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Rental income while on 35k PAYE

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  • 21-01-2015 11:52am
    #1
    kingdomfan
    Registered Users Posts: 28 ✭


    Hi Guys, I am thinking of investing in a rental property, but I am wondering how much of a tax bill I would be looking at.

    The property I am eyeing up should yield 12k gross approx 10k net profit after expenses.

    My main question is regarding tax on this profit as I am unsure how it will be calculated. Will the 10k profit just be lumped on top of my 35k PAYE and I'll be taxed as if I have a salary of 45k or is this 10k a separate entity altogether.

    I seam to have a vague memory of reading somewhere that you have a tax free allowance of 7.5k on top of your regular income, but I am not sure if this is just wishful thinking.


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    #2
    murphaph
    Registered Users Posts: 19,018 ✭✭✭✭murphaph


    Wishful thinking. It's income that is added to your PAYE income and taxed accordingly. There was a slight benefit for PAYE in that PRSI was not levied on the rental income, but I believe that is gone now (was never fair on non-PAYE anyway).


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    #3
    whippet
    Registered Users Posts: 7,668 ✭✭✭whippet


    and USC is payable on the total too ....


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    #4
    lau1247
    Registered Users Posts: 2,121 ✭✭✭lau1247


    Do you live close by the property?? Can you be owner occupied? There's allowance for that which up to certain amount will not be taxed. Just a thought if it is an option for you.

    (Ref: Link)

    West Dublin, ☀️ 7.83kWp ⚡5.66 kWp South West, ⚡2.18 kWp North East



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    #5
    Taylor365
    Registered Users Posts: 2,994 ✭✭✭Taylor365


    Where is this 12k gross, 10k net profit apartment?

    Just wondering how you came to those calculations?


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    #6
    athtrasna
    Closed Accounts Posts: 13,420 ✭✭✭✭athtrasna


    kingdomfan wrote: »
    Hi Guys, I am thinking of investing in a rental property, but I am wondering how much of a tax bill I would be looking at.

    The property I am eyeing up should yield 12k gross approx 10k net profit after expenses.

    My main question is regarding tax on this profit as I am unsure how it will be calculated. Will the 10k profit just be lumped on top of my 35k PAYE and I'll be taxed as if I have a salary of 45k or is this 10k a separate entity altogether.

    I seam to have a vague memory of reading somewhere that you have a tax free allowance of 7.5k on top of your regular income, but I am not sure if this is just wishful thinking.

    Tax is payable on the income, not the profit!!


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  • Options
    #7
    Kinet1c
    Closed Accounts Posts: 824 ✭✭✭Kinet1c


    Very basic example:

    Rental Income: 10000

    Mortgage Interest: 5000 (only allowable if registered with PRTB afaik)

    Repairs: 500

    Advertising: 500


    Deduct all your expenses and you're left with 4000 which based on your current income, would assesed at the higher rate, with USC/PRSI etc. So you're have to pay 2k over.

    Now, the mortgage interest is just that. Interest. Your repayment will more than likely be interest + capital. So if your repayment is 800 * 12 (9600), and your rental income is 10000 for the year, you've to make up the shortfall for repairs/advertising/sundry and your taxes out of your own pocket.


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    #8
    murphaph
    Registered Users Posts: 19,018 ✭✭✭✭murphaph


    Just to clarify, only 75% of interest is allowable.


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    #9
    Mrs OBumble
    Registered Users Posts: 25,669 ✭✭✭✭Mrs OBumble


    athtrasna wrote: »
    Tax is payable on the income, not the profit!!

    Really? Have you got a link for that? (apart from the fact that you cannot claim 25% of the interest).


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    #10
    kingdomfan
    Registered Users Posts: 28 ✭kingdomfan


    Thanks for replies so far

    @murphaph I was thinking it was wishful thinking, not sure where I picked it up, but must of picked up wrong

    @lau1247 Not a bad idea but I am aiming the property at the student market and I do not fancy sharing with students at the stage in my life so owner occupied not an option.

    @Taylor365 around 1450 monthly rent by 9 months (academic year) = around 12k gross. -400 insurance, 1000 maintenance, 200 advertising and 400 sundry, in expenses should leave me with around 10k profit.

    There will be no mortgage to interest relief is N/A


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    #11
    Grolschevik
    Registered Users Posts: 3,472 ✭✭✭Grolschevik


    Mrs OBumble wrote: »
    Really? Have you got a link for that? (apart from the fact that you cannot claim 25% of the interest).

    I got the impression (s)he's talking about the widespread mistaken belief that you only pay tax on the difference between rent and mortgage + expenses.

    In that incorrect view, 'profit' = rent - (mortgage + expenses)


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    #12
    Jasper79
    Registered Users Posts: 507 ✭✭✭Jasper79


    kingdomfan wrote: »
    Thanks for replies so far

    @murphaph I was thinking it was wishful thinking, not sure where I picked it up, but must of picked up wrong

    @lau1247 Not a bad idea but I am aiming the property at the student market and I do not fancy sharing with students at the stage in my life so owner occupied not an option.

    @Taylor365 around 1450 monthly rent by 9 months (academic year) = around 12k gross. -400 insurance, 1000 maintenance, 200 advertising and 400 sundry, in expenses should leave me with around 10k profit.

    There will be no mortgage to interest relief is N/A

    That sounds about right so would be taxable on the 10k, PAYE, USC so around half the profit is tax liability


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    #13
    Jasper79
    Registered Users Posts: 507 ✭✭✭Jasper79


    Also just thinking, if You are looking at renting for 1,450 month, what is the property to cost. ie if say 250k ( low 3 bed semi price) a 5k return is only 2%pa which seems very low.


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    #14
    sunnysoutheast
    Registered Users Posts: 2,072 ✭✭✭sunnysoutheast


    Grolschevik wrote: »
    I got the impression (s)he's talking about the widespread mistaken belief that you only pay tax on the difference between rent and mortgage + expenses.

    In that incorrect view, 'profit' = rent - (mortgage + expenses)

    The income chargeable to tax is the summation of all surpluses/profits and deficiencies/losses from rental activity. Revenue Guide IT70 makes this clear.

    As others have said, 75% of the mortgage interest only is allowable.

    From memory, I believe USC is chargeable on (gross rent - allowable expenses) and PRSI/IT on (gross rent - allowable expenses - capital allowances), all at the marginal rates. PRSI exemption for PAYE was removed from 2014.

    I'm no longer a landlord, praise Jebus, but that's how our tax was calculated.


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    #15
    sunnysoutheast
    Registered Users Posts: 2,072 ✭✭✭sunnysoutheast


    kingdomfan wrote: »
    Thanks for replies so far

    @murphaph I was thinking it was wishful thinking, not sure where I picked it up, but must of picked up wrong

    @lau1247 Not a bad idea but I am aiming the property at the student market and I do not fancy sharing with students at the stage in my life so owner occupied not an option.

    @Taylor365 around 1450 monthly rent by 9 months (academic year) = around 12k gross. -400 insurance, 1000 maintenance, 200 advertising and 400 sundry, in expenses should leave me with around 10k profit.

    There will be no mortgage to interest relief is N/A

    Remember your capital allowances on fixtures and fittings, depreciation of 12.5% a year over 8 years.


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    #16
    Victor
    Registered Users Posts: 78,244 ✭✭✭✭Victor


    You will pay income tax at the highest marginal rate.At you income, you might be paying either rate. You will need to check PRSI and USC.

    Take a look at this: http://www.paylesstax.ie/103-Property-Investors---Tax-on-Rental-Income-How-to-Calculate-Your-Rental-Income and especially this: http://www.irishlandlord.com/index.aspx?page=calculators_taxestimation
    athtrasna wrote: »
    Tax is payable on the income, not the profit!!
    I think you got that the wrong way around.


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    #17
    athtrasna
    Closed Accounts Posts: 13,420 ✭✭✭✭athtrasna


    Victor wrote: »
    I think you got that the wrong way around.

    Depends on your definition of profit, another poster has clarified what I meant


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    #18
    johnnyskeleton
    Moderators, Entertainment Moderators, Politics Moderators Posts: 14,465 Mod ✭✭✭✭johnnyskeleton


    athtrasna wrote: »
    Depends on your definition of profit, another poster has clarified what I meant

    The excess of income over expenditure.

    The only other definition is a spiritual visionary, but that is spelled differently


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    #19
    Stheno
    Moderators, Business & Finance Moderators, Science, Health & Environment Moderators, Social & Fun Moderators, Society & Culture Moderators Posts: 51,687 Mod ✭✭✭✭Stheno


    kingdomfan wrote: »

    @Taylor365 around 1450 monthly rent by 9 months (academic year) = around 12k gross. -400 insurance, 1000 maintenance, 200 advertising and 400 sundry, in expenses should leave me with around 10k profit.

    Have you thought about property tax?


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    #20
    Baby01032012
    Registered Users Posts: 1,622 ✭✭✭Baby01032012


    Just a point that no one has mentioned...pre letting expenses are not allowable so the example of advertising would fall in there.

    Better to check out the revenue leaflet on rental income to get a better idea of what to claim.

    Also you should look at it like an imvestment. Look at your return on investment. Ie as a % of your capital investment and compare the net % return to other alternative investments.


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    #21
    Taylor365
    Registered Users Posts: 2,994 ✭✭✭Taylor365


    I put your net profit at about €4800 after tax.


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    #22
    murphaph
    Registered Users Posts: 19,018 ✭✭✭✭murphaph


    Baby01032012 wrote: »
    Just a point that no one has mentioned...pre letting expenses are not allowable so the example of advertising would fall in there.

    Better to check out the revenue leaflet on rental income to get a better idea of what to claim.

    Also you should look at it like an imvestment. Look at your return on investment. Ie as a % of your capital investment and compare the net % return to other alternative investments.
    I think advertising is allowed, even for first letting. Any renovations etc. before first letting would not be allowed.


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    #23
    kingdomfan
    Registered Users Posts: 28 ✭kingdomfan


    Thanks guys for all your replys pretty much clears up all my questions and has help imencly with the number crunching.

    @Taylor365 that is what I thought.


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