Are my Calculations on Rental Income correct??

bigbadcon

Hi folks,

Im looking into renting my house while myself and my family move to australia next February. We have a prospective tenant who is a friend of the family and we would feel comfortable with them staying in the house and we think that they would really look after it.

I am trying to work out how cheap I could rent out the house to this person so that it is affordable for them and that my bills are also covered.

Im not too worried about making a profit on the house, I think having the piece of mind that the house is being looked after outweights any small profits that could be made.


Question 1:

We built the house in 2007 and moved in in March 2008 so from what I have read we will be exempt from Stamp duty clawback. Does this sound correct??

Question 2:

I know we will have to tell the revenue that we are no longer living in the state which will mean no more Mortgage Interest Relief so I have added that onto the amount we currently pay to get an idea of our monthly mortgage bill.

My calculations are as follows:


Mortgage will cost us €11629 a year (€929.12 a month * 12)

If we get €1200 rent a month we will have an income of €14400 a year.
The interest on our mortgage is roughly €6000 a year so this will mean we get 4500 deductable from the 14400 (4500 is 75% of the interest for the year)


This will leave €9900 that is the taxable amount.

So assuming my calculations so far are correct.... If we are not living in the state and will therefore not be receiving any income in the state does this mean that the tax rate we pay on the €9900 is at the lower rate of 20% because we wont earn enough to be in the higher bracket?


I appreciate your help with this....

StillWaters

Don't forget to factor in nppr (non tax deductible) prtb, property tax, liability to cgt and higher insurance premiums.

bigbadcon

StillWaters wrote: »

Don't forget to factor in nppr (non tax deductible) prtb, property tax, liability to cgt and higher insurance premiums.

Thanks StillWaters, I realise the figures are very high level and that there are lots of expenses I have left out. Im just wondering if the the overall picture seems ok and the big question is what tax bracket I would be paying Tax on.

odds_on

The easiest way to lose friends and family is to have financial dealings with them, especially with such a large amount.

Assuming that everything goes well! you should also factor in some problems: what ifs.

You will also need an agent (family member or professional agent) to deal with any problems that may arise, also with your tax implications and returns. A tenant should withhold 20% of the rent to be forwarded to the revenue if there is no agent and the landlord is not resident in the state.

What happens, if, after a number of months "down under" you decide to come back and want to live in the house. If you have a fixed term lease you will have to wait until the term has expired before you can move back in unless you have a well worded and legal break clause (which does not give you an advantage that the tenant does not have).

You will also have to have landlord's insurance for the property.

bigbadcon

odds_on wrote: »

The easiest way to lose friends and family is to have financial dealings with them, especially with such a large amount.

You will also need an agent (family member or professional agent) to deal with any problems that may arise, also with your tax implications and returns. A tenant should withhold 20% of the rent to be forwarded to the revenue if there is no agent and the landlord is not resident in the state.

What happens, if, after a number of months "down under" you decide to come back and want to live in the house. If you have a fixed term lease you will have to wait until the term has expired before you can move back in unless you have a well worded and legal break clause (which does not give you an advantage that the tenant does not have).

You will also have to have landlord's insurance for the property.

Thanks odds_on , yeah I know what you mean about falling out with people but this person is very house proud (in their current rental) and they are not really a friend directly, more a family member of a friend.

We have a permanent residency visa in australia and there is no point in going out there and not giving it at least a year to try it out. We are really planning on giving it 2 years but would want a 1 year lease just in case. We both have parents houses we could move into if a disaster were to happen and we were to return home.

So if the tenant has to forward 20% to the revenue Im assuming I still have to do a tax return,what about the expenses that occur during the year? will the revenue then refund me the difference?

Sounds like getting an agent is looking like a good idea just to forward on the cash. I wouldnt mind dealing with the tenant myself for the day to day stuff.

odds_on

You are required by law to provide an emergency contact number/address in case the tenant has an emergency to be dealt with.

If that contact is not resident within the State, at least, I do not see how that would comply with the law. Just providing numbers of a plumber, electrician etc does not fulfil the requirement of the law IMHO.

RTA 2004, para 12
(e) notify the tenant of the name of the person, if any, (the ‘‘authorised agent’’) who is authorised by the landlord to act on his or her behalf in relation to the tenancy for the time being,
(f) provide to the tenant particulars of the means by which the tenant may, at all reasonable times, contact him or her or his or her authorised agent,

bigbadcon

Hmm I suppose maybe getting a letting agent involved might be a good idea to cover all of these requirements in the small print of rental laws...

I could negotiate a cheaper rate aswell as I would have taken the hassle out of them finding/vetting a tenant..

Any recommendations on letting agents or even tax acountants? I see taxback.com have a landlord service available.

Appreciate the advice...

3DataModem

Firstly yes, your numbers are pretty much correct. Your house insurance won't go up by too much once converted to 'landlords insurance'. NPPR and PTRB should be factored in too.

I recommend getting an agent. You should aim to pay 5-6% plus vat of rent for maintenance if they don't have to find a tenant. Trust me, it is worth it. This is money well spent if you are living abroad AS LONG AS YOU GET A GOOD AGENT. If you are north side I am happy to recommend Delaney Estates who I have used very successfully (from abroad) for a place in Sutton.

bigbadcon

Thanks for your help 3DataModem, I agree an agent seems the best way to go.

Can you confirm if I am right about the 20% being the rate I will pay tax on?

Also am i right about the stamp duty claw back?

3DataModem

I just got taxed at 20% for 2011, so I believe you are right on that.

The clawback used to be 5 years but I believe it is now 2 years (I've actually paid it - twice!).

Victor

bigbadcon wrote: »

So assuming my calculations so far are correct.... If we are not living in the state and will therefore not be receiving any income in the state does this mean that the tax rate we pay on the €9900 is at the lower rate of 20% because we wont earn enough to be in the higher bracket?

Not a fair assumption. You will be taxed on worldwide income, subject to whatever double taxation agreement(s) we have with Australia.

bigbadcon

Victor wrote: »

bigbadcon wrote: »

So assuming my calculations so far are correct.... If we are not living in the state and will therefore not be receiving any income in the state does this mean that the tax rate we pay on the €9900 is at the lower rate of 20% because we wont earn enough to be in the higher bracket?

Not a fair assumption. You will be taxed on worldwide income, subject to whatever double taxation agreement(s) we have with Australia.

Does Article 7 on this page not mean I only pay tax in ireland for rental income?

http://www.revenue.ie/en/practitioner/law/double/australia.html

I find this revenue stuff very hard to read.maybe thats why I need an accountant :-)

riclad

My friend is in oz,rents out house, she pays accountant to handle her taxes,and has agent,
you,ll get tax credits for paying both,cgt is irrelevant unless you think
houses prices will rise in the future.
You get tax credits ,for insurance,maintenance, advertising ,buying,carpets,furniture ,fridge etc
ITS important to have a tenancy agreement, clause 1, no subletting allowed.
Give agent your email adress and phone no ,in case of emergency.
i think its simple, you pay tax to oz taxman, on your oz income,
you pay tax to irish taxman on income, eg rental income earned in ireland ,
eg theres no double taxation .
income on property in ireland is taxed in ireland, payable to irish tax authority.
oz taxman will not tax you on irish rental income.

its pretty simple.
BY THE way the personal tax rates are much higher in oz,but you probably know that already.
as a landlord you get tax credits, you may as well employ accountant and agent,
accountant is maybe 300 plus per year ,it varys.
its important to have receipts for all services,
repairs, your accountant will need em, to complete tax return.

bigbadcon

Thanks for the advice riclad,appreciate it.

Ive been reading today that I am supposed to tell my mortgage provider that I am planning on letting out the house but most people are saying that this will result in the bank wanting to take me off my tracker..

Whats most peoples opinion on this?

Dont fancy the idea of giving up my tracker and if I wasn't on a tracker this would be a huge hit to the income on the property...