Renting Property - Initial fit out tax relief

thegoth

I am purchasing a new house and am going to keep my current one.

I think I understand the tax implications of this pretty well except one element.

I will need to purchase furniture as I am taking mine with me. I will need to buy kitchen tables, chairs, Sofa, Beds, etc for the rental property. My question is, are these expenses tax deductible over 8 years or even tax deductible at all?

The Student

thegoth wrote: »

I am purchasing a new house and am going to keep my current one.

I think I understand the tax implications of this pretty well except one element.

I will need to purchase furniture as I am taking mine with me. I will need to buy kitchen tables, chairs, Sofa, Beds, etc for the rental property. My question is, are these expenses tax deductible over 8 years or even tax deductible at all?

They are deductible over 8 yrs as they are capital expenses.

Fol20

Pre-letting expenses as per the revenue website below are not allowable bar a few exceptions:

https://www.revenue.ie/en/property/rental-income/irish-rental-income/what-expenses-are-not-allowed.aspx

4ensic15

Fol20 wrote: »

Pre-letting expenses as per the revenue website below are not allowable bar a few exceptions:

https://www.revenue.ie/en/property/rental-income/irish-rental-income/what-expenses-are-not-allowed.aspx

Many people get over that by paying for the furniture and appliances after the tenancy starts.

Fol20

4ensic15 wrote: »

Many people get over that by paying for the furniture and appliances after the tenancy starts.

Theres ways around a good bit of things alright. Just wanted to point op towards the info on revenue website

thegoth

Thanks guys. Both your replies are exactly what I was thinking myself. Just wanted to sanity check it

Graham

You can claim capital allowances on the cost of furniture and fittings in your property. This is known as 'wear and tear allowances' or 'depreciation'.

The current rate for these allowances is 12.5% of the cost per year, for a maximum of eight years. The allowances may include:

furniture you purchased for your rental property
the cost of the purchase of white goods such as a fridge or a dishwasher.

Source: https://www.revenue.ie/en/property/rental-income/irish-rental-income/what-expenses-are-allowed.aspx

Claw Hammer

Graham wrote: »

Source: https://www.revenue.ie/en/property/rental-income/irish-rental-income/what-expenses-are-allowed.aspx

You cannot deduct the following expenses when you are calculating your rental profit or loss:

Pre-letting expenses, other than property fees before you first rented out the property.
Source:
https://www.revenue.ie/en/property/rental-income/irish-rental-income/what-expenses-are-not-allowed.aspx

Graham

Wear and Tear
Wear and tear allowances are available in respect of capital expenditure incurred on fixtures and
fittings (for example, furniture, kitchen appliances, etc.) provided by a lessor for the purposes
of furnishing rented residential accommodation. The allowances are available only where the
expenditure is incurred wholly and exclusively in respect of a house used solely as a dwelling
which is, or is to be, let as a furnished house on bona fide commercial terms on the open market.
The rate of wear and tear depends on when the capital expenditure was incurred. For expenditure
incurred on or after 4 December 2002 the allowance is 12.5% of the expenditure per annum for
eight years.

Source: IT70 - Guide to Rental Income

As always, don't take the word of some random on the internet (including me). Talk to your accountant.

Claw Hammer

Graham wrote: »

Source: IT70 - Guide to Rental Income

As always, don't take the word of some random on the internet (including me). Talk to your accountant.

Section 97A of the Taxes Consolidation Act 1997 inserted by the Finance Act 2017 provides that expenses incurred on a vacant residential premises prior to it being first let after a period of non-occupancy are authorised as a deduction against rental income from that premises.
This manual explains how the section applies and the conditions attaching to the deduction.
1 Premises to which deduction applies
The section applies to expenditure on a premises which has been vacant for at least 12 months and which is then let as a residential premises between 25th December 2017 (the date of the passing of the Finance Act 2017) and 31 December 2021. A ‘vacant premises’ means any premises that is not occupied for the entire 12 months before the ‘specified day’. The ‘specified day’ means the day on or after 25th December 2017 on which a vacant premises is first let as a residential premises after the end of the period during which it was not occupied.
2 Date expenditure incurred
The expenditure must have been incurred in the 12 months before the premises is let as a residential premises: the ‘specified period’.
3 Expenditure must be otherwise qualifying
Where a person incurs expenditure on a vacant premises during the 12 months prior to first letting after the 12 month vacant period, and this expenditure would be authorised as a Case V deduction under section 97(2) if it had been incurred on or after the first day the premises was let, then it may be authorised as a Case V deduction under section 97A(3). The subsection applies notwithstanding the restrictions that would otherwise be imposed by section 105 on rent and interest on money borrowed prior to the premises being occupied. The deduction is subject to a cap and to claw-back in certain circumstances.
4 Cap on deduction
The deduction authorised is capped at €5,000 per vacant premises by section 97A(4).


Source:Tax and Duty Manual Part 04-08-11
https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-08-11.pdf

Graham

Not sure what you're suggesting there Claw Hammer, the OP hasn't mentioned the property being vacant for 12 months.

From your post:

The section applies to expenditure on a premises which has been vacant for at least 12 months and which is then let as a residential premises

From my admittedly limited understanding, that provision was brought in to incentivise the return of vacant property to the rental market.

Claw Hammer

The o/ps question is about pre-letting expenditure, not whether such expenditure qualifies for relief per se. You have posted suggesting that pre-letting expenditure might qualify for relief. I have posted the conditions under which pre-letting expenditure may qualify.

Graham

I have made no suggestions, just direct quotes.

My interpretation is a landlord can not claim the fixtures & fittings as an expense but can claim a 12.5% annual wear & tear allowance based on the cost of the fixtures & fittings.

Official guidelines state:

• not allowed - pre-letting expense
• allowed - capital allowances.

Capital allowances
You can claim capital allowances on the cost of furniture and fittings in your property. This is known as 'wear and tear allowances' or 'depreciation'.

What makes you think the OP can't claim the allowance (not the original expense)? Genuine question, maybe I missed something.

The Student

Graham wrote: »

I have made no suggestions, just direct quotes.

My interpretation is a landlord can not claim the fixtures & fittings as an expense but can claim a 12.5% annual wear & tear allowance based on the cost of the fixtures & fittings.

Official guidelines state:

• not allowed - pre-letting expense
• allowed - capital allowances.

What makes you think the OP can't claim the allowance (not the original expense)? Genuine question, maybe I missed something.

That is how I have claimed as well.

fishy_fishy

There's a difference between capital expenditure and expenses. Expenses are current expenditure. Letting agent fees before first letting? Disallowed. Capital allowances on furnishings? Allowed over 8 years.

Go talk to your accountant OP and don't risk messing up your tax because of someone on the internet.

4ensic15

Graham wrote: »

I have made no suggestions, just direct quotes.

My interpretation is a landlord can not claim the fixtures & fittings as an expense but can claim a 12.5% annual wear & tear allowance based on the cost of the fixtures & fittings.

Official guidelines state:

• not allowed - pre-letting expense
• allowed - capital allowances.

What makes you think the OP can't claim the allowance (not the original expense)? Genuine question, maybe I missed something.

The question is whether you can claim capital allowances for items purchased before the letting commenced. It has never been in question that the items are deductible. It is pre letting items which are in question. You definitely seem to have missed something.

The Student

4ensic15 wrote: »

The question is whether you can claim capital allowances for items purchased before the letting commenced. It has never been in question that the items are deductible. It is pre letting items which are in question. You definitely seem to have missed something.

Capital items purchased before the tenancy has begun are deductible at a rate of 12.5% per year against rental income. Capital items for this purpose are your white goods, furniture, beds, wardrobes etc.

Pre letting expenses are not allowable prior to letting eg insurance, light heat etc.

When the property is let you can then claim against rental income using the following methodology. Your capital allowance of 12.5% plus your annual costs eg house insurance, management fees.

To explain the above further

Capital purchases €100.00, first year of tenancy management fees €25.00. Total deductible expenses €37.50 = €12.50 (€100 * 12.5%) + €25.00

Graham

4ensic15 wrote: »

The question is whether you can claim capital allowances for items purchased before the letting commenced.

Correct. The OP's original question that I was responding to.

Graham wrote: »

My interpretation is a landlord can not claim the fixtures & fittings as an expense but can claim a 12.5% annual wear & tear allowance based on the cost of the fixtures & fittings.

Official guidelines state:

• not allowed - pre-letting expense
• allowed - capital allowances.

I only mentioned pre-letting expenses once, in agreement that they were not allowable.

It looks like our interpretations agree.