to deduct income tax. The non-resident landlord is chargeable in the name of the Irish agent. The Irish agent is not entitled to deduct tax from the rent on payment to the landlord but would normally retain sufficient of the rents to satisfy the tax payable on the rents. The agent should not issue an R 185 to the landlord.

I suspect that a family member not registered as an estate agent would not be entitled to act as an agent.

fergald24

Minster for Finance Michael Noonan was recently asked about if there was any intention to alter the requirements whereby the tenant is required to satisfy the taxation obligations in regard to rental income of absentee landlords. The reply is long winded, however I include the following relevant quote

"..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. This practical approach is reflected in Revenue’s operational instructions in this area"

On this basis/statement, you would not be required to deduct any amount for historic payments. Goign forward provided the amounts are paid into an Irish resdients account, I believe this would suffice as a an agent, there is no requirement to be an estate agent, the landlord would then become liable in the name of the "agent", however this is not your concern.

In summary, I think you are fine in respect of past rents paid and provided you are paying the futute rents to an Irish resident individual into an Irish account, you should have no issue.

I can post the entire response by the Minister and the associated question if required.

rich.d.berry

Thanks Fergal. That's just the sort of information I was hoping for.

mrs vimes

Thanks Fergal, delighted to see Revenue are taking a more humane approach.

Just on the agent point, Rich.d.berry, Revenue explicitly allow non-professional people to act in this capacity:

"Note: The agent appointed need not be a professional person, e.g.. they can be a family member or other person prepared to take on the responsibility and who undertakes to make annual tax returns and account to Revenue for any tax due"

from http://www.revenue.ie/en/tax/it/leaflets/it70.html#section21

rich.d.berry

Thanks Mrs Vimes. That is exactly the info I was looking for.