Tax on rental income

Beanybabog

We’re considering a move abroad and will need to rent out our house. I’m trying to figure out in the first instance how this works. I’m reading tenants need to send 20% of the rent direct to revenue (sounds risky) or I get a collection agent. Would this be an estate agent? Or would I need an accountant? We’d be taxed abroad under their tax system at their higher rate, so would I be paying 20% or 40% here on rental income? It’d be the only income in this country. Also is mortgage interest relief gone? Thanks

DmanDmythDledge

Mortgage interest relief is gone. Tax rate would be 20% income tax (assuming it doesn't put you guys into the 40% threshold which is unlikely) and also USC, rate dependent on the level of earnings. If net rental income is less than 26k (13k each) then no USC. You may also wish to pay the voluntary 500 PRSI each re future state pension entitlements (no PRSI is due on the rental income as non-resident). Any income tax or USC paid in Ireland can be taken as a credit in your "foreign" tax return, assuming you are moving to a country where this is allowed.

Given the tenant should be withholding 20% of gross rents and paying to revenue, this should leave you in a refund position each year (depending on USC and PRSI). However in practice I don't know how often this happens. Finding and then trusting tenants to do this would be difficult I'd imagine. Revenue used to look at this quite closely when mortgage interest relief available but in recent years I don't know how strict they are - in c. 10 years I have never seen them query it but open to correction from others on that. Your safest bet though is to appoint a collection agent to ensure all obligations are met. I can't find it to hand but I think revenue published guidance earlier this year or late last year that accountants have to be used now as collection agents.

Geuze

DmanDmythDledge wrote: »

Mortgage interest relief is gone.

Although TRS for owner-occupiers is gone, landlords can of course deduct mortgage interest from their gross rental income.

circular flexing

When I went to fill in the Form 11 this year, I had to check a box either confirming that I had an agent collecting rent or that my tenants had withheld 20%. This is the first time I've seen this so that says to me that Revenue are looking more closely at this. I would think you definitely need an agent as it might be simpler, but I don't think it has to be a professional, it could be just a trusted family member.

Tax rate is 20% but you can write off some expenses (though not LPT) and you will get some tax credits depending on what proportion of your worldwide income is the rental income. The list of countries with tax treaties with Ireland is here and if you are moving to one of those countries then you can apply Irish tax as credit.

https://www.revenue.ie/en/tax-professionals/tax-agreements/double-taxation-treaties/tax-treaties-by-country.aspx

dennyk

Mortgage interest is still a deductible expense on rental properties:

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

Given that you will be out of the country, it's probably best to hire an Irish agent to manage things for you. You'll need someone local to keep an eye on things and handle all the necessary administration of the property anyway (listing it, arranging viewings, vetting potential tenants, inspecting the property periodically, arranging necessary maintenance and repairs, re-letting the property when a tenant leaves, handling complaints from the tenant or about the tenant from neighbours, etc.). Allowing them to collect the rent on your behalf will not add much if anything to the cost of such an agent; it's often part of such services by default anyway. Many estate agents will provide these services, as will dedicated property management companies. Usually they will take a certain percentage of the rent each month plus maybe some fixed fees for certain things (e.g. drawing up a new lease agreement).

As long as the agent the tenant is paying the rent to is in Ireland, the tenant will not have to worry about withholding and paying that 20% tax themselves; the agent will take care of that. Revenue just want to make sure that someone actually in Ireland is responsible for the tax, so they don't have to try to chase you down across international borders to get what's owed to them...

If you have no other Irish sourced income and no other income outside of that from employment or a trade, then you probably won't exceed the 20% Irish tax bracket (at least during the full tax years where you are not resident in Ireland), and as others have noted, the deductions you can make for certain costs means you'll almost certainly pay less than the full 20% on the total gross annual rent you take in.

One thing to keep in mind, though; if you plan to return to Ireland at some point, it might not be easy to regain possession of your property at the drop of a hat. You'll have to give the current tenant notice to leave; depending on how long they've been in the property, this notice period could be several months. And if they refuse to leave and overhold, it could potentially take months or years *after* the expiration of that notice period before you can actually remove them (and they might not be paying you any rent during this entire period, to boot). If you're leaving for a long time and selling your house here is not an option for some reason, it might be worth renting it out, but if you're only going to be gone for a relatively short fixed time, you might want to consider the potential risks of renting.

Beanybabog

Thanks all, that’s very useful information. Good to know about the mortgage interest as a deductible expense, I couldn’t figure it out.

And yes Dennyk, I’d be worried about over holding etc. But that said we’d be gone 3-4 years at least and I don’t want to sell this house, so it’s either leave it empty and pay the mortgage in full, or rent…. I suppose a professional agent is best, they’d be better betting tenants than I would. It would
Also minimise the work for me.

Pawwed Rig

Anyone can be the agent. Have you sibling that could do this for you? They needn't actually do anything but as long as there is someone in Ireland responsible for the tax Revenue will be happy.

Beanybabog

Pawwed Rig wrote: »

Anyone can be the agent. Have you sibling that could do this for you? They needn't actually do anything but as long as there is someone in Ireland responsible for the tax Revenue will be happy.

We do actually have a family member who is a landlord who could be able to manage it for us. That said, I don’t want to make hassle. I’d like to do it in the easiest way possible, while being tax compliant, and also ensuring that we had good tenants. The idea would be to rent for a few years and then maybe renovate it (have PP already). So I don’t want to be stuck with tenants who can’t or won’t leave but of course we’d be able to give well above the minimum notice when it came to that.

The rent would be around double the mortgage and I was trying figure out would I break even after tax(cover the mortgage) but with the interest as an deductible expense I think I could.

Beanybabog

Circular flexing, yes there is a treaty (and its An EU country) but we’d be applying for an expat tax regime there which means we get taxed on income earned there only, and so I believe the income here would be separate and under our tax system? I hope so anyway, as their tax is massive even compared to here and it seems simpler to just do a tax return here for rent only