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Buy-to-Let Property Taxes

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  • 23-04-2014 6:26pm
    #1
    stainluss
    Registered Users Posts: 864 ✭✭✭


    What taxes does someone who takes out a mortgage to let a property pay (a) in the initial (purchase) transaction (b) whilst renting it out?

    Does this differ when the property is placed in a company/trust v.s. when its held personally?

    Just doing up some financial models for an end of year project. Thanks in advance.
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    #2
    Mr. Incognito
    Registered Users Posts: 9,798 ✭✭✭Mr. Incognito


    Property threads are banned about here- please read the charter.

    As this is for a college project and is more general than specific I can leave the thread open but be advised that some of the posters here are not qualified, may be students, may even be persons with barstool knowledge and as such cannot be relied upon.

    What taxes does someone who takes out a mortgage to let a property pay (a) in the initial (purchase) transaction (b) whilst renting it out?

    Initial purchase is usually pro rata LPT up to the date of close although this can be negotiated. There is an exemption for VAT for residential property but not for commercial premises. I presume that the question is confined to residential property. They would also have to pay stamp duty on the purchase. (1% up to a million, 2% thereafter)

    If they are renting the purchase then it is not their principle private residence so they will have an exposure to CGT when they subsequently sell it. While renting it they will have to pay income tax on the rental income. This can be reduced by capital allowances and qualifying rental expenditure. There is a guide to rental income in the stickies.


    Does this differ when the property is placed in a company/trust v.s. when its held personally?

    When the company is placed in a company then the rental income is charged to corporation tax. Unless the companies primary purpose is renting property then it will be charged at 25% and not 12.5%. (Known as passive income) If the companies primary purpose and trade is renting property then it may qualify for the 12.5% rate. A company would also have to pay VAT on the purchase and sale of the property but it will be VAT neutral where the company is registered for VAT. Payments to participators will also suffer income tax in the hands of the beneficiaries. As such companies can be a poor vehicle for tax purposes, especially for investment or passive income unless it is substantial income.

    Where the rental income is received by a trust then it depends on the nature of the trust. Generally though the trustee is oblidged to file tax returns and account for tax on the rental income. There are more complicated rules where the trust is set up for a specific purpose or where the trust is a look through trust controlled by the beneficiaries but I dont think you would be expected to go into that. There are guides to trustees obligations on www.revenue.ie


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