Accidental Landlord

indie warrior

Upgraded in 2008 to a modest 3 bed but paid far too much as did everybody else at the time. When house came up for sale bank was more then happy to give me 100% mortgage and I kept my original house. House is rented out through Ras and I have no issues. I am lucky that rent covers the mortgage repayment and probably left with about 100 euro over which I put into an account for tax return.
Just got a call from my accountant to tell me that I will owe revenue 4.5 k for 2014 return
Both my husband and I work and earn average wage so struggle to support two kids and mortgage on principal home. Really knocked for 6 as I have no idea where we are going to get 4.5 k to pay tax bill, 52% tax on rental income will bankrupt me, no wonder there is a homeless crisis when we are been screwed!

johnnyskeleton

Sell one of your properties if you can afford.to keep it.

indie warrior

johnnyskeleton wrote: »

Sell one of your properties if you can afford.to keep it.

If I could I would but both still in negative equity

NIMAN

Are you really an accidental landlord though?

You bought a new house nd didn't sell your first. It sounds like becoming a landlord was a decision you made.

4.5k sounds like a lot to owe for one year.

MouseTail

You're not an accidental LL, that term applies to someone who does not enter it willingly, but they have to rent out a property if they outgrow it/need to move for work etc. You chose to become a LL in 2008, rather than selling the first property then.

relax carry on

indie warrior wrote: »

Upgraded in 2008 to a modest 3 bed but paid far too much as did everybody else at the time. When house came up for sale bank was more then happy to give me 100% mortgage and I kept my original house. House is rented out through Ras and I have no issues. I am lucky that rent covers the mortgage repayment and probably left with about 100 euro over which I put into an account for tax return.
Just got a call from my accountant to tell me that I will owe revenue 4.5 k for 2014 return
Both my husband and I work and earn average wage so struggle to support two kids and mortgage on principal home. Really knocked for 6 as I have no idea where we are going to get 4.5 k to pay tax bill, 52% tax on rental income will bankrupt me, no wonder there is a homeless crisis when we are been screwed!

What deductions are are you claiming against the rental income? 75% mortgage interest, capital allowances etc? Did you speak with an accountant before you started to rent the property out? Your accountant should have advised you what you were likely to need to have on hand to cover your 2014 tax bill.

indie warrior

NIMAN wrote: »

Are you really an accidental landlord though?

You bought a new house nd didn't sell your first. It sounds like becoming a landlord was a decision you made.

4.5k sounds like a lot to owe for one year.

Yes jumped on house when it came up for sale and seller wanted a quick sale, didn't have time to sell house ( we owed about 70k on it) but paid a fortune for new house and bank gave us whatever money we needed, renting first home seemed like attractive option at the time, tax return normally comes in under 2 k but because I have no repairs or much write offs bill is 4.5, 52% on the rent received!

indie warrior

relax carry on wrote: »

What deductions are are you claiming against the rental income? 75% mortgage interest, capital allowances etc? Did you speak with an accountant before you started to rent the property out? Your accountant should have advised you what you were likely to need to have on hand to cover your 2014 tax bill.

I have had same accountant since 2009 and I am claiming all deductions allowed, I didn't have a lot off house expenses in 2014 compared to previous years and both our salaries would come in under the lower tax bracket but rental income pushes us over into higher tax

indie warrior

MouseTail wrote: »

You're not an accidental LL, that term applies to someone who does not enter it willingly, but they have to rent out a property if they outgrow it/need to move for work etc. You chose to become a LL in 2008, rather than selling the first property then.

Apologies I have used the wrong term and you are correct, I though at the time stupidly that the rent would cover mortgage if I was lucky, I didn't do my research to know that the government would want 50% tax on the full rental income before I pay the mortgage

relax carry on

indie warrior wrote: »

I have had same accountant since 2009 and I am claiming all deductions allowed, I didn't have a lot off house expenses in 2014 compared to previous years and both our salaries would come in under the lower tax bracket but rental income pushes us over into higher tax

Apologies, I thought this was your first return. So you are used to the tax implications of rental income by now. It's just that 2014 was a year without much offsetable rental expenses. As you have had this additional income since 2009, you and your accountant should have projected your likely tax bill for 2014 and set aside the necessary funds to cover it. If it was a case that no matter what you did, you would never be able to meet the tax bill, then it was time to cut your losses.

NIMAN

4.5k sounds like 52% of your total rental income so, but surely there is a few k you could deduct? No?

indie warrior

relax carry on wrote: »

Apologies, I thought this was your first return. So you are used to tax implications of rental income by now. It's just that 2014 was a year without much offsetable rental expenses. As you have had this additional income since 2009, you and your accountant should have projected your likely tax bill for 2014 and set aside the necessary funds to cover it. If was a case that no matter what you did, you would never be able to meet the tax bill, then it was time to cut your losses.

Thanks for reply, mortgages split on both properties so to sell at the moment still in negative equity I'd still owe banks

indie warrior

NIMAN wrote: »

4.5k sounds like 52% of your total rental income so, but surely there is a few k you could deduct? No?

Wish there was? I have claimed everything I can and put in all receipts I have

c montgomery

Well OP seeing as though you have had much fewer repairs and expenses this year you can put the money you saved towards your tax bill.

I really don't see what the issue is here!

Senna

Approach bank to sell and restructure remaining amount into a 10 year loan.
You gambled and lost, time to get out if you can, rents are high now and it sound like you need them to be much higher to cover your costs.

indie warrior

Senna wrote: »

Approach bank to sell and restructure remaining amount into a 10 year loan.
You gambled and lost, time to get out if you can, rents are high now and it sound like you need them to be much higher to cover your costs.

Thanks for reply Senna that looks like the road I will have to try

Elliottsmum79

With a bit of luck the negitive equity ,might not be as bad as imagined and selling, though crystallising a loss might not be such a bad idea. Feel sorry for you. Horrible to get landed with such an unexpected tax bill......Revenue might let you pay off over time/come to an arrangement on it, they can be flexible on occasion- worth a try.

MouseTail

indie warrior wrote: »

Apologies I have used the wrong term and you are correct, I though at the time stupidly that the rent would cover mortgage if I was lucky, I didn't do my research to know that the government would want 50% tax on the full rental income before I pay the mortgage

They don't, you offset most of the interest payments. The sums dont look right, you must have a low mortgage on the investment property, however the mortgages were structured at the time is not to your benefit at all.

relax carry on

indie warrior wrote: »

Thanks for reply, mortgages split on both properties so to sell at the moment still in negative equity I'd still owe banks

Continuing on in this way is not prudent. How is your 2015 preliminary tax looking?
As an aside how did you calculate your 2014 preliminary tax? By the time you filed your 2013 return it should have been obvious that 2014's bill was going to be significant.

indie warrior

MouseTail wrote: »

They don't, you offset most of the interest payments. The sums dont look right, you must have a low mortgage on the investment property, however the mortgages were structured at the time is not to your benefit at all.

Hi MouseTail, mortgage on investmen circa 230k and I have tracker, principal property circa 215 also with tracker?

indie warrior

relax carry on wrote: »

Continuing on in this way is not prudent. How is your 2015 preliminary tax looking?
As an aside how did you calculate your 2014 preliminary tax? By the time you filed your 2013 return it should have been obvious that 2014's bill was going to be significant.

Haven't filed 2014 yet so will talk with accountant to see what 2015 looks like , 8 year ras contract up soon so will most likely look to sell then and hope negative equity improves a bit

relax carry on

indie warrior wrote: »

Haven't filed 2014 yet so will talk with accountant to see what 2015 looks like , 8 year ras contract up soon so will most likely look to sell then and hope negative equity improves a bit

Good luck.

newacc2015

indie warrior wrote: »

Haven't filed 2014 yet so will talk with accountant to see what 2015 looks like , 8 year ras contract up soon so will most likely look to sell then and hope negative equity improves a bit

Would you not let it to the private market? Paint it completely, some new ikea furniture (better stuff from 95% of Irish furniture stores), maybe new kitchen press doors. Make it look suitable for 2015. If there is a sitting room and dining room. Get rid of one and let it as a 4 bed house. A lot of Landlords in Dublin are doing this, as hardly any young people use both anymore.

You could probably get a lot more than what RAS is giving you now, depending on you are getting from them. Professionals if you check their references, should be no problem. With property prices rising at 8-10% in Dublin. I wouldn't be in a hurry to sell soon.

I would look at getting an accountant, who specialises in property and can advise you on greater deductions for tax purposes eg part of your homephone bill,if you use it for contacting the tenants,as its a legitimate business expense. Stationary you buy can be written off against your tax liability

pwurple

Medical expenses, refuse are also tax deductible, plus any service charges like management fees. But I'm sure your accountant told you that.

At 4.5k after deductions, you are talking about a rental income of probably close to 1000 euro a month. If your mortgage is close to that, then you'll owe on the whole lot. Your tenants are paying down the principal on a property you own though, so remember that piece.

You could rearrange the mortgage so that you are paying interest-only. Hold the rent then for tax. But, read the terms on that mortgage before you try it. Some mortgage agreements only hold the rate if the place is your primary residence.

indie warrior

pwurple wrote: »

Medical expenses, refuse are also tax deductible, plus any service charges like management fees. But I'm sure your accountant told you that.

At 4.5k after deductions, you are talking about a rental income of probably close to 1000 euro a month. If your mortgage is close to that, then you'll owe on the whole lot. Your tenants are paying down the principal on a property you own though, so remember that piece.

You could rearrange the mortgage so that you are paying interest-only. Hold the rent then for tax. But, read the terms on that mortgage before you try it. Some mortgage agreements only hold the rate if the place is your primary residence.

We did have interest only on first 5 years, with 25 years left on it and now in 40's we would need to be paying off principal. Really depressed thinking about it, even if I can scrape the money together for this return I can not do it year on in, effectively would need to be putting 400 by every month to pay tax, no way possible!
I am really happy with ras and was thinking of signing up for long term, thinking house would be a bit of a pension pot for us in the end but can't afford to pay tax. We are PAYE workers and pay tax and agree with tax on rental income but 52% will kill us!

The_Conductor

indie warrior wrote: »

We did have interest only on first 5 years, with 25 years left on it and now in 40's we would need to be paying off principal. Really depressed thinking about it, even if I can scrape the money together for this return I can not do it year on in, effectively would need to be putting 400 by every month to pay tax, no way possible!
I am really happy with ras and was thinking of signing up for long term, thinking house would be a bit of a pension pot for us in the end but can't afford to pay tax. We are PAYE workers and pay tax and agree with tax on rental income but 52% will kill us!

RAS- is convenient- but is at a discount to the open market rent.
You are paying for the convenience of using RAS- you're paying at least a 10% discount to the open market rates- and if you've been in the scheme for a few years and have not had a significant increase- your rental income could be as much as 50% below open market rates.

What part of the country is the property in? What percentage of the rental income does the 4.5k represent?

You can come to a deal with Revenue to pay the 4.5k- however, you'll pay for the privilege- I think they're currently charging 8% on the outstanding balance until its cleared.........

If you carry out continuous improvements on the property- normally you will receive a commensurate increase in rent, in reflection of the investment of time and money you're putting into the property- and you get to offset the expenditure against your taxable income (some may only be offset over time- depending on the nature of the expenditure).

In reality- it sounds to me like the RAS scheme is probably whats killing you here. How does the rental income on the scheme compare to what comparable properties in the area are renting for?

I know its a convenience for you using the scheme- but by god you're paying for it- you need to be aware of this. Get RAS out of the equation- and you get market rate- however you also get the insecurity of tenants overstaying etc- which is what the rest of us have to deal with.

Just as an example- The biggest ongoing allowable deduction you'll have on the property- is 75% of the mortgage interest. Your accountants fees are also wholly deductible. The mortgage interest component of the mortgage repayment is going to be your big cost against which you can offset rental income- so only 25% of your rental income (tops) is unshielded, taxable income.

Give us the basic figures- and we can chew them for you here- and see if they make sense- from what you've said so far- they don't add up.

indie warrior

The_Conductor wrote: »

RAS- is convenient- but is at a discount to the open market rent.
You are paying for the convenience of using RAS- you're paying at least a 10% discount to the open market rates- and if you've been in the scheme for a few years and have not had a significant increase- your rental income could be as much as 50% below open market rates.

What part of the country is the property in? What percentage of the rental income does the 4.5k represent?

You can come to a deal with Revenue to pay the 4.5k- however, you'll pay for the privilege- I think they're currently charging 8% on the outstanding balance until its cleared.........

If you carry out continuous improvements on the property- normally you will receive a commensurate increase in rent, in reflection of the investment of time and money you're putting into the property- and you get to offset the expenditure against your taxable income (some may only be offset over time- depending on the nature of the expenditure).

In reality- it sounds to me like the RAS scheme is probably whats killing you here. How does the rental income on the scheme compare to what comparable properties in the area are renting for?

I know its a convenience for you using the scheme- but by god you're paying for it- you need to be aware of this. Get RAS out of the equation- and you get market rate- however you also get the insecurity of tenants overstaying etc- which is what the rest of us have to deal with.

Just as an example- The biggest ongoing allowable deduction you'll have on the property- is 75% of the mortgage interest. Your accountants fees are also wholly deductible. The mortgage interest component of the mortgage repayment is going to be your big cost against which you can offset rental income- so only 25% of your rental income (tops) is unshielded, taxable income.

Give us the basic figures- and we can chew them for you here- and see if they make sense- from what you've said so far- they don't add up.

Here's the figures, would appreciate any advice
Between us we earn 70 k
Rent 1075 (looked for review so will be up to 1100 from sept), rental properties circa 1200 for area, so I don't think we are doing too bad with ras
Mortgage 980
Owe 225k , tracker of 1.2% , approx 23 years left

The_Conductor

indie warrior wrote: »

Here's the figures, would appreciate any advice
Between us we earn 70 k
Rent 1075 (looked for review so will be up to 1100 from sept), rental properties circa 1200 for area, so I don't think we are doing too bad with ras
Mortgage 980
Owe 225k , tracker of 1.2% , approx 23 years left

Ok- Gross rental income = 12900
Gross interest payable = 2700
75% of gross interest = 2025

Net rental income = 10875
Accountants fees = ? (fully deductible from this)
Depreciation of furniture fixtures and fittings on a flatline basis ?
Any other allowable costs?


If RAS are agreeing a small increase up to 1100 per month- their assessed open market monthly rental value for the property is 1210 per month.

Essentially- your issue this year is you did not incur costs against which you can offset the rental income.

I'd contact Revenue- and organise a repayment scheme with them- they'll charge a standard 8% on the o/s balance- but it is doable.

I'd just knuckle down and do my best to be honest- I know its in negative equity- and you bought at the worst possible time- but you've 7-8 years paid down thus far- it'll be tough for a while, but you'll get there.

The tracker @ 1.2% is quite incredible- however, it does reduce the interest as an allowable cost for you.

Spend whatever you can on the property- keep receipts religiously- and see it through- is the best advice I can give you.

Personally- I wouldn't suggest trying to sell into the current market- and the sums involved- while difficult- and while they will make your personal budgeting hard- are not such that they're impossible either.

It is the sort of position- that you have to look beyond- you have a cloud on today's sky with the Revenue tax bill- but you can work with it.

I'd suggest contacting Revenue immediately- suggest paying it down over 12-18 months (keep in mind they'll charge you 8% on it)- and doubling down- and putting whatever you possibly can into the property to maximise the costs you can take out of it.

indie warrior

The_Conductor wrote: »

Ok- Gross rental income = 12900
Gross interest payable = 2700
75% of gross interest = 2025

Net rental income = 10875
Accountants fees = ? (fully deductible from this)
Depreciation of furniture fixtures and fittings on a flatline basis ?
Any other allowable costs?


If RAS are agreeing a small increase up to 1100 per month- their assessed open market monthly rental value for the property is 1210 per month.

Essentially- your issue this year is you did not incur costs against which you can offset the rental income.

I'd contact Revenue- and organise a repayment scheme with them- they'll charge a standard 8% on the o/s balance- but it is doable.

I'd just knuckle down and do my best to be honest- I know its in negative equity- and you bought at the worst possible time- but you've 7-8 years paid down thus far- it'll be tough for a while, but you'll get there.

The tracker @ 1.2% is quite incredible- however, it does reduce the interest as an allowable cost for you.

Spend whatever you can on the property- keep receipts religiously- and see it through- is the best advice I can give you.

Personally- I wouldn't suggest trying to sell into the current market- and the sums involved- while difficult- and while they will make your personal budgeting hard- are not such that they're impossible either.

It is the sort of position- that you have to look beyond- you have a cloud on today's sky with the Revenue tax bill- but you can work with it.

I'd suggest contacting Revenue immediately- suggest paying it down over 12-18 months (keep in mind they'll charge you 8% on it)- and doubling down- and putting whatever you possibly can into the property to maximise the costs you can take out of it.

Thanks for not making it sound all doom and gloom, will talk to revenue this weekweek and thanks all for the advise

newacc2015

indie warrior wrote: »

Here's the figures, would appreciate any advice
Between us we earn 70 k
Rent 1075 (looked for review so will be up to 1100 from sept), rental properties circa 1200 for area, so I don't think we are doing too bad with ras
Mortgage 980
Owe 225k , tracker of 1.2% , approx 23 years left

Your tracker is currently 1.2%. If the ECB increase their baseline to 3% in the next 10 years(probably). Your mortgage will be substantially higher per month, but your rents will have basically been fixed with RAS. You might want to sell, as your mortgage is costing too much. But you will have devalued your house by having fixed the purchaser into a below market rate with RAS. Very few, ( I cant imagine anyone will want to buy a house with a sitting tenant).

If you are considering selling, I wouldn't enter into a contract with RAS

The_Conductor

newacc2015 wrote: »

Your tracker is currently 1.2%. If the ECB increase their baseline to 3% in the next 10 years(probably). Your mortgage will be substantially higher per month, but your rents will have basically been fixed with RAS. You might want to sell, as your mortgage is costing too much. But you will have devalued your house by having fixed the purchaser into a below market rate with RAS. Very few, ( I cant imagine anyone will want to buy a house with a sitting tenant).

If you are considering selling, I wouldn't enter into a contract with RAS

Your rent is not fixed with RAS- it is fixed at a rate below the open market rate (typically 10%) but it is not in itself fixed, and can be revised up to once in every 12 month period.

As for selling- yes- its a nightmare to sell a property that is currently in the RAS scheme- as basically the tenant has nowhere to go, and will quite cheerfully be advised by Threshold to overhold (the way Threshold are doing this- needs to be seriously taken into task- but thats for another thread).

If you have any intention or inkling of selling- get out of RAS at the first possible opportunity.

In this case- the hole the OP has dug for themselves is relatively mild at the moment. If- and its an if- ECB rates normalise at 3-4% in 10 years time (which is plausible)- the OP will have to revisit where they are and what they intend to do at that time (keep in mind they'll be another 10 years down the road in their mortgage payments and will in all probability have knocked a lump off the pincipal).

Its all a game of could have/would have/should have- there really isn't much point in speculating on this.........

wench

indie warrior wrote: »

Yes jumped on house when it came up for sale and seller wanted a quick sale, didn't have time to sell house ( we owed about 70k on it) but paid a fortune for new house and bank gave us whatever money we needed, renting first home seemed like attractive option at the time, tax return normally comes in under 2 k but because I have no repairs or much write offs bill is 4.5, 52% on the rent received!

indie warrior wrote: »

Hi MouseTail, mortgage on investment circa 230k and I have tracker, principal property circa 215 also with tracker?

indie warrior wrote: »

Thanks for reply, mortgages split on both properties so to sell at the moment still in negative equity I'd still owe banks

So if I'm reading these right, only 70K of your mortgage debt relates to the rented property, and the rest is all for your home.

This, combined with your low interest rate leaves you only a negligible deduction of about €600 a year.

If you keep the property, you will have to come up with a long term plan to sustain those levels of tax payments, as you will have them for the foreseeable future.