The Downside to Residential Property Investments

The J Stands for Jay

The_Conductor wrote: »

Instead- we charge them PRSI and USC on the gross rather than the net rental income, we don't allow property tax be deducted as a cost- and we have hamstrung them constitutionally dubious RPZs (that haven't been challenged- solely because they have defined lifespan associated with them).

The whole sector is in shambles.
We need thinking outside the box.
We need more supply.
We should not be striving to banish small landlords- who account for just shy of 70% of the sector- out of the market.
If there are different classes of landlords in the market- the very least we should do- is treat them in a similar manner from a tax perspective.

The era of having small landlords to use as a whipping boy for politicians- is rapidly dwindling- as any sane landlords race to the door.

The taxation model- and how to account for costs- is dealt with in different ways in different countries- however, the Irish model- is almost uniquely antagonistic towards small landlords. Compare renting an apartment in Dublin to one in Berlin. In Berlin- at least I'd have 2% of the value of the property- to use as unvouched expenses- annually. Here- it doesn't matter whether letting the property is profitable (or not)- you have a selection of taxes due on the gross rental income......... Does not compute.

Apart from the ridiculous restriction on mortgage interest, it's treated the same as any other sole trade.

The_Conductor

McGaggs wrote: »

Apart from the ridiculous restriction on mortgage interest, it's treated the same as any other sole trade.

No it isn't. No other sole trade pays PRSI and USC on their gross income before costs. Also- any other sole trader- is eligible to deduct property tax as a cost- a landlord is not (but a REIT is).

How/why USC is chargeable on gross income- is shrouded in mystery- but its unique to rental income (as far as I know).

Apparently- there is an SI good to go- to sort out the property tax anamoly- however, it has no commencement date.

beauf

I'm not sure if you are defending them not paying tax that they aren't paying but you claim they are. Or if they are paying the tax you claim, but reducing this rate is an unfair burden for some reasons to do with carrying losses or debts when they are making enormous profits.

Sounds more like... they should be treated differently just because....

beauf

Is this making the housing crisis worse or better is really the only issue...

beauf

LL should switch from renting to investment through Reits seems be the logic solution.

The_Conductor

beauf wrote: »

LL should switch from renting to investment through Reits seems be the logic solution.

Yes- it does sound logical- and it is what tenants claim they want too.
However- that'll spell a dearth of houses with gardens etc- and a proliferation of apartment blocks............ Maybe some people will be happy.

PhoenixParker

The_Conductor wrote: »

Yes- it does sound logical- and it is what tenants claim they want too.
However- that'll spell a dearth of houses with gardens etc- and a proliferation of apartment blocks............ Maybe some people will be happy.

Thats what Dublin needs. Its an urban area of 1.5 million people these days. It's choking on its own low density. We have to stop pretending its still the city of half a million it was 40 years ago.

sunnysoutheast

The_Conductor wrote: »

No it isn't. No other sole trade pays PRSI and USC on their gross income before costs. Also- any other sole trader- is eligible to deduct property tax as a cost- a landlord is not (but a REIT is).

How/why USC is chargeable on gross income- is shrouded in mystery- but its unique to rental income (as far as I know).

Apparently- there is an SI good to go- to sort out the property tax anamoly- however, it has no commencement date.

This "USC on the gross rental income" often appears on this forum but I do not believe it is correct, unless it has changed since our last return.

USC is charged on gross income minus allowable expenses.
Income tax and PRSI are charged on the gross income minus allowable expenses minus capital allowances ("rental profit").

All at marginal rates.

I believe the confusion may arise because (much like the 14k RAR relief) USC is charged on the full income amount once it passes a certain threshold, i.e. the bands start at zero.

IMHO the personal cashflow implications of a non-paying overholding tenant who will be expensive and time-consuming to remove are a far bigger risk to the small landlord. I give daily thanks I am no longer in the business.

The REIT stocks I have are doing well though.

Browney7

beauf wrote: »

LL should switch from renting to investment through Reits seems be the logic solution.

Good luck getting leverage from the banks though to gear up your exposure

davindub

The_Conductor wrote: »

davindub wrote: »

Non residents pay dwt, the same rate as tenants deduct from rent for non resident landlords.

They cannot claim a refund of this but their own country may give them a tax credit for tax paid to the irish revenue.

In which case- should the playing field be leveled and a blanket 20% rate applied to all rental income for all landlords?

There is not a level playing field- and trying to suggest there is- just doesn't hold water.

Also- this smacks of the same way that we have given away our gas and oil- our Corrib gasfield is designed to never generate a profit- Shell are allowed to write off global rather than Irish generated costs- against the Corrib gas income.

We seem to have a preoccupation with giving large companies bizzare tax arrangements- that are arguably wholly unjustifiable (esp. when you consider we have a national debt of 214 billion- which costs us over 10 billion a year in interest to service).

I just don't get this country.

But non resident investors still have to pay income tax in their own country. Same vice versa, many irish tax residents have invested abroad and we pay tax in ireland.

Btw non resident lls still fill in an income tax return here so its 41% over the threshold.

Wheres Me Jumper?

the way these REITs are treated for tax by the Govt. vis a vis local home-grown LLs and the apparent acceptance by many tenants , speaks volumes for the level of begrudgery in this country.

it seems we can happily accept foreign LLs, even though i would contend those same foreign REITs/LLs are directly responsible for the recent huge rent hikes those tenants have endured, but we still despise local LLs who happen to own a few properties.

beauf

PhoenixParker wrote: »

Thats what Dublin needs. Its an urban area of 1.5 million people these days. It's choking on its own low density. We have to stop pretending its still the city of half a million it was 40 years ago.

The Density will come as prices rise
Only no one will be able to afford it.

So we'll still have to commute long distance.

GGTrek

Foreign institutional investors in REITS do it through what are called special veichles and use an Irish tax treaty to accomplish the minimum Dwt possibile (usually 0!). I used to be involved in setting up these veichles (funds usually) for wealthy clients of the big investment banks I used to wor for. REITs shares owned through treaty countries funds are fantastic veichles to avoid any tax! There are high administration costs to pay however for these structures and banks, accountants and lawyers get their fat fees.

Taxes are a middle class thing.