Non resident landlord

RATM

I'm a bit confused about taxation of a non-resident landlord.

Revenue says that there are two ways of doing it- 1) tenent pays 20% of rent to Revenue or 2) agent pays 20% of rent to Revenue.

But how does this work in terms of the non-resident landlord filing their income taxes on Oct 31st ? I'm just wondering does being non-resident mean that you pay 20% on the gross rental income and that you or your agent are not allowed to deduct expenses as you would if you were here in Ireland ?

Or is it the case that the agent pays up the 20% to Revenue first and then you later do your income tax return with Revenue and claim a refund from them ?

howardmarks

Simplest way to explain is from a tenants point of view. Tenant deducts 20% of rent and returns it to revenue. It's kinda a way of ensuring that the income is accounted for as the non resident may never file returns as he's out of the state. If the landlord(non res) registers for income tax and filed returns declaring the rents I think this negates the tenants requirement to deduct the 20%

Landlord who regs with revenue is entitled to deduct allowable expenses in relation to rental property same as resident landlord

Fermatslast

You treat the 20% deducted by either the tenant or the agent as a payment on account to revenue and deduct it from your tax liability.

As long as landlord is non-resident, tenant or agent must deduct 20%.

RATM

Fermatslast wrote: »

You treat the 20% deducted by either the tenant or the agent as a payment on account to revenue and deduct it from your tax liability.

As long as landlord is non-resident, tenant or agent must deduct 20%.

Is there a way around that.Like in this situation the landlord is going to the US for 2 years to work and then returning home. He doesn't have a problem registering with Revenue in advance of his departure and paying his taxes on Oct 31st.

The reason I ask is that the rent is going to be his only Irish income so if 20% gets deducted at source without allowing for expenses then he is going to be overpaying his liability as there is no PAYE income or anything else to offset it against.

I can understand Revenue wanting to get their hands on the tax at source when a landlord is far away. But what happens in the case of honest people who are just upfront from day one and want to self assess and deduct their legitimate rental expenses before filing their tax - surely Revenue aren't against doing it this way ? Or if they are then how is he going to get a refund on tax over paid ? Would he have to wait until he returns and goes back to being a PAYE worker to get it back, seems a bit unfair on him tbh.

Also I should also ask is a person who is considered to be ordinarily resident (as he is right now and will still be for the 2 year duration in the US) still entitled to tax credits if they are not in the country ?

Paddy001

Just to correct you on the options they are as follows:

1. Tenant deducts 20% of payments made to landlord and they then remit this to Revenue. They give a form to the landlord stating the amount remitted on their behalf and the landlord can then claim this as a credit when doing their tax returns.

2. The landlord can appoint an agent in Ireland to collect the payments, there is then no need to deduct the 20%. An 'agent' can be an estate agent, solicitor, property management company, your uncle, sister etc. any person or body which is resident in the state and willing to do this on your behalf.

These are the only two options available. If a tenant pays rent direct without deducting the 20% and the landlord does not make a tax return, the tenant can then become liable for the unpaid tax. There is no need to deduct 20% if paying through an agent because Revenue will chase down the agent if a return is not made. Best option is to find a relative willing to look after it all for you, as long as they keep the money in an account they have control of, there should be no risk to them.

RATM

Thanks Paddy that clarifies things. I'm glad to hear there is a way he can self assess via using an agent as otherwise it could get unnecessarily messy.

Would he still qualify for tax credits as although he is in the US he is still deemed an ordinary tax resident for three years after departure (and only intends staying for two before coming home)

howardmarks

See the part re entitlement to credits. If your friend has a well paid job in the us I'd be under the impression that no credits would apply.
Consider if you were here and on a 50k salary. You'd have nothing to apply to the rental income and would be liable on the profits at the higher rate as your salary would eat up credits and rate band. If the income in the us is low or nil full credit would apply
Residence

Who is Resident?
What is split year and who does it apply to ?
Non-Resident Individual Entitlement to Tax Credits
PAYE Exclusion Order
Reference Material
Related Topics
Additional Information
Residence Double Taxation relief
Who is Resident?
A person is resident for Irish tax purposes if they spend -
183 days in Ireland or
280 days over two years - ie. current and preceding tax year, minimum 30 days in each year.
Up to 31/12/2008 a day for residence purposes was one on which the person was in Ireland at midnight. From 1/1/2009 a day for residence purposes is one on which the person is in Ireland at any time in a day.
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What is split year and who does it apply to ?
Person coming to reside here (and will be resident in the following year) :
Are regarded as resident from the date of arrival and liable to pay income tax on all income arising from that date. Generally, full tax credits are allowable on a cumulative basis.
Person Emigrating: (resident year of departure; non-resident following year.)
Continue to be regarded as resident up to the date of departure and are liable to pay income tax on all income arising up to that date. Generally, full tax credits are allowable on a cumulative basis.
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Non-Resident Individual Entitlement to Tax Credits
EU Citizen, National:
Full tax credits are granted on a Cumulative Basis if 75% of the worldwide income is taxable in Ireland. Week 1 Basis certificate is issued if income taxable is less than 75%.
Citizen of Double Taxation Country:
Full tax credits are allowable on a Cumulative Basis where the person's only source of income is Irish source income. Where the person has non - Irish source in addition to the Irish income, a Week 1 Basis certificate is issued.
Other:
In all other cases a certificate of nil tax credits is issued.
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PAYE Exclusion Order
If a person is employed abroad (and all of the duties are carried out abroad) by an Irish employer and will be non-resident in the tax year, a PAYE Exclusion Order is issued. Full details in writing must be submitted by the employer to the appropriate regional Revenue office.
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Reference Material
Leaflet Res 1 - A guide to Irish income tax and capital gains tax liability based on some commonly asked questions.

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Related Topics
Seafarers Allowance
Trans-Border Workers Relief
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Additional Information
In general resident individuals are taxable on the full amount of income and profits from all sources - Irish and Foreign.
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Residence Double Taxation relief
Ireland has comprehensive Double Taxation Agreements in force with 46 countries.

RATM

Thanks Howard. His situation is kind of bizarre and outside the regular norms.

So him and his wife (both currently PATE employees here) are packing up to go to the US for two years and then returning home, back to the house they have a mortgage on and intend to rent while they're away.

She is a scientific researcher and will be earning a pretty decent income from research in a US university. He will not be working on US soil, he will be minding their kid for 2 years and while he intends to take up voluntary work coaching kids in football he will not be earning a US income at any stage.

They jointly own the house and at the moment and are jointly assessed as a married couple for tax purposes. But when they go to the US she will be paid by a US company and taxed under their system. He however remains out of the US tax net as he has no US income.

I'm kinda wondering would it be to their advantage to split their tax credits and deal with Revenue as single people if this is even possible once married ? I say this because the rental income isn't all that great (sub €10k pa) so once expenses are deducted (wear and tear, maintenance LPT, letting agents fees, advertising fees, etc) he should be able to get that figure down to around an €8k net rental income. This when balanced against a single persons tax credits would mean it would almost balance out any income tax payable at the 20% rate. But of course all that would depend on whether or not he is entitled to claim tax credits when he is sitting in the US. He will still be an ordinary resident and as he will not be away for three years or longer then he won't be losing this status. His dom of course remains Irish throughout.

I am aware that they are not liable for the NPPR (as they were in the house as their principle residence on 31st March this year). I'm also aware that if they keep net rental income below €10,036 then they are not liable for USC on it either. So I guess the last piece of the jigsaw is to see if it is possible to save a considerable amount of income tax on the rental income by balancing it against his tax credits, if applicable.

howardmarks

Going to have to start charging:)
They can apply for seperate assessment before they leave.
This will seperate their tax bands and credits.
Rental income divides in 2 between spouses. Husband can offset credits and band against his half of the rent. It's messy but it would mean half the rent is tax free saving a few grand over the 2 years. 2 sets of tax returns required tho.

RATM

Thanks Mr.Nice That clarifies things significantly. I had spent a good deal of time on Revenue's site but found it difficult to find out proper information that would apply to their quite unique set of circumstances.

I appreciate the helping hand

Mr. Incognito

There is a reason specific advice is banned here.

A small bit of knowledge can be fatal.

Howard's advice is overly simplistic.

Irish source income from irish property is ALWAYS liable to Irish tax irregardless of residence. S1028 is the section that applies credits if greater than 75% is Irish source income or apportions credits on a value basis If below.

The first question is who owns the house. If it is the husband, the rental period will negate PPR CGT relief for the rental period. If it is owned jointly then the wife's income will knock out any available credits. This may have tax consequences on CGT on a subsequent sale which At 33%and climbing could be significant, plus stamp duty considerations.

Both will be ordinarily resident unless they apply for section 822 relief so residence and 1028 may not even come into it.

The structure to advocate will depend on their future intentions for the house and other tax planning as going non resident has other knock on effects.

I would advise them to speak to a professional. It's never that simple.

Thread closed.