Property clinic: I'm an accidental landlord. It's expensive, so how can I pay less tax?
Is it possible to minimise the tax bill on rental income?
Expenses incurred between lettings are allowable subject to the normal rules, provided the landlord does not occupy the property during that period
Question: I recently have become an accidental landlord in Dublin. Just wondering if you can offer any advice to minimise the tax bill on rental income which I believe is 40 per cent (seems an excessive tax). Are there any plans by Government to reduce this tax to encourage people to remain as landlords? Are there any ways to reduce this tax bill? I hope to rent it out in its present condition, but expect to have to redecorate etc at the end of the first letting. Can you deduct the cost of a driveway as an expense or do expenses only relate to internal decoration and wear and tear etc?
Answer: Rental income is taxable at either 20 per cent or 40 per cent depending on the quantum of your total income for the year. The income is also subject to USC and PRSI. In his Budget 2018 speech, the Minister for Finance said he was establishing a working group to plan the process of amalgamating USC and PRSI over the medium term. The impact on the tax rates has not yet been announced.
There are however many eligible deductions that can be availed of to reduce the amount of taxable rental income. Examples of allowable deductions include the cost of maintenance, repairs, insurance, rates and the management of the property. Interest on loans taken out to purchase, improve or repair a property is an allowable deduction.
Interest in respect of residential properties is subject to a restriction of 80 per cent for 2017 and will be increased on a phased basis to 100 per cent by 2021, provided the tenancy is registered with the Residential Tenancies Board (RTB). A full deduction is allowed for interest in respect of commercial properties.
Expenses incurred between lettings are allowable subject to the normal rules, provided the landlord does not occupy the property during that period. Capital allowances at a rate of 12.5 per cent may be claimed in respect of capital expenditure incurred on the purchase of qualifying assets (eg furniture and household appliances).
The cost of a driveway would not be an allowable deduction for income tax purposes as it would be deemed capital in nature. However, the Home Renovation Incentive (HRI) scheme enables landlords to claim relief on repairs, renovations and improvements to a rental property (such as cost of a driveway) carried out by qualifying contractors. The expenses must have been subject to VAT at 13.5 per cent. The work must be carried out and paid for before December 31st, 2018, in order to claim relief.
Niamh Horgan, tax manager, RSM Ireland, rsm.global/Ireland