RENTAL INCOME
Rental Income is taxable under the Irish tax system. Therefore, if you receive income from the renting out of a property or part of your principal private residence in Ireland then you must file an annual tax return in accordance with the rules of the self-assessment system.
Tax is charged under Schedule D Case V in respect of rents from any premises or easements in the State. If you have taxable rental income it will be taxed at your highest tax rate by adding it to your other income e.g. PAYE Income.
The 3 Step Approach
The following is a 3 step approach to the calculation of the taxable rental income for each property:
Step 1
Calculate the gross rental income from the property.
Rental income is computed on the basis of the gross amounts of rents receivable – i.e. when the landlord becomes entitled to it.
Step 2
Calculate the total deductible letting expenses for offset against the rental income computed at Step 1 above.
Expenses associated with the rental income and which are wholly and exclusively incurred are tax deductible on the accruals basis i.e. for the actual period to which they relate.
The following are examples of legitimate property related expenses which are allowable deductions:
- Rent payable by the landlord
- Rates on the property
- Service charges (e.g. water/refuse etc.)
- Management Fees & rent collection costs
- Legal fees for the drawing up of lease etc.
- Accounting fees for the preparation of a rental income account
- Advertising fees for securing tenants
- Insurance against fire and public liability etc.
- Maintenance e.g. Cleaning & general servicing, painting etc.
- Registration fee with the Private Residential Tenancies Board
- Mortgage Protection Insurance paid in the year
- 75% of the interest on monies borrowed to purchase or improve the property. The amount is restricted to the interest actually incurred for the period during which the property is actually let. Also, the landlord must have complied with the registration requirements of the PRTB.
- Costs of any un-reimbursed services provided to tenants
- Repairs e.g. mending windows & doors, damp and rot treatments
- Sundry Expenses such as phone, admin. etc.
Step 3
Calculate any wear and tear allowance for an additional offset against the gross rental income computed at Step 1.
The wear and tear allowance can be claimed on the cost of furniture and fittings at the rate of 12.5% over 8 years. This would include furniture, electrical appliances, central heating, carpets etc.
The deduction of the expenses (step 2) and the wear and tear allowance (step 3) from the gross rent receivable (step 1) will give you the rental surplus or deficit for the property for the year.
Other general points:
- If there is a rental loss for the year, then this loss may only be carried forward to reduce rental income of future tax years.
- Everybody in receipt of rental income must declare details of that income to the tax office.
- A very valuable method of income which could boost your personal finances is the Rent a Room Relief. Income from the renting of room(s) which does not exceed €10,000 in any calendar year is exempt from tax. This equates to €833 per month.
- Two noticeable provisions announced in Budget 2013 will see (i) employees paying PRSI on any rental income from 2014 and (ii) the abolition of the NPPR also in 2014.
Note – The information in this article should be treated as a guide only. If you would like further assistance with the preparation of rental income accounts or on any other matters, please contact Tommy in TW Business Solutions on 086-8191629 or by email at personal@tommywalsh.ie
