We want to rent out a property here and live abroad
Property Clinic: Is rental income tax really 20%?
The receipt of rental income from property located in Ireland is chargeable to tax regardless of where the landlord resides. Photograph: Getty Images/iStockphoto
My wife and I are thinking of buying a property in Ireland to rent out whilst living overseas. We have been advised that you need to pay the Irish Government 20 per cent tax on the total rent earned per year. Is this true?
The receipt of rental income from property located in Ireland is chargeable to tax regardless of where the landlord resides. Gross rental income received is subject to Irish income tax and a tax return is required to be filed annually with the Irish Revenue Commissioners. Rental income is also subject to the Universal Social Charge.
Where rents are paid directly to a landlord whose place of abode is outside Ireland, the tenant is obliged to deduct income tax at the standard rate (currently 20 per cent) from the payment.
The tenant provides the landlord with a certificate of the tax deducted on a Form R185 (Certificate of Income Tax Deducted). The tenant should be made aware of their obligation to deduct tax prior to the first rental payment. They should account for this tax to Revenue immediately after is it deducted. However, in practice, tenants submit this tax withheld to Revenue via their annual return of income for the tax year.
An individual may also engage an Irish agent to collect rents from their tenants on their behalf. Where rent is paid to an Irish agent of the non-resident landlord, the tenant does not deduct income tax from the rent. The landlord will be assessable and chargeable to income tax in the name of the Irish agent. While the assessment is in the name of the Irish agent, the tax liability is the amount which would be charged if the non-Irish resident landlord was assessed in his or her own right.
It is important to note a landlord is entitled to claim a deduction against their rental income for expenses which are usually allowed in arriving at the rental profit. There are a number of eligible deductions which can be availed of to reduce the amount of taxable rental income, for example, maintenance costs, repairs, insurance, rates and management expenses. A non-resident landlord may also be entitled to a proportion of the Irish personal allowances for offset against the rental income.
Finally, where a double taxation agreement is in place between Ireland and a non-resident landlord’s country of residence, the non-resident landlord may be entitled to a foreign tax credit against the Irish tax payable in their country of residence.
Susan Blake is a tax manager with RSM Ireland