How much tax to pay as a new landlord?

Steve012

Hi guys, my friend is letting out his apartment, he is on the 40% income tax bracket.
He is letting out his spacious 2 bed apartment for 1600 a month (Dublin)

His Dad said out of the 1600 he will need to pay 600?. His mortgage is 1200 a month.

Any help greatly appreciated. Even just a general figure, because I know other factors coming into account.

Steve

ted1

He will pay USC on all rent received.

But it can deduct mortgage interest , depreciation at of 12.5% for furniture+ whatever other costs he has
Then will pay the top rate of tax

600 would be a good estimate.

Steve012

ted1 wrote: »

He will pay USC on all rent received.

But it can deduct mortgage interest , depreciation at of 12.5% for furniture+ whatever other costs he has
Then will pay the top rate of tax

600 would be a good estimate.

Ok thanks very much!

Steve

Will Yam

Steve012 wrote: »

Hi guys, my friend is letting out his apartment, he is on the 40% income tax bracket.
He is letting out his spacious 2 bed apartment for 1600 a month (Dublin)

His Dad said out of the 1600 he will need to pay 600?. His mortgage is 1200 a month.

Any help greatly appreciated. Even just a general figure, because I know other factors coming into account.

Steve

You take the 1600 x 12 = 19,200 pa. From that you may deduct bona fide expenses - mortgage interest, management fees (if any), repairs, maintenance etc. You may also deduct certain expenses before letting - estate agent fees, advertising (eg daft), legal fees for leases etc.

The net figure after that is taxed at his marginal rate (in his case 40%), plus USC at his marginal rate and prsi of 4%.

If the net income is above €5,000 he must register to become a self assessed taxpayer, and pay preliminary tax each year when making his return (along with the balance of previous years tax).

If his net rental income is below €5,000 he does not have to register as a self assessed taxpayer but will be obliged to make a return and pay the tax annually. What will happen in this situation is that revenue will reduce his tax credits/bands to effectively get the tax from him on an ongoing basis.

Steve012

Will Yam wrote: »

You take the 1600 x 12 = 19,200 pa. From that you may deduct bona fide expenses - mortgage interest, management fees (if any), repairs, maintenance etc. You may also deduct certain expenses before letting - estate agent fees, advertising (eg daft), legal fees for leases etc.

The net figure after that is taxed at his marginal rate (in his case 40%), plus USC at his marginal rate and prsi of 4%.

If the net income is above €5,000 he must register to become a self assessed taxpayer, and pay preliminary tax each year when making his return (along with the balance of previous years tax).

If his net rental income is below €5,000 he does not have to register as a self assessed taxpayer but will be obliged to make a return and pay the tax annually. What will happen in this situation is that revenue will reduce his tax credits/bands to effectively get the tax from him on an ongoing basis.

Excellent thank you very much.

Steve

punisher5112

Sounds quite low for a 2 bed in Dublin.
Is there a parking space he could rent out?
Management fees will be on top of that and bins etc.
Is it at rate as others in the area.

Steve012

punisher5112 wrote: »

Sounds quite low for a 2 bed in Dublin.
Is there a parking space he could rent out?
Management fees will be on top of that and bins etc.
Is it at rate as others in the area.

It's a plush 2 bed, very spacious, across from a centra, and beside the train to city center. I'll ask him to check what other apartments are going for in the are, thanks for your help and time. Yes there is parking!

Steve

Steve012

punisher5112 wrote: »

Sounds quite low for a 2 bed in Dublin.
Is there a parking space he could rent out?
Management fees will be on top of that and bins etc.
Is it at rate as others in the area.

Do all landlord need a tax clearance cert? and an accountant my mate works as a civil servant.

Any help greatly appreciated

punisher5112

Steve012 wrote: »

Do all landlord need a tax clearance cert? and an accountant my mate works as a civil servant.

Any help greatly appreciated

No they can self tax cert but sometimes an accountant may be able to sort certain things better then one not in the know.

Rodin

Could an individual set up a company and route all the monies through that?
Pay corporation tax and take a yearly dividend as sole shareholder?

Steve012

punisher5112 wrote: »

No they can self tax cert but sometimes an accountant may be able to sort certain things better then one not in the know.

Excellent thank you, he is useless on ROS, So accountant it is.

Thanks mate really appreciate it.

Steve

Will Yam

Rodin wrote: »

Could an individual set up a company and route all the monies through that?
Pay corporation tax and take a yearly dividend as sole shareholder?

Yes. But you have all the filing requirements for a company - submitting accounts to cro etc.

So why would you do it?

If say the net taxable income were say €10,000 you would pay 40% tax plus c. 4.5% usc plus 4% prsi. Approx €5k. You’re left with €5k.

So put it through the company. Net rental income = 10,000. Company tax = 2,500 leaving 7,500. Take this out as dividend and you get approx 50% of it 50% of 7500 = €3,750.

Costs you 1,300 to put it through company excluding costs of setting up the company and all filing requirements.

No brainer.

CIARAN_BOYLE

Rodin wrote: »

Could an individual set up a company and route all the monies through that?
Pay corporation tax and take a yearly dividend as sole shareholder?

Yes but I'm not sure why it would be a smart decision to do this.

The property would have to be put into the company too creating further tax headaches.

Don't forget closed company surcharge on investment income.

Your massively increasing the tax liability and the compliance headaches for not benefit.

Rodin

Will Yam wrote: »

Yes. But you have all the filing requirements for a company - submitting accounts to cro etc.

So why would you do it?

If say the net taxable income were say €10,000 you would pay 40% tax plus c. 4.5% usc plus 4% prsi. Approx €5k. You’re left with €5k.

So put it through the company. Net rental income = 10,000. Company tax = 2,500 leaving 7,500. Take this out as dividend and you get approx 50% of it 50% of 7500 = €3,750.

Costs you 1,300 to put it through company excluding costs of setting up the company and all filing requirements.

No brainer.

So company tax at 25% different to corporation tax then.
Makes a big difference.
What if the company was registered in NI/GB?
Would that be cheaper?
Id consider investing in property but of course want to keep as much as possible. Legally.

Rodin

CIARAN_BOYLE wrote: »

Yes but I'm not sure why it would be a smart decision to do this.

The property would have to be put into the company too creating further tax headaches.

Don't forget closed company surcharge on investment income.

Your massively increasing the tax liability and the compliance headaches for not benefit.

Cheers.

CIARAN_BOYLE

Rodin wrote: »

So company tax at 25% different to corporation tax then.
Makes a big difference.
What if the company was registered in NI/GB?
Would that be cheaper?
Id consider investing in property but of course want to keep as much as possible. Legally.

You pay UK corporation tax instead of Irish corporation tax. I believe its 19% in the UK compared to 25% for rental income in Ireland.

You'd pay UK withholding tax on dividends.

Then you would pay income tax on your dividend in Ireland.

If the asset was in Ireland you would still have to pay Irish corporation tax and then file a UK return.

Rodin

CIARAN_BOYLE wrote: »

You pay UK corporation tax instead of Irish corporation tax. I believe its 19% in the UK compared to 25% for rental income in Ireland.

You'd pay UK withholding tax on dividends.

Then you would pay income tax on your dividend in Ireland.

If the asset was in Ireland you would still have to pay Irish corporation tax and then file a UK return.

What's the 12.5% corporation tax I keep hearing about?
And these large companies with multiple properties...
Does it make more sense to go the corporate route if owning many properties?

Will Yam

Rodin wrote: »

So company tax at 25% different to corporation tax then.
Makes a big difference.
What if the company was registered in NI/GB?
Would that be cheaper?
Id consider investing in property but of course want to keep as much as possible. Legally.

No. Corporation tax rates are 25% OR 12.5% depending on source of income.

Company residency is complex. Simply registering a company in gb does not mean it is not an Irish company, and if its an Irish resident company it is liable to Irish tax.

And costs of compliance wouldn’t hugely differ.

Will Yam

Rodin wrote: »

What's the 12.5% corporation tax I keep hearing about?
And these large companies with multiple properties...
Does it make more sense to go the corporate route if owning many properties?

There are 2 corporation tax rates. 25% and 12.5%.

Owning a lot of properties might make it attractive because compliance costs are spread over lots of properties.

But the tax rates will still be the same. You will pay 25% tax on corporate profits and then c50% of balance when you pay out a dividend. And if you pay yourself a salary the company has to pay 11% employers prsi.

CIARAN_BOYLE

Rodin wrote: »

What's the 12.5% corporation tax I keep hearing about?
And these large companies with multiple properties...
Does it make more sense to go the corporate route if owning many properties?

If you are a REIT (Real Estate Investment Trust) it does make sense.

It's not something an individual can do.

Here is a simple explanation of a REIT.

https://www.google.com/amp/s/www.pearse-trust.ie/blog/bid/95450/Real-Estate-Investment-Trusts-Ireland%3fhs_amp=true

relax carry on

I think some people are confused about CT in general and think if they set themselves up as a limited company then the income generated by the ltd is taxed at 12.5% only with no further tax liability on the director/shareholder. As you are taxed on the income taken out of the company as renumeration/dividends then normal income tax comes into play. So you could have a company paying the 12.5% CT rate and then a shareholder paying their marginal rate of tax on dividends/income received from the company.

CIARAN_BOYLE

relax carry on wrote: »

I think some people are confused about CT in general and think if they set themselves up as a limited company then the income generated by the ltd is taxed at 12.5% only with no further tax liability on the director/shareholder. As you are taxed on the income taken out of the company as renumeration/dividends then normal income tax comes into play. So you could have a company paying the 12.5% CT rate and then a shareholder paying their marginal rate of tax on dividends/income received from the company.

Very true.

Will Yam wrote: »

There are 2 corporation tax rates. 25% and 12.5%.

Owning a lot of properties might make it attractive because compliance costs are spread over lots of properties.

But the tax rates will still be the same. You will pay 25% tax on corporate profits and then c50% of balance when you pay out a dividend. And if you pay yourself a salary the company has to pay 11% employers prsi.

A director and owner would be class s for prsi therefore no employers prsi.