Calculating Tax on Rental

Negative_Nat

keep it quick , posting for a friend who doesn't have a boards account

friend has a house he rents out for the past 10 years to same family

now he's not registered with prtrb or paying tax ( yes a big no no )

he want's to register and pay tax etc

he has a 4 bed that he's renting for €1500 in an area where 3 beds are going for €2000 so he's not getting market value

his current tenant is having difficulty ( only recently ) and suggested he might get hap or some other help

so my friend wants to get X for the rent and have enough to cover mortgage and tax and prtb related costs

how does he calculate how much he will pay a year in tax and other charges ? is there an online calculater to imput figures he wants to best cover himself going forward as he doesn't want to be subsidising the house going forward

bigmac3

So he doesn’t want to subsidise the house but is happy for the rest of us to subsidise by not paying the tax due on the rental income? And now he’s eyeing up getting some HAP for the house and is half thinking of going legit to get the hap as well?

Tell the miserable fcuker to go pay an accountant.

Negative_Nat

https://www.boards.ie/discussion/comment/119775153#Comment_119775153

rest of us ( well get a proper job and buy a house ffs )

in this market rightly or wrongly he is under-charging a tenant , and HIS tenant is having difficulty and mentioned Hap not the landlord ( makes sense why its " rest of us " ) when you obviously can't read

why shouldn't a lanlord cover his back ??

why go to an accountant sure boardsie's all know the facts

Ninthlife

Well he isn't really losing out by 'undercharging' the tenant as he is pocketing the €1500 per month in full whereas a similar landlord registered for Income Tax and charging €2000 p/m isn't going to be getting anywhere near €1500 in the pocket

Considering they are in employment and possibly paying the higher rate of tax already they can expect all the rental income to be taxed at 40%

They may also want to consider filing for previous years as someone may wonder what he was doing with the property in previous years and if the tenant wants to claim HAP they may be asked where they were living previously etc

Might be in for a shock with a very large tax bill plus interest and penalties

Geuze

To determine the tax, you must first calculate the net rental profits.

Net rental profits = gross rental income less allowable expenses

Negative_Nat

https://www.boards.ie/discussion/comment/119775354#Comment_119775354

ok , appreciate the response , straight to the point

Negative_Nat

https://www.boards.ie/discussion/comment/119775385#Comment_119775385

its pretty much 18000 a year i'd say , so he will lose €7200 a year tax ( if he has repairs or maintenance or insurance that comes off the €18000 then 40 % after ? )

Negative_Nat

https://www.boards.ie/discussion/comment/119775385#Comment_119775385

so if he wanted his usual €1500 a month he's need to charge approx €2200 to cover tax etc

Geuze

https://www.boards.ie/discussion/comment/119775405#Comment_119775405

18,000 gross rent

less allowable expenses like maintenance, repairs, mortgage interest, capital allowances, etc.

Then apply his marginal tax rate to the net rental profits.

I would be worried about the Revenue's attitude to ten year's tax evasion.

L1011

If the house is in an RPZ the rent cannot be increased that much - that the tenancy wasn't registered doesn't mean it didn't exist.

Think ~1700 is the most it can possibly be increased to. And he can't refuse HAP on the basis of not being registered either.

Recent refusal of HAP cases have been in the 7.5k-10k compensation region.

Claw Hammer

He is going to have to file accounts for the last 10 years and pay interest and penalties. The sooner he gets to an accountant who deals with arrears cases the better.

Tow

This is some FUBAR. I like how no one adds PRSI and USC on to the 40% tax, you must all work for the Revenue 😜.

Negative_Nat

https://www.boards.ie/discussion/comment/119775564#Comment_119775564

all abide by the law apparently and never outside the lines

L1011

https://www.boards.ie/discussion/comment/119775593#Comment_119775593

There's 'outside the lines', and there's being so far away you can't even see the line.

This is going to be very, very expensive for the landlord no matter what happens.

Negative_Nat

i know he gets €18000 a year rent , but lets say he pays €12000 a year mortgage , is he not liable for tax on pure profit ie €6000

Dodge

https://www.boards.ie/discussion/comment/119775593#Comment_119775593

To be fair, it was your mate thinking he was being hard done by, while actually doing way better than others, that caused this thread.

And you did ask about tax implications. You got the answer.

Negative_Nat

https://www.boards.ie/discussion/comment/119775641#Comment_119775641

true

but they all act like they are holy on here and never break the laws

maybe he'll keep it under the radar and have a fully paid asset in 10 years

L1011

https://www.boards.ie/discussion/comment/119775638#Comment_119775638

No. Only interest payments can be deducted, and only for a registered tenancy.

Mortgage capital is not an allowable expense.

DubCount

https://www.boards.ie/discussion/2058268468/calculating-tax-on-rental

OP. You set up a boards account in the last few weeks - cant your friend do the same?

Register with RTB

Employ an accountant to get tax compliance in order (including 10 years of updated tax declarations)

Going forward, rent that can be charged is calculated by reference to RPZ if applicable or market rent if RPZ does not apply. Covering tax and mortgage is not a basis to calculate a rent review.

Your friend may have to sell the property to pay the tax, interest and penalties. Here's hoping.....

L1011

https://www.boards.ie/discussion/comment/119775654#Comment_119775654

Or he'll get stung when he refuses HAP to the tenant, they take a case and get 10k compensation and he gets chased for unpaid registration, taxes, interest and penalties.

And that is much more likely than continuing to get away with it.

Negative_Nat

https://www.boards.ie/discussion/comment/119775666#Comment_119775666

isn't the tenant at fault also ? he apparently knows the landlord wasnt paying tax

L1011

https://www.boards.ie/discussion/comment/119775699#Comment_119775699

The tenant has no responsibility unless they are aware the landlord is out of the country and they are not paying an agent in Ireland; then they need to retain and submit retention tax.

Otherwise, absolutely not. The landlord is responsible for their own breaches of the law.

Eircom_Sucks

following

Ninthlife

Considering the landlord is knowingly doing it, it could be viewed as 'deliberate behaviour' and possibly could attract a 100% penalty and interest of 0.0274% per day which is about 10% per year for 10 years..

The potential bill is eye watering

Revenue will pin him to the wall between interest and penalties, he will be lucky to have 25 grand left of that 180 grand by the time they are finished with him. In order to be able to accept HAP he will have to get a tax clearance certificate so an audit of his accounts will occur at some stage and the current tenant will also have to provide details during the application process.

L1011

...and to add, that just refusing HAP won't stop the Revenue side of things happening; as they will absolutely notice the RTB decision on the compensation to pay the tenant for refusal; and do their own investigation then.

Tow

https://www.boards.ie/discussion/comment/119775876#Comment_119775876

Plus if he ends up in front of Nolan a visit to the Joy.

handlemaster

https://www.boards.ie/discussion/2058268468/calculating-tax-on-rental

He can well afford to pay for an accountant. Avoiding tax while pulling in that amount of rent is an insult to law abiding landlords. He needs to make a declaration to revenue. As for wanting to add more to cover taxes etc well well.. getting the popcorn for this one...

Ninthlife

Also remember if they do sell there willl be Capital Gains Tax possibly owing and it wont be exempt as its not their Principle Private Residence. So possibly the question will be asked well what was the house used as for x amount of years if it isnt your PPR.

Also their details will be published on Tax Defaulters list which could have implications elsewhere

Grumpypants

As a general rule. Take the rent he gets and half it. That's the tax you pay.

ThreeGreens

https://www.boards.ie/discussion/comment/119775654#Comment_119775654

Having a fully paid off asset would be ideal as far as revenue are concerned. In 10 years time the taxes interest and penalties would be very significant. Probably more than the value of the property.

Assuming the tax defaulter can't pay the tax, Revenue usually get a judgement mortgage in such cases. A fully paid off asset would be ideal as far as Revenue are concerned as they wouldn't have any bank mortgage ranking before them.

Being an unregistered landlord is very dangerous these days. More so next year. You can't get hap without a tax clearance cert. You can't refuse a hap tenant. And any complaint to RTB will be picked up by Revenue. The complaint can be after the tenant left.

And next year with rental tax credits, your tenant will be (perhaps unwittingly) reporting the rent payments you Revenue to claim their credit.

Even if you reach an agreement with them not to claim it, they have 4 years to claim it. So potentially after they have left the property.

And of course you can never fallout with your tenant no matter how unreasonable they are because they will then just report you to revenue and the RTB.

Best thing your friend can do is book and appointment to see an accountant and regularise their affairs. The accountants fees are a valid expense reducing their tax bill.

dennyk

Your "friend" has dug themselves into a very deep hole, and there's no escaping the consequences at this point. Either the tenant is going to apply for HAP, or they're going to apply to claim the rent tax credit, or both, and either of those will bring your "friend" to the attention of Revenue sooner rather than later.

They should immediately talk to their solicitor and hire an accountant and throw themselves on Revenue's mercy by following the advice of said solicitor and accountant and get those unpaid taxes sorted out as quickly as possible. The consequences are usually less severe if you voluntarily go to Revenue to correct your past "mistakes" than if they have to come chasing after you for unpaid taxes. At the very least he will have to pay back all of the tax he owes on those ten years of rental income, plus interest, and given the seriousness of his delinquency, some sort of penalty is likely to be applied regardless.

As for the tenancy registration, bad news is that the RTB now has higher late fees for late registration of a tenancy. At €10 per month that he was late registering, he's probably looking at a four figure late fee plus the registration fee for a ten-year tenancy. Still a drop in the bucket compared to his tax liability, though. Again, it's imperative that he get that sorted out ASAP.

As far as raising the rent, if the property is in an RPZ, he will be limited to the RPZ rent increase limits. This calculator will show how much the rent can be raised based on the date the rent was last set. Trying to raise the rent more than RPZ regulations allow will delay the onset of the new rent at best, since the tenant can challenge the notice and it will be deemed invalid and he'll have to issue a new notice all over again for the legal rent amount, or at worst he might end up paying a hefty penalty and compensation if the tenant goes to the RTB later about having paid too much rent.

As far as what taxes he'll have to pay going forward, Revenue have all the details on their site. He can deduct certain expenses relating to the property, including mortgage interest (but NOT the mortgage principal repayments; those are not costs, as he is simply paying back a loan). The remaining net income after the allowable deductions will be subject to income tax at his marginal rate. If he has other sources of income and is over the ~€36k threshold, that means he'll pay 40% income tax on all of his net rental income.

3DataModem

There is some hyperbole in the above thread OP but the general thrust is correct... your friend needs to normalise things. I've been a landlord for a while AND I have been subject to a far-reaching audit process.

My advice is as follows;

1. Get an accountant / tax advisor experienced in tax calculation for revenue.
2. The accountant will recommend a proactive tax return for some prior years. The number of years will depend on how rent has been collected (e.g. did they take cash?) and whether the house was declared as residence (did they pay full whack stamp duty?) etc.
3. The accountant will look at the entirety of tax affairs... perhaps there are some allowances under-claimed. They can make a big difference. Expenses can be claimed even if not receipted, for example, it all comes down to what Revenue will accept as reasonable.
4. The accountant should recommend a proactive payment to the revenue to "stop the clock" on interest on penalties while they do the detailed research above. Throwing a lump in of 20 grand alongside a letter FROM A TAX ADVISOR advising the revenue that you are working on (e.g.) 6 years of returns will prevent any audit and stop clock on interest and penalties AND make Revenue look much much more positively on the returns.

BOTTOM LINE:

• If you get to them before they get to you, you are FAR FAR better off.
• Sob stories mean nothing. Every single late taxpayer has a sobstory. What Revenue like to see is proactivity.
• Tell them to assemble a lump of money (20-30k) ASAP to help stop the clock. Better off investing in this than paying any other debts, as the interest rate Revenue charge is high.
• If you employ a professional to handle this, you will save a lot more money than their likely fee. Find one who knows all the rules, not some local bookkeeper.
• If they get to you with a query, or a challenge, or anything, and they don't like the response. Boom... you'll get audited. Get to them first.

I've given this advice 4 times to people I know in the past.

• 1 guy took the advice, and are still years later ETERNALLY grateful.
• 1 guy didn't take the advice, and is under a massive amount of stress waiting for the hammer to fall. Planning on blaming all kinds of health / family issues when the time comes.
• 2 people failed to take the advice and got audited. One of them is relieved it's all sorted and is grateful. One of them blames me for not telling them harder.

Marcusm

Plus no interest relief in respect of a premises which is not registered with the RTB. While Revenue will concessionally allow interest relief for a certain degree of late registrations, this situation seems unlikely to fit within that practice.

Donald Trump

There will be a reasonable number of people like the OP's "friend" who must be sweating the upcoming tax deduction who could easily receive a demand for 100k in back taxes before penalties are added in.

People are talking about "small landlords fleeing the market". I'd say there is a chunk of those who are trying to get out before they are caught for tax evasion in the hope that they'll get away with it.

I'd say there will be some houses being sold over the next couple of years to try to repay owed tax. Revenue take no prisoners when they get their claws into you.

Eircom_Sucks

have to laugh at the scare mongering on here , like everybody is is tax compliant on here

i've a cousin who did what op friend did , paid his house off with rent and sold it and guess what ????? nothing and that was 6 years ago

like with every thread on boards , all know it all's

L1011

https://www.boards.ie/discussion/comment/119787339#Comment_119787339

People telling the OP "ah sure it'll be grand" are giving dangerously bad advice. So that's why you're not seeing anyone do it.

The specifics here are going to see the LL get noticed.

Eircom_Sucks

https://www.boards.ie/discussion/comment/119787378#Comment_119787378

i get that

i'm not excusing or condoning tax evasion , just stating i have a cousin who pretty much used rent to cover whole mortgage and paid off his house and sold it 6 years ago and nothing happenend to him , yes he may just be a lucky one , but id say 1000's get away with it

HeidiHeidi

Things have tightened up a lot since 6 years ago.

Systems are a lot more linked and connected, and as others have said, this tax allowance if it's brought it's likely to draw attention to dodgers.

Gambling in the hope that you get away with it is a very high stakes game.

3DataModem

https://www.boards.ie/discussion/comment/119787456#Comment_119787456

In fairness to your cousin, a lot do get away with it. The number is dramatically reducing, but it is true.

The people who tend to get caught are those who have multiple properties (e.g. they buy an apt, move out when they buy a house, rent apt) ... those are the ones who are flagged by Revenue.

Eircom_Sucks

https://www.boards.ie/discussion/comment/119798612#Comment_119798612

he's living with his gf in her house , so he hasn't bought anywhere else