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How much tax do I have to pay on rental income every month?

Property Clinic: Tax payable on rental income depends on amount of income and expenses that can be deducted

Certain expenses cannot be deducted such as local property tax or expenditure on the property that enhances its value. Photograph: iStock
Certain expenses cannot be deducted such as local property tax or expenditure on the property that enhances its value. Photograph: iStock
Suzanne O’Neill
Tue Nov 14 2023 - 05:45

What is the tax percentage of rental payments that I have to pay monthly? For example, if rent is €850, what percentage do I pay out in taxes each month?

The tax payable on rental income will depend on the amount of income and the allowable expenses that can be deducted. Certain expenses can be deducted from the rental income to arrive at the taxable rental profit for the year. Deductible expenses include property insurance, repairs, management fees, mortgage interest and so on.

Mortgage interest can only be claimed where the property is registered with the Residential Tenancies Board. Certain expenses cannot be deducted such as local property tax or expenditure on the property that enhances its value. A list of allowable and disallowable rental expenses can be found on Revenue’s website.

Suzanne O’Neill is a tax partner at  RSM Ireland
Suzanne O’Neill is a tax partner at  RSM Ireland

If you purchased furniture or equipment for your rental property, you can claim these as capital allowances against your rental income. The current annual allowance rate is 12.5 per cent of the costs spread over eight years.

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The level of tax payable on the rental profit depends on the level of the rental income and also on what other sources of income the taxpayer has. The rental income may fall into the lower or higher income tax bracket. Rental income is added to a person’s total income for the year from all sources. The rental income is liable to income tax, universal social charge (USC) and PRSI.

At the top rates of tax, the rental income can be liable to tax at 52 per cent or even 55 per cent with income tax at 40 per cent, USC at 8 per cent (or 11 per cent where non-PAYE income exceeds €100,000) and PRSI at 4 per cent. For a lower-rate taxpayer, the rates may be 28.5 per cent or lower with income tax at 20 per cent, USC between 0-4.5 per cent and PRSI at 4 per cent.

Of course, for those who let rooms in their own home, the rent can be tax-free up to €14,000 a year under the rent-a-room scheme. Broadly speaking, the letting must be for more than 28 days for the relief to apply. The relief does not apply to short-term tourist accommodation based on home-sharing.

Also, Budget 2024 includes a small tax relief for landlords, with relief on the first €3,000 of income for 2024, which will increase to €4,000 for 2025 and to €5,000 for 2026 and 2027.

Suzanne O’Neill is a tax partner at RSM Ireland

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