Treatment of Expenses
Most expenditure relating to the initial purchase and the ongoing costs of letting the property is deductible for tax purposes in one form or another. Typically expenditure is split into three categories.
Whether an item is capital or revenue expenditure can at times be a grey area. Care should be taken and each item of expenditure examined separately to determine if it is allowable as a deduction.
Revenue Expenses – Income Tax
Revenue expenses are those common annual expenses needed to maintain the property.
The following are examples of the type of allowable rental expenses that may be claimed for:
- Property Insurance costs
- Utilities paid by the Landlord
- Management company fees
- Letting agency fee
- Collection Agent fees
- Accountancy fees
- Mortgage Protection Insurance and Life Assurance policies on property
- Mortgage Interest paid “on monies borrowed for the purchase, improvement or repair” of the property (restrictions apply)
- Repairs, decorating and general maintenance (must be receipted)
- Residential Tenancies Board (RTB) fees
- Legal fees
Please note: only specified pre-letting expenditures are allowed as follows:
- Advertising costs
- BER certificate cost
- Legal fees relating to drawing up of leases
These costs can be used to reduce your taxable rental income. They must be incurred wholly and exclusively in relation to the rental property. You or your tax agent are required to maintain proof of expenditure.
Please note: only specified pre-letting expenditures are allowed as follows.
Capital Expenses – Income Tax
If you buy new furniture or fittings for the property, these can not be claimed in full in the year of expenditure. You are allowed 12.5% of the cost each year for 8 years.
Capital Expenses – Capital Gains Tax
The initial capital expenditure – cost of property plus related acquisition costs (solicitors fees etc.) and subsequent capital improvements to the property e.g. an extension are deductible for capital gains purposes on any eventual sale of the property.
Here are how we treat common expense items:
Mortgage Interest as a deductible expense?
If you took out a mortgage for the purchase or improvement of a property, the interest on this loan is deductible as an expense against the rental income of that property.
How much can be claimed?
Since 1 January 2019 100% of your eligible mortgage interest paid in the year can be claimed as a deduction.
Very important: This deduction is only allowable where the landlord has complied with the requirement to register residential tenancies with the Residential Tenancies Board.
We required a copy of the annual certificate of interest paid from your mortgage provider to claim this expense.
What is Insurance and how does it relate to my Rental Income?
When you buy a rental property, on an annual basis you would insure the contents and the rental property itself.
How much can be claimed?
The entire amount paid in the year can be claimed. The documents relating to the insurance costs must be retained for a period of 6 years, as per Revenue.
What is Mortgage Protection Insurance and how does it relate to my Rental Income?
Mortgage Protection Insurance is a life insurance policy that pays off your mortgage on our rental property if you or your partner dies before the mortgage is paid off.
The policy has a term identical to your mortgage and the payout reduces in line with your mortgage.
In general having a mortgage protection policy is a condition of a mortgage loan.
How much can be claimed?
The entire amount paid in the year can be claimed. The documents relating to this cost must be retained for a period of 6 years, as per Revenue.
What are Capital Allowances and how do they relate to my Rental Income?
Capital Allowances are one of the most overlooked expenses by landlords. The most common example of a capital allowance is furniture purchased to initially furnish a rental property.
The total cost of this furniture cannot be written off in one go, instead the expense is claimed over a number of years, hence the idea of Capital Allowance.
Other costs such as purchase of white goods (fridge, freezer, dishwasher, etc) and purchase of large expenditure items fall into the area of Capital Allowances.
How much can be claimed?
The current capital allowance is 12.5% of the cost over 8 years. For example, if you purchase a suite of furniture for €1,000 a capital allowance of €125 per year can be off-set against the rental income for tax purposes for the next 8 years.
The documents/receipts relating to these costs must be retained for a period of 6 years, as per Revenue.
Repairs & Maintenance
What are Repairs & Maintenance and how do they relate to my Rental Income?
When you carry out preventive maintenance (servicing boilers, painting exterior/interior, insulating the attic) or repairs (fixing burst pipes or broken windows/locks/doors), these allowable costs can be deducted from your rental income.
How much can be claimed?
The entire amount paid in the year can be claimed. The documents relating to these costs must be retained for a period of 6 years, as per Revenue.
What are Accounting Services and how does it relate to my Rental Income?
If you have Rental Income, you will be subject to submitting a tax return and paying the tax arising. We will assist in that process by preparing your tax calculation, filing your return and making payment on your behalf. The fee charged for this is known as “Accountancy Fees”.
How much can be claimed?
When you use our service, the entire fee is deductible from your rental income. The document relating to this cost must be retained for a period of 6 years, as per Revenue.
What is Property Management and how does it relate to my Rental Income?
You may have 2 types of property management expenses relating to your investment property being:
Management Company Fees – Where the property is part of a development, typically a management company is established to manage the maintenance of common facilities. These fees are completely tax deductible.
Letting Agency Fees – Any fees paid to a letting agency for sourcing tenants and /or managing the property can be claimed. Where the letting agency rebill you for expenses they incurred on your behalf, such as repairs, ensure you get an invoice to claim that item against your rental income.
RTB – Residential Tenancies Board
What is it?
The Residential Tenancies Act 2004 provides that landlords must apply to register tenancies with the RTB – previously called the Private Residential Tenancies Board (PRTB).
Each application shall be contained in the Register of Tenancies which is maintained by the RTB.
What happens if I don’t register?
It is a legal requirement that landlords must register tenancies with the RTB, also penalties do exist for non-compliance.
Why is the RTB registration so important?
Landlords must comply with the RTB registration before they can claim mortgage interest relief on rental properties.
The cost of registering with the RTB (€90 since 2011) is fully deductible against your rental income. The documents relating to this cost must be retained for a period of 6 years, as per Revenue.
Collection Agent Fees
What is it?
If you are a non-resident Landlord you have a requirement to appoint a resposnsible resident person, which may be a collection agent. Broadly, a collection agent is a resident person who takes responsibility for the property for income tax purposes.
Can I claim the expense?
The entire amount paid for a collection agent service can be claimed as an expense.
If you are a non resident landlord in need of a collection agent, we can offer this service to you.
BER Cert Costs
From 1st January 2009, a BER (Building Energy Rating) Certificate is compulsory for all homes being renting (with a few exceptions).
The entire cost of BER Certificate can be claimed.
BER Certificate cost is one of the costs which is allowable as Pre Letting expense.
LPT - Local Property Tax
What is it?
From 2013, an annual Local Property Tax (LPT) was charged on all residential properties in the State. A half year payment was due in 2013 with a full year payment due in 2014.
If you own a residential property in the State, you are liable for payment of the tax.
Can I claim it as an expense?
No. The LPT is not deemed as an allowable expense against Rental Income.
Sources of Rental Income
Depending on the source of your rental income, the tax treatment can vary quite a bit!
We have categorised sources of rental income with differing treatments as follows:
Irish Residential Property
Rental income from Irish Residential Property
Income received from renting out Irish residential property is always subject to Irish Income tax, regardless of your residency or Domicile status.
You must declare this income to the Revenue under the appropriate category using either a Form 11 (for self assessed taxpayers or Non Resident Landlords) or Form 12 (for PAYE employees).
If you are a resident landlord, the net rental income is added to your other income. The tax rate you incur depends on your total income and personal circumstances.
Net rental income is also subject to USC (subject to threshold limits) and may be subject to PRSI if you are self assessed tax payer.
If you are a non resident landlord, you will pay Income tax and USC (subject to threshold limits) on your Net Rental income. Non resident landlords do not pay PRSI on this income.
Regardless of how big or small your rental income is or even if you made a loss, you still need to declare it to the Revenue.
Do I have to pay tax in Ireland on my Foreign Property?
If you live in Ireland and have any type of foreign income, including rental income from overseas property, the tax treatment of these incomes depend on your residency and domicile statuses.
We strongly recommend you get advise on your residency and domicile statuses early in the investment decision regarding any type of foreign assets.
Where you have purchased a property abroad and have to declare the rental income in Ireland, the tax calculation is very similar to that for a property located in Ireland, other than that you may be due a deduction for foreign tax paid.
Do the Irish Revenue know about your foreign asset? Most likely they do. There has a big step up in information sharing between developed countries in recent years. We are anticipating extensive action from Revenue in the next few years as they start to identify Irish resident persons with undeclared foreign incomes.
Non Resident Landlords
Are you a Non Resident Landlord?
You are considered to be a non-resident landlord if you reside outside Ireland, but have rental property located in the State. As a non-resident landlord, you are still liable to pay Irish income tax on income from rental properties within Ireland and, therefore, you must file an Irish Tax Return each year. The tax year runs in line with the calendar year and is due to be filed by the 31st October of the following tax year.
As a non-resident landlord, there are two options available to you for managing your Irish tax responsibilities:
1. Tenants withholding tax
Your tenants, if paying rent directly to you, can withhold 20% from gross rents and forward this money to Revenue. They then provide you with an R185 at the end of the year detailing how much tax has been withheld. This withholding tax will be held on account for you and can be claimed as a credit upon filing your Income Tax Return.
2. Appoint a Collection Agent.
A Collection Agent is someone who assumes the responsibility of submitting your tax returns and paying your tax liability on your rental properties. The Collection Agent will make an annual tax return and account to Revenue on your behalf for any tax due under the self-assessment rules. The agent appointed does not need to be a professional person – rather, they can be a family member or other trusted person who is prepared to do so.
What’s the Rent a Room Scheme?
The Rent-a-Room Scheme allows you earn money from renting our rooms in your home tax free BUT you do need to declare it in a tax return.
Under the Rent a Room Scheme, you can earn up to €14,000 per year tax free, subject to meeting eligibility criteria.
It is important to note that once you earn above the €14,000 limit, the FULL amount of the income is taxable. Watch that limit!
We can offer a service of completing the tax return on your behalf. Please contact us at firstname.lastname@example.org
Properties with Tax Incentives
Section 23 & Other Relief Properties
These types of properties are Tax Based Property Investment which were common through the 1990’s and early 2000’s. The main purpose was to renew old urban and town centres and different types of property by incentivising private investors to invest in these properties. The most common types were Section 23 and Section 50.
Section 50 property is student accommodation built close to and for letting to students of a particular college. They are specially designed for single or double room letting.
Section 23 properties are ordinary housing units built in certain areas and towns in the country which are perceived to be in need of some additional benefits in order to promote a letting market.
The tax break is given as a further deduction against the net rental income not just from that specific property but from the total of all net rental profits in that year.
Only Irish rents can be sheltered. If the purchaser has sufficient Irish rental income, the whole of the tax break can be used up in one year. Otherwise, the Section 50 or Section 23 deductions create a rental loss that can be carried forward against future Irish rental income.
The tax relief is clawed back if the property is sold or ceases to be a let premises within a period of ten years from first use.
Short Term Lettings
Short Term Lettings / Guest Accommodation
With the increasing popularity of Airbnb in Ireland (Pre COVID anyway!), many homeowners have been enjoying a little extra tax-free spending money by becoming Airbnb hosts and renting out a room or entire property to tourists or holiday makers.
Income received from renting out a room in your house or any other property on a short-term basis is taxable.
Previously, some tax payers and agents assumed that renting out a room on Airbnb would qualify for the €14,000 tax free threshold under the Rent-a-Room Relief scheme. However amendments to the scheme guidelines now clearly state that short-term lettings are not eligible if they are provided through online accommodation booking sites.
Therefore, you need to declare this additional income to Revenue for taxation purposes.
Income from short term rentals is deemed to be trading income and not rental income. This changes how the income is reported and also impacts on what expenses can be claimed.