Tax liability for a reluctant landlord couple
Q&A: My partner and I bought a small house in 2004 for €302,000. The intention was to sell it on after a few years but then the market crashed. We had a child and wanted to live closer to family so started to rent the house out in 2010 and rented a bigger house ourselves closer to family. We then took the plunge again and bought a bigger house closer to family in December 2011, as it was a very good price. Our family assisted with the deposit.
We would love to sell the first house but cannot shift it. We owe a mortgage of €231,000 and the house is only now worth approx €170,000. It is rented for €930 per month, the mortgage payment is €980 (capital and interest). Even though we are not covering the mortgage, and we do not want to hold onto the house, my friends tell me that we might have a liability owing to the Revenue on a monthly basis, is this true? We have had to pay the second home charge, and household charge for both houses and cannot afford any extra monthly liability.
Mr D.D., email
You are one of a growing number who find themselves reluctant landlords by dint of their failure to sell a property.
Many people were persuaded during the boom to “get on the housing ladder”, pretty much regardless. As a result, people bought small flats or houses in parts of the city or country where they had no intention of settling on a more permanent basis with the intention of trading up as capital values rose.
Where people are able, or are fortunate to have family who can help financially as with you, they have been able to source appropriate new accommodation. But, despite the steps taken by the Government to assist people groaning under the burden of debt in their own homes (with enhanced mortgage relief), nothing has been done to help those who have moved out of those homes. In fact they are in an even worse position.
Once you move out and let your property, it is deemed an investment. This is the case even when you have not bought a second property and are simply biding your time while renting. The catch, to which your friends appear to have alerted you, is that you are liable to tax on income earned by renting your home. There is, unfortunately, no relief under Revenue rules for people who find themselves renting only because they cannot find a buyer at any price (or at least any price the bank which holds security on your mortgage will allow).
In Revenue terms, whether you are a professional property investor and landlord or an accidental one, you have the same obligations. All rent, minus certain allowable deductions, is subject to income tax.
The fact that your rental income does not even match your monthly mortgage payment is irrelevant in this regard.
