Tax advice for first time landlord

Macmillan150

We have to move to other end of the country but our apartment still has some negative equity so I don’t want to sell straight away.
We have been saving for a deposit on s new house but a good bit to go there too so we will be renting too.
I was going to put in new flooring and revamp the kitchen before I rented it out but I’m still trying to work out tax rules. Is it true that I cannot claim tax relief on any improvements I make BEFORE I rent it out? Is it a catch 22? I won’t make great rent on it now as it’s a bit worn and shabby, so if I rent it at a lower amount I’ll be tied to the rent increases of 4% even if I improve apartment later? I’m trying to decide what’s the best financial way to go about it. Without squandering the money we are trying to save for our new home. Any advice?

Macmillan150

Also I’m hoping to sell in maybe 2 years so I do want it looking good too. Not just ok.

handlemaster

Where is it ? Put it on for the max rent for the area. Get an accountant, get an agent. Forget the penny pinching. Do the work that has to be done you will have less hassle.

beauf

Renting at the lowest amount is far more likely to attract worse tenants. Have you considered look at the renting a room option or AirBnB. Because if you could get stuck with a tenant if you are planning to sell shortly.

Macmillan150

good points. I don’t want to penny pinch but I don’t want to spend all the money we have and not ever buy our own home. So I want to be wise with the money I spend ( of which I don’t have a lot).
AirBnB would work as I’m too far away.
One of us needs to be in Dublin once a week for a night or 2 but that wouldn’t qualify for a Rent a Room.
A good point about good tenants. I think I will replace all floors and hope I can get decent rent. And then in a year replace the kitchen so at least I can claim some tax relief on that. Doing both together would wipe out any rental income until Christmas and I’d have to use savings to pay the mortgage.
This is a rich persons game I fear.
You can still give tenants notice if you intend to sell? Is this not the case?

ouxbbkqtswdfaw

Why rent it if you hope to sell in two years? You certainly won't make much by way of profit. Do it up to get ready for sale, I would say sell as soon as possible. If you rent it out, you lose all the freedom you have at present. What if the tenant damages your property, refuses to pay, or refuses to leave? The landlord has few rights. Basically, I think renting is a mugs game. Over 60% of rent going to Revenue.

beauf

Macmillan150 wrote: »

...
You can still give tenants notice if you intend to sell? Is this not the case?

The probably if if they decide to over stay. LL are powerless to get them out.

I think you'll make so little after two years it won't be worth it.

Mrs OBumble

Macmillan150 wrote: »

One of us needs to be in Dublin once a week for a night or 2 but that wouldn’t qualify for a Rent a Room.

It won't qualify for the tax relief.

But if you let the rooms separately and keep one for yourselves to use that once or twice a week, you will have licensees not tenants, so they will have no tenancy rights.

Macmillan150

Well that’s depressing. If I have to pay rent and mortgage until I’m out of negative equity we won’t be able to save at all. It’s so frustrating.
Although I’ve a good job lined up, my spouse could stay here for work during week and rent out a room. It would mean I’d have full time work and children full time for maybe 2years!!!! Desperate times though. We do need to move because although apartment is fine it’s not near any decent schools and I’ve daughters name down for any schools either. The plan was always to move home

beauf

At this point you have to be ruthless and see what makes the most money for the least risk. A regular rental isn't it.

Maybe it will appreciate on its own, out of the neg equity.

Macmillan150

I’ll sit down and do the maths. I think it will come out of negative equity in maybe 2 years at current trends but anything could happen. Leaving it empty seems all kinds of wrong but yeah I’m not in the position to gamble anything.

beauf

The alternative is to squeeze every value out of it as is. To help with cash flow. But it's requires your time and resources to do that. Being a LL It's a business after all.

Claw Hammer

The better strategy is to do nothing as regards spending money on your current property. Advertise it for rent at about 80% of the going rate. Given the current demand, you will be able to pick very good tenants. After the tenants move in and you have some rent and the deposit, do some upgrading. The real trick is to make sure you get tenants who have skin in the game. You need the type of person who can't have themselves appear on the RTB website as having defaulted in the payment of rent.

Pkiernan

Your tenants will be able to stay for 6 years, go forget about selling it in 2 if you rent it out.

You will also pay more capital gains tax on the sale if you rent it out.

Not worth renting it out as you'll pay approx 50% tax on the rent you charge.

Claw Hammer

Pkiernan wrote: »

Your tenants will be able to stay for 6 years, go forget about selling it in 2 if you rent it out.

You will also pay more capital gains tax on the sale if you rent it out.

Not worth renting it out as you'll pay approx 50% tax on the rent you charge.

The part 4 can be terminated on the grounds of an intended sale. As the property is in negative equity, there clearly has been no capital gain so there be no capital gains tax. Even at that it has been a PPR for some years and will be considered a PPR when sold. Even if there had been a substantial capital gain would only affect a fraction of the sale proceeds. 80% of the interest paid on the mortgage is deductible, as well as the cost of repairs and other outlay.

Macmillan150

“But if you let the rooms separately and keep one for yourselves to use that once or twice a week, you will have licensees not tenants, so they will have no tenancy rights.”

That might be an option too, thanks for that.

What kind of tenant would be trying to avoid getting on the RTB website?

handlemaster

OP. This is dream land . Let the whole property or sell. Use an agent and accountant if your serious. Your on about wanting to save money but you havent a clue what your getting into. Its a mine field. Money well spent will save you money and pain

Macmillan150

If I rent I will get an agent. We would be too far away to manage property. Since I am living in dream land , in all honesty I haven’t a clue. I just don’t want to waste money before I even start.

ouxbbkqtswdfaw

Macmillan150 wrote:

If I rent I will get an agent. We would be too far away to manage property. Since I am living in dream land , in all honesty I haven’t a clue. I just don’t want to waste money before I even start.

My advice? Don't rent. Nothing in it. You'd need a solicitor to interpret all the new rules and regulations, and they are not in the landlord's favour.

ouxbbkqtswdfaw

I didn't know that tenants who default are listed in RTB website.

Macmillan150

God no wonder the country’s in the state it is. I’ll talk to an accountant but I’m sure ye have been there and done that so I should take heed. It looks like the best bet would be sell now, use our savings to pay off negative equity. And start from zero.
2 years paying rent AND mortgage would prevent us from saving anymore anyway. So we wouldn’t be in a better off position in 2 years.

4ensic15

xksygrwlh8fej7 wrote: »

I didn't know that tenants who default are listed in RTB website.

If there is a complaint to the RTB by a landlord the decision is on the RTB website. the names of the parties are on it.

ouxbbkqtswdfaw

Thank you.

davindub

Macmillan150 wrote: »

God no wonder the country’s in the state it is. I’ll talk to an accountant but I’m sure ye have been there and done that so I should take heed. It looks like the best bet would be sell now, use our savings to pay off negative equity. And start from zero.
2 years paying rent AND mortgage would prevent us from saving anymore anyway. So we wouldn’t be in a better off position in 2 years.

Financial advisor not accountant.

Just a few points,

1. You are basing your decision on the risks highlighted here, but they are risks not certainties, and they are not enough of a risk to say "I would be better definitely losing money by selling than to rent out the property and risk losing money if I am unlucky or didn't manage the situation correctly"..

2. Repaying the mortgage is saving in a way, so your savings will now equal the capital repayments part of the mortgage repayments. You can deduct 85% of the interest repayment portion as a deduction from taxable income along with any allowed expenses and capital allowances for fixtures and furnishings. So if you can service the mortgage repayments from the rental income - income tax it is likely you will be increasing your wealth, whether this exceeds what you will lose if you sell now and can save afterwards is the decision. Also allow for capital appreciation depending on the area.

3. The relevant legislation is predominantly contained in the RTB act, it is not difficult to understand, but a solicitor should draw up your tenancy agreement and advise on the process to terminate if you want to sell, but you don't need ongoing support from a solicitor. There is a risk of the issues other posters describe, but its risk rather than certainty and a low risk at that (worth repeating). By all means take precautions to manage the risk, but don't rely on internet advice for this, ask your solicitor to give you guidelines as part of the rental agreement.

4. Once the property can be rented as is and is in reasonable condition, you would be surprised how little the standard affects the rent you can achieve, you are not limited by any previous rental agreement so you can get the market rent. Also this may increase the selling price you can expect on the current market if an investor would be interested in it.

5. An agent is not required for one property if someone is local once a week. The most common issues are expenses you will not be able to avoid using an agent anyway, plumbing, electrical, etc. Just make sure you have numbers handy, if you know someone that can call around in a emergency to prevent spurious call outs, even better. There are few emergency issues with well maintained apartments, just make sure there are no items that can cause damage to water pipes if they get moved, a prime example being washing machines, make sure water pipes are protected if the machine is pushed in further etc.

Not an easy decision to make so good luck.

quadrifoglio verde

Using an agent is fully tax deductible though and for a first time landlord on the other side of the country would be a no brainer.

Macmillan150

Thanks for all view points. It’s not that straight forward so. I will see if I can find a local financial advisor and this evening I’ll do my own sums to see what seems most feasible.
I really appreciate input especially on points I hadn’t considered.

Macmillan150

Macmillan150 wrote: »

I think I will replace all floors and hope I can get decent rent. And then in a year replace the kitchen so at least I can claim some tax relief on that.

I think this kind of work would be classed as capital rather than repair so you would only be able to get tax relief for 12.5% of the costs a year for 8 years. Something to consider if you only plan to rent for only 2 years.

bobbyss

xksygrwlh8fej7 wrote:

Why rent it if you hope to sell in two years? You certainly won't make much by way of profit. Do it up to get ready for sale, I would say sell as soon as possible. If you rent it out, you lose all the freedom you have at present. What if the tenant damages your property, refuses to pay, or refuses to leave? The landlord has few rights. Basically, I think renting is a mugs game. Over 60% of rent going to Revenue.

This makes a lot of sense. And what IF they damage your property? You're on a loser. Remember accountant and agent hzvecto be paid. You are passing control really tenants hoing they out well. You won't make money out of it.
If you sold soon you are clear of it. No worries.

quadrifoglio verde

quadrifoglio verde wrote: »

Using an agent is fully tax deductible though and for a first time landlord on the other side of the country would be a no brainer.

They said they will be in the area once a week, I’d avoid agents like the plague much better to look after it yourself.

tvjunki

Do the rent a room and use one room yourself. Or you can lease for less than 6months. Give the tenant notice to leave the day they move in so they know they have to be gone.

If you have to be up in Dublin once a week then you have to have somewhere to stay.

People that dont want their names on rtb are those working and in good jobs. Some professions you can loose your job for working outside the rules.Non payment of rent, anti social behaviour etc. Take good references.

Dont change the kitchen as it i not worth it. Only do this when you sell.
People do not respect it as if its their own. Do what little maintenance you need to do. If the floor is good enough then leave.



Go to the upper end of the price for rental otherwise you will have trouble.
You pay capital gains (33%)on the time the property is rent out fully as a unit. Make sure you keep records of the value of the property before you rent it out. The difference between the final price and move out is the amount you work out the tax is due less costs.

DrPhilG

xksygrwlh8fej7 wrote: »

Over 60% of rent going to Revenue.

Sorry to interrupt the OP, but how is this true?

tvjunki

First you pay 8% USC on total rent if you are on the higher bracket. Then you pay 52% in prsi on the remainder after what few expenses you pay out. You can only deduct 80% of the interest element of your mortgage. This is based on if you are on the higher tax bracket.
You pay property tax which is not tax deductable.
So I think that is where owenbaloneygot is figures. This was mentioned IPOA about the amount of tax landlords pay.

So if you get a 1000euros you pay over 600euros to the tax man every month in some shape or form.

relax carry on

tvjunki wrote: »

First you pay 8% USC on total rent if you are on the higher bracket. Then you pay 52% in prsi on the remainder after what few expenses you pay out. You can only deduct 80% of the interest element of your mortgage. This is based on if you are on the higher tax bracket.
You pay property tax which is not tax deductable.
So I think that is where owenbaloneygot is figures. This was mentioned IPOA about the amount of tax landlords pay.

So if you get a 1000euros you pay over 600euros to the tax man every month in some shape or form.

1000 euros a month minus expenses such as mortgage interest etc leaving say 800 taxable at marginal rate of 40% if you are already in the higher rate. USC is 8% for anything over 70044 otherwise it's most likely 4.75%. 4% PRSI also.

So rate should be 40% + 4.75% + 4% which is 48.75%. Max it can be is 40% + 8% + 4% which is 52%. This is applied to the taxable portion of the income not the gross.

tvjunki

USC is charged on the 1000 total rental income not the 800.

PRSI is charged on the income after the allowable expenses.

The landlord would have to register with rtb to be allowed to use the 80% interest element of their mortgage payment.

Some people would have other income apart from the rental income so may reach the 70k over two wages.
Then property tax is not an allowable expense.
It does add up.

relax carry on

tvjunki wrote: »

USC is charged on the 1000 total rental income not the 800.

PRSI is charged on the income after the allowable expenses.

The landlord would have to register with rtb to be allowed to use the 80% interest element of their mortgage payment.

Some people would have other income apart from the rental income so may reach the 70k over two wages.
Then property tax is not an allowable expense.
It does add up.

It does add up alright but not to 60%. And some people could be on the lower rate of PAYE not the higher. The property could be in joint ownership with the rental income expenses split 50/50 with one on the higher and one on the lower rate. The point is we don't know, which is why everyones situation is unique to them and a chat with an accountant from the outset is no harm.

USC should be charged after expenses but before capital allowances so charged on the 800 not the 1000 gross.

sk8board

(landlord here, full-time at the moment).

as others have pointed out, the tax %'s are unavoidable, so depending on your USC rate, you're paying 48-52% in tax. That's just a fact of life.

Personally, I reduce costs as much as possible:
- filing my own tax returns (using ROS it's far easier than you think). Good accountants are about €500.
- reducing the tax bill by claiming everything that's deductible. Again, its not complicated and for the purpose of this conversation, nearly everything is deductible except for LPT (which has been assumed by Noonan's Dept as deductible a few years ago, but was never enacted).
- don't use an agent, unless you really don't like the function of being a Landlord and really need to rent the place.
- most people have this irrational fear that their Tenant will be calling every week at 4am about the dishwasher. I've had 2 calls from 4 rented properties over the past 12 months (1 boiler issue, 1 oven issue).
- last year I had just 1 call from the 4 places - a €510 bill when Storm Doris caused some roof tile damage.

- having 1 place to rent is the worst position from an investment perspective. If you happen across a bad tenant (its not as apparent as folk would have you believe), you're down 100% of your income, while your costs remain the same.

So, should you do it? - ask yourself if you actually want to be a landlord, and if you do, there is money to be made if you do it right and treat it as an investment. If you're not interested in the investment yield %, then you're doomed to be disappointed. Mine is currently 6.25%, and I'm below market rates in all cases, but have great tenants.

otherwise, my suggestion is that you should take you money off the table and stay out of any investment market that you're not comfortable with, just like stocks, shares or anything else.

TheBoyConor

Don't do up the kitchen or floors. It's a landlords market so you don't need to. Plus the tenant might only wreck it.
Just replace I immediately before selling. But why would you? New kitchen fittings won't make much difference to the sale price, of it makes any difference at all.

And don't rent the property. You'll be screwed with tax and even more screwed if the tenants refuse to leave.

Air BnB it or sell it immediately.
Whatever you do don't become a landlord. It's awful.

ouxbbkqtswdfaw

TheBoyConor wrote:

And don't rent the property. You'll be screwed with tax and even more screwed if the tenants refuse to leave.

+1

GGTrek

Renting out just 1 self contained property in negative equity with mortgage to pay is just too much risk. Due to scarcity of housing overholding has become the national sport for tenants in Dublin. I have ten separate tenancies and overholding of a few months (still paying rent but delaying vacating the flat) is endemic in Dublin. I have a small sample but my average is almost 40% and half of these you have to take to the Rtb at huge effort. If you need to sell this will have a big impact on your sale.
Tax should not be your main concern. The regulatory risks are very high at the moment (read the thread about the new proposed legislation ) and your main enemy will be the Irish legislator.
In my opinion your best bet is not to give exclusive use to any tenant. Retain a room for yourself and you or a family member go to sleep there regularly. In this way you will retain full control of your property and if something bad happens due to legislation or due to the licensees you simply change the locks and say goodbye and give two fingers to the RTB.

Macmillan150

Differing opinions there. I do appreciate all the view points. I’ll be honest, I’m pretty risk averse since being stung in the recession. When I get a bit of time, I’ll sit down and work through tax implications as that would be my main concern. If I can’t see a financial payoff fairly short term, I’ll try and sell for as much of my mortgage as possible. I’ll need to get a valuation to see where I really stand re: negative equity and selling costs etc.

Edgware

Dont bother with becoming a landlord. You will be a non paid tax collector.
I am selling off two one bed apartments at the moment and am available to benefit from a change in CGT so wont be paying any. Fed up collecting tax

The rule of thumb I use is that half of the rent will be profit and half of that will be what you get to keep.

Edgware

Edgware wrote: »

am available to benefit from a change in CGT so wont be paying any.

What do you refer to here?


I believe CGT is what's keeping huge number of older rental properties from being put on the market.

beauf

[Deleted User] wrote: »

The rule of thumb I use is that half of the rent will be profit and half of that will be what you get to keep.

Barring exceptional bills like over holding or a boiler or Windows etc.

beauf

[Deleted User] wrote: »

What do you refer to here?


I believe CGT is what's keeping huge number of older rental properties from being put on the market.

That and they are appreciating just sitting there.

Jude13

We're thinking about a buy to let in Ireland (we're no resident expats) is it correct that the onus is on the tenant to set aside an amount to pay the tax out of the total rent?

Also if we had say my OH's brother live in a room (hes off to college) could we rent the other rooms as licensees?

Cheers, hope Im not highjacking

Fian

Deleted User wrote: »

What do you refer to here?


I believe CGT is what's keeping huge number of older rental properties from being put on the market.

properties bought in teh years 2011 (or 2012?) to 2013 are CGT when sold if held for 4 years. Up to 7 years CGT free, depending on how long they were held, if held beyond 7 years you get a proportionate reduction.

so if held for 10 years you pay CGT on 30% of the gain - (10-7)/10

if held for 14 years you pay CGT on 50% of the gain - (14-7)/14

if held for 4-7 years you pay 0 CGT.

Only applies to properties bought during this period, period definitely finished end of 2013, not certain when it started tbh, few years previous to that when property market was absolutely moribund. Properties bought before this scheme was introduced do not benefit.

relax carry on

Jude13 wrote: »

We're thinking about a buy to let in Ireland (we're no resident expats) is it correct that the onus is on the tenant to set aside an amount to pay the tax out of the total rent?

Also if we had say my OH's brother live in a room (hes off to college) could we rent the other rooms as licensees?

Cheers, hope Im not highjacking

Correct if you don't use an Irish based collection agent.

https://www.revenue.ie/en/property/rental-income/irish-rental-income/how-do-you-declare-your-rental-income.aspx

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-45/45-01-04.pdf

Can't help with the second part.

GGTrek

Fian wrote: »

Deleted User wrote: »

What do you refer to here?


I believe CGT is what's keeping huge number of older rental properties from being put on the market.

properties bought in teh years 2011 (or 2012?) to 2013 are CGT when sold if held for 4 years. Up to 7 years CGT free, depending on how long they were held, if held beyond 7 years you get a proportionate reduction.

so if held for 10 years you pay CGT on 30% of the gain - (10-7)/10

if held for 14 years you pay CGT on 50% of the gain - (14-7)/14

if held for 4-7 years you pay 0 CGT.

Only applies to properties bought during this period, period definitely finished end of 2013, not certain when it started tbh, few years previous to that when property market was absolutely moribund. Properties bought before this scheme was introduced do not benefit.

The purchase period was actually 2012 to 2014 all the rest is correct.

PierreLeCake

A bit of advice to the OP. Renting is normally a long term business beacuse of the expense in getting started. You are also hoping for Capital Appreciation.
As advised by others the interest on your mortgage is allowable against Tax. So are things like Accountant fees, Mangement fees if its an apartment and agent fees if you choose to use one are deductable. You can claim Capital depreciation on furnishings but you can only claim 12.5% each year over an 8 year period. If you spent 5000 on things like bed's , cooker's, etc you would only be able to claim 12.5% of the 5000 each year against tax. Not a lot of use to you if you are only planning to rent for 2 years . You could only offset 25% of your expenditure over the two year period. I just picked 5000 as a random figure but you get the idea.Its money you have to spend upfront.
You will have to have a BER cert and register with the RTB. The trick is to spend as little as possible. I would n't use an agent unless absolutely neccessary. Thats a months rent down the drain.

If you end up with a tax liability you get hit with a double whammy the first year. Lets say you owe Revenue 4000 in tax after all allowable expenses They want the 4000 you owe them plus another 4000 in preliminary tax for the next year. You are paying tax on rent you have n't received.
Ask your accountant about this. It caught me out and I imagine it gets a lot of first time landlords.

If you decide to rent you will be inundated with people asking if you accept HAP. Check other threads about HAP and why its no friend of the landlord. You have to fill out extra paperwork (personally I think Landlords should charge for this), you need a Tax Clearance cert, you have to prove you own the property. You are dealing with councils who are slow and inefficient. You are paid in arrears. If there is a problem with the paperwork you won't get paid. People on HAP find it harder to find landlords willing to accept it so once they are in your property they won't be moving unless they can find someone else to accept it. You legally can;t discriminate against people on HAP so its a minefield for landlords.Your property will also have to meet HAP standards. This are extremly high standards that even council properties don't meet. Your property will only be inspected after the tenant has moved in. I don't know why Councils don't do pre inspections so a landlord knows in advance if his property is HAP worthy or how much he will have to spend to get it up to standard. HAP tenants pay a small amount of the rent to the council. If the tenant fails to pay the cpouncil stops all your rent until the issue is sorted out. The council won't talk to you by the way.

Another thing to bear in mind is do you have cash for emergencies.The washing breaks down or the Triton shower. No good landlord would keep a tenant waiting for things like these so you have to be in a position to be able to go out and buy these as soon as you know they are broken. Tax deductible expense of course but you have to fork out the cash there and then.

I hope I have n't terrified you too much but these are things you need to consider. Most tenancies run smoothly with minimum hassle but you have to be prepared for the worst case scenario. An overholding tenant could cause you to spiral into serious debt. Do the maths first with an Accountant who will advise if its worth your while for such a short time period.

Macmillan150

Ok. I did not know you had to pay tax a year ahead!!
You say not to waste money in an agent but if it’s tax deductible what is the drawback there?
The 8 years at 12.5 percent a year tax relief on capital expenditures? This is only if the property is ALREADY being rented? How long does it need to be rented before you could buy a new sofa or flooring and still be eligible for tax relief.

I don’t see the bank letting us keep apartment as well as having a second mortgage so it really would only be short term.