Renting out a property

Renting Out a Property

Especially in today’s challenging rental markets, it is important to manage the tax aspects of your rentals. There are several critical areas affecting different taxes and types of property.

Income Tax

Rents

Keep a record of your rents. Ideally get them paid by standing order or direct debit.

If the tenant pays for repairs which are your responsibility, this is rent.

Lease premiums have largely disappeared. However, any premium for a rental under 50 years is partly liable to income tax. This can be onerous. Your adviser can help to claim hardship provisions.

Mortgage interest

This is probably your biggest cost. From 2009 you can reclaim 75% of this interest. The critical points are

The loan must be to buy, refurbish or repair the actual rental property. 

For residential property you must register the tenancy with the Private Residential Tenancies Board.

Interest is only allowed after the first tenant moves in.

Other costs

Repair costs are only allowed after the first tenant moves in

Avoid paying cash in hand. You will save VAT at 13.5%. You lose income tax and levy deductions at 48%. This makes no sense

Professional fees and advertising are allowed pre-letting e.g. auctioneers, solicitors

Capital Allowances

Certain non-residential buildings get Industrial Buildings Allowances, normally 4% per annum. If you don’t have enough rental income you can use these against other income e.g. trading profit.

Other capital costs may be deemed as plant. These get 12.5% per annum, but only against rental profit. It can be valuable to identify these. For example, murals in a hotel or bar have qualified for this.

If you cannot use these in a year, they are carried forward against other rental income

Losses

Rental losses are allowed against other rental profit. If not used up, you carry them forward

Non-resident landlord

If the landlord is non-resident tax at 25% must be deducted from the rent and paid over to the Revenue.

The letting agent or the tenant can do this.

Stamp Duty

This is normally straightforward based on rental and lease premium values. However, there is a trap to be avoided for residential property!

Some householders may for personal reasons decide to rent out what is now their main residence. Many will have claimed stamp duty exemptions like first-time buyers relief.

 If, they rent out the property within two years of this, the stamp duty exemption is clawed back with interest.  Revenue has audited these transactions. Make sure to get your solicitors advice.

Capital Gains Tax

This is complex and you should consult your tax adviser.  For landlords it will arise on matters like

• Selling a freehold
• Granting a lease
• Selling a lease

VAT

VAT on property is very complex. All property transactions need good VAT advice as the amounts involved are large.

You must also keep a VAT history of the building, with particular reference to how much deduction you are allowed each year.

Important Note

This leaflet is meant only as a brief guide. It is not meant to replace professional tax advice.

This entry was posted on Friday, August 14th, 2009 at 12:51 pm and is filed under News, Tax Adviser. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.