Blog Archive - Taxation

Within the next 2 weeks or so, you will more than likely receive a letter from Revenue with details of the new Property Tax (LPT).  Your may not even receive a letter, but you will still owe the tax.  This is a self-assessed tax and it will be up to property owners to decide how much property tax they are obliged to pay and then to make sure they pay what is owed to Revenue.  With very few exceptions, anyone who owns a Residential Property in Ireland, whether owner-occupier or landlord will have to pay the tax.

Revenue will provide owners will an initial estimate of  their property tax but it is up to each owner to decide on the actual valuation of their property and pay the tax owing.  In fact, Revenue can pursue individual owners for under-payment of the tax, even if the owner has paid the amount that has been recommended by Revenue.  Property owners are expected to take into accounts factors which may affect the value of their property, such as the state of repair, home improvements, extensions etc.  The tax is calculated at 0.18% of the value of the property and only half the annual tax is due for 2013, with the full year’s tax due in 2014.  Revenue have referred property owners to the Irish Property Price Register at www.propertypriceregister.ie to assist them in valuing their properties.

Properties valued below  €1m, will fall into market value bands of €50,000, i.e. €100,001 – €150,000; €150,001 – €200,000 etc. The tax is calculated at the mid-point of each band, so two properties valued at €165,000 and €195,000 respectively, will both pay €157 in property tax this year, and €315 in a full year (2014), which is 0.18% of €175,000.

The market value of your property on 1st May 2013, will form the basis for the property tax due for 2013, 2014, 2015 and 2016.  Property owners do not have to take into account any subsequent improvements to their property or any changes in market value up to 2016.  Revenue will be issuing guidelines to property owners on how to value their properties and have said that if owners follow the guidelines honestly, they will accept owners’ property value assessments.

If you complete your return online, you have until 28th May 2013 to do this but paper returns must be submitted no later than 7th May 2013.  The correspondence from Revenue will give you a Property ID and PIN, to enable online submission.  You will also need your PPSN.  There will be a number of payment options, from single payment option, credit/debit card, salary/occupational pension deductions or deductions at source from social welfare payments. A single payment will be debited from your bank account no earlier than 21st July 2013.  Installment payments through Salary/Occupational Pension deductions will commence in equal amounts from 1st July 2013, and direct debit installment payments will commence on 15th July 2013.  Whatever payment option you choose will continue for 2014 and subsequent years, unless you advise Revenue that you wish to change your payment method.

There are some changes to the landlord’s NPPR tax this year.

1) Properties in the RAS scheme are no longer exempt from the tax, as applied in previous years.

2) There will be a handling charge of €10 for payments which are not completed online.

At SCK Group, we will pay your NPPR for you for all new properties let and managed by us this year. That will save you €200!

www.sckgroup.ie/nppr

Further to Mr Patrick Honohan’s comments that the “banks will have to be more aggressive in repossessing properties in the buy-to-let sector” a couple of points should be noted.  Firstly, as a company working closely with buy-to-let investors, we are unaware that the banks were ‘holding off’ on being aggressive with landlords.  In our experience working with our clients, we have found that the banks have already been taking an aggressive approach with borrowers, and it has taken considerable effort on our part to get the banks to agree to any arrangement with the borrower. In addition, many landlords have cross-secured their buy-to-let investment with their home, so if the bank seek repossession, this will place the landlords home at risk.

 

Since the downturn landlords have seen their rental income drop, increases in variable mortgage interest, the introduction of NPPR, USC on rental income, the reduction of mortgage interest that is tax allowable to 75% and the recent introduction of the household charge.  Take a landlord who has rental income of €12,000 pa . If is mortgage is on a variable rate, his interest repayments will typically also be €12,000 pa, of which he can only allow €9000 against his rental income, so he will be liable for tax, USC etc on €3000.  He will also pay €300 in property taxes and will have other bills for service charges, maintenance costs etc.  Unless the landlord has losses forward from previous years or unused capital allowances, he will be paying income tax on a negative income.

 

If the banks insist on repossessing buy-to-let properties, they will either sell them at a vastly reduced price, leaving the landlord with the remaining debt leveraged against his home, or the bank will attempt to manage the properties themselves.  Managing buy-to-let properties is not the banks area of expertise.  The bank would be better coming to an arrangement with the landlord with regards to his loan repayments and allow the landlord to manage his property himself, or with the help of a property management company, who have experience in the area and can maximise rental income and therefore enable the loan to be paid off over time.

 

At SCK Group, we have been working with our clients to help them navigate what has been a difficult time for landlords.  We have been negotiating with the banks on their behalf and have had some success in this.  Many landlords have not been utilising all the capital allowances available to them and we have been able to reduce their tax bill by advising them in this area.  Some properties have fallen into disrepair because landlords have not had the money to pay for ongoing maintenance.  When we realised that this was preventing landlords getting tenants for their properties, we set up our Property Refurbishment Scheme, whereby we will carry out the repairs, pay the up-front costs and then the landlord can repay us overtime from the rental income.  This year, because we recognise the extra burden placed on landlords, we are going to pay the NPPR (second home tax), for all new properties let and managed by us.

www.sckgroup.ie/property-management-services

Simon Ball, writing in today’s Irish Independent gives a timely warning to those PAYE people who have moved out of their homes and have their property rented out to a third party.  The resulting rental income may be chargeable for income tax, even though the individual considers him or herself a standard PAYE worker.  A lot of individuals are not fully aware of this and their obligation to file a tax return before 31st October.  It is essential that people in this situation keep enough money aside from their rental income to cover the tax that may be due. Preliminary tax may also be due for the following year.  Failure to file a tax return on time can lead to additional surcharges and interest.

At SCK Group we can advise you on allowable expenses in relation to an investment property.  We can complete your rental accounts and can file a tax return for you.  If we let and manage your property, we will complete your rental accounts or file your tax return for FREE.

At SCK Group we specialise in payroll for UK companies operating a subsidiary in Ireland.  In general, the responsibility for processing PAYE, PRSI, USC deductions falls on the UK employer.  However, if the UK employer does not process Irish PAYE payments, the responsibility falls on the subsidiary in Ireland.  There are some exceptions, which must be Revenue approved in advance, i.e. if the number of days worked by the employee(s) in Ireland falls below certain limits. But in general if a company does not process PAYE etc for it’s employees in Ireland, it exposes the subsidiary company here to the risk of interest payments and penalites for late payments.

For further information please contact our payroll department. 

Tel:       0035312910800

Email: paula@sckgroup.ie

This article was in the Irish Times Property Supplement on 27th Jan and explains why things have become so difficult for landlords recently. Just 1 small point; PRTB is now €90 not €70 as stated in the article.

Far from being members of a fat-cat elite, many small-time property investors say they face bankruptcy if Section 23 tax reliefs are phased out, writes CAROLINE MADDEN

MENTION the phrase “Ireland’s landlord classes” and it conjures up images of a rackrenting, bed-sit- peddling elite who simply sit back and watch the money roll in from their vast property empires. In reality, today’s landlord is much more likely to be a small-time, buy-to-let investor, with one or two white elephant properties, who is now facing death by a thousand cuts.
Last Thursday night, about 250 such property investors gathered on Dublin’s northside for a meeting of the Irish Property Owners Association (IPOA), where they expressed fears of financial devastation. Many warned they would face bankruptcy if the curtailment of Section 23 tax relief announced in Budget 2011 went ahead.

The following afternoon, IPOA members and thousands of other investors breathed a sigh of relief as the Finance Bill put the Section 23 proposals on ice until at least 2012. However although they have been granted a reprieve, it is only temporary.

In last December’s Budget, Minister for Finance Brian Lenihan announced that property-based legacy reliefs were to be phased out. The most controversial element of this related to Section 23 tax relief on rented residential property in tax-designated areas.

The main attraction of this type of property for investors was the ability to offset between 75 and 90 per cent (typically) of the purchase price against all of their Irish rental income, thereby cutting their tax bill.

However Minister Lenihan announced that from January 1st 2011, the relief could only be offset against rental income from the Section 23 property, as opposed to rental income from all of the investor’s Irish properties.

As the rents on Section 23 properties tend to be low, and borrowings are almost always high, little or no taxable income arises on such properties. Therefore if the tax relief were to be ring-fenced in this way, it would become worthless for many investors.

Doubtless the Government banked on the public appetite for meting out punishment to anyone associated with property development to carry this proposal through. However the big property players would have escaped unscathed from any such restriction, as they were generally able to use up their all of their reliefs or allowances in the first year or so.

Instead, small individual investors – from middle-class full-time landlords to tradespeople to pensioners – would have found their unused Section 23 relief effectively guillotined this year.

Representative groups argued that to retrospectively change the terms of the incentive was unfair, as investors had a legitimate expectation of being able to claim the full relief as offered to them by the State at the time of investing.

The Government was inundated with several hundred submissions to this effect and announced it was delaying the change, ostensibly to allow for the completion of an economic impact assessment.

In reality, as Labour finance spokeswoman Joan Burton summed it up last week, what the Government has done is to simply kick the can down the road.

It will take at least six months for the assessment to be completed, by which point it will be someone else’s problem as a new government will be in place.

If the Labour Party gets into power it is unlikely to take a softer line with property investors than the current Government, but it is impossible to predict whether the Section 23 proposals will eventually be implemented, changed or scrapped.

A recently-formed group, Justice for Investors, is encouraging investors to continue lobbying TDs and the Minister for Finance on this issue because of the uncertainty surrounding it. It has provided sample letters and TD lists on its website, justiceforinvestors.com.

Paul Reynolds, president of the Institute of Professional Auctioneers and Valuers (IPAV), has highlighted the fact that the deferral of any decision on property incentives has created serious uncertainty in the market. Investors now find themselves caught in a limbo – whatever hope they had of selling a Section 23-type property before, they have even less chance now.

This tax-shelter saga is not the only thorn in the side of property investors. In the 2009 emergency Budget, the amount of mortgage interest that could be offset as an expense against rental income was reduced to 75 per cent (from 100 per cent).

According to a Munster-based landlord (who did not wish to be identified) with more than 20 properties and no other source of income, this is a more serious issue for investors than the proposed restriction of Section 23 reliefs as it affects everyone who owns a second property and rents it out. “It’s not purely rack-renting fat landlords,” he says. Many investors are just waking up to the impact of this change now, as they only became aware of it when they filed their tax return three months ago.

“It’s a bigger but less immediate problem. People are going to slowly go bust,” says the landlord.

“With the 75 per cent mortgage interest restriction, there is no case for investing in residential property in Ireland,” he says. “You can only lose money.” He makes the point that if, for example, an individual earns €1,000 a year in rent, and they pay €1,000 in mortgage interest, (ignoring other expenses) they are breaking even. However they can only deduct €750 for tax purposes, and therefore will be taxed on €250, even though in reality they did not make a profit.

“It’s one thing to pay tax on income you have. It’s quite another to pay tax on income you don’t have,” he says. He believes that if the 75 per cent interest restriction is not repealed, he’ll be “wiped out” and the property market will not recover. “Investors are never coming back into the market while some of the interest costs are disallowed,” he predicts.

Like many investors, he is only repaying interest on his property borrowings at the moment. “I can only repay capital if I’m making a profit, so I’m interest-only.” He says he has been “invited” by his bank to begin repaying capital, but he has not been “compelled” to do so.

“If I was, it would be become a distressed loan, so the banks can’t afford to go there,” he says. Different banks have different approaches, though, and many investors have been contacted by their lenders in recent months to inform them that they are due to begin repaying capital on their borrowings.

In some cases, investors on tracker mortgages have been presented with two options: begin repaying capital as well as interest, or switch to a more expensive variable rate mortgage and remain interest-only for a further period of, say, two years.

The problem is that many landlords are struggling to meet their interest repayments, let alone repay the principal of the loan. Not only have rents shrunk, but the list of expenses landlords face has grown considerably longer. Firstly, there’s the annual non-principal private residence (NPPR) charge of €200, which cannot be written off for tax purposes.

If the investor’s property is divided up into different flats, bedsits or apartments, this charge applies to each of the units.

Management fees are another area of growing concern for owners of apartments, including buy-to-let investors, as they can run into thousands each year. Landlords also have to register every tenancy with the PRTB now, at a cost of €70.

And as of January 1st, 2009, all homes for sale or rent have been required to have a BER certificate, which indicates how energy efficient the property is. There is no set fee for getting a BER assessment carried out, as it depends on the type of property, but it usually costs between €120 and €300.

“A lot of people are in a situation where they would be better off to have nothing [no property],” a spokeswoman for the IPOA said. “They’d be better off on social welfare instead of working and paying money towards their investment properties. They’re in a situation where they have pared down their own expenses to the bare bone.”

With the most vulnerable sections of society being hit by budget cuts, and family homes being repossessed, there is little sympathy for those who saddled themselves with debt to join the landlord classes.

But with no property market recovery in sight, many investors will soon be forced to choose between paying their taxes and repaying their borrowings, at which point their problems will become the State’s problems too.

Multi-unit bill will prevent rip-offs

PAUL CULLEN

NEW legislation which came into force this week may help prevent apartment-owners being ripped off by management companies. The Multi-Unit Development Act, which was signed into law by the President, Mary McAleese, on Monday, addresses major weaknesses in current legal protections for people who buy units in apartment blocks.

A key provision is that ownership of common areas in apartment blocks or housing estates is transferred from the developer to the management company, controlled by owners, before any unit is sold.

Transfer of ownership must occur in a timely fashion for developments already completed or partially completed. This addresses a situation where developers have held on to a small number of units to retain control of the development company. It has led in some cases to management fees running into thousands of euro being levied on apartment owners.

Another requirement will be an annual minimum contribution of €200 per unit for a sinking fund to meet any large, unexpected or non-regular costs. One unit, one vote, will apply on management companies and owners will have to pay charges, whether they are a developer or not and whether the unit is occupied or not.

The Act is one of the last that the current Dáil will pass before it is dissolved. However, the related Property Services (Regulation) Bill, which provided for the setting up of a national house price register, didn’t make it through all stages in the Oireachtas. As a result, housebuyers and sellers will remain in the dark about prices, at least until a new Government tackles the issue.

Costs, benefits for landlords

ASSETS/INCOME

The dream of capital appreciation has been replaced by the nightmare of negative equity. Most investors who bought between 2004 and 2008 now find their borrowings exceed the value of their properties, in some cases by several hundred thousand euro.

Although rents are showing signs of stabilising, they have fallen to levels last seen at the turn of the millennium.

OUTGOINGS

Mortgage repayments : interest rates are set to rise; many investors are coming to the end of their interest-only term; and only 75 per cent of mortgage interest is now allowed as a deduction for tax purposes.

Annual Non-Principal Private Residence (NPPR) charge : €200 per unit

Cost of registering each tenancy with the PRTB : €70

BER assessment : €120-€300

It is proposed in the Finance Bill, (just published but not yet passed), that the deadline for self-employed will be moved a month earlier from 31Oct to 30Sep, each year. Remember, get your return in to us early, as soon as possible after 1st Jan each year! SCK Group 01-2910800 www.sckgroup.ie

Because we have less money in our pocket, since the recent budget changes, it is more important than ever to make sure you are claiming all you are entitled too. We can help you with this at SCK Group 01-2910800.

Some of the ways you can reduce your tax bill include,
Medical expenses, Mortgage/Rent Relief, Service Charges, Tuition Fees, Trade Union Subscriptions. Contact us if you need further advice.

As we near the end of January, people are getting their first pay packets and are seeing for the first time what the recent budget changes will mean for them. This article from Emma Kennedy, Sunday Business post, tells you to get creative with less cash!
By the end of this week, most of us will see the full extent of how Budget 2011 will affect us in black and white. December’s austerity budget announced €6 billion in spending cuts and tax measures, including a 4 per cent cut in social welfare payments, except pensions.

With the tax changes effective since January 1, people who are paid monthly will see just how much their wages have shrunk when they receive their January pay-packet this week.

Tax credits were reduced by about 10 per cent, taking the single person’s tax credit from€1,830 to €1,650.For a married couple, their personal tax credit is now €3,300, down from €3,660.

The tax rate bands have also been narrowed, meaning you now pay tax at 20 per cent on a smaller proportion of your income and consequently pay more tax at the marginal rate of 41 per cent. For a single person, the standard rate threshold was €36,400.Now it’s €32,800.

For a married couple with two incomes, the higher rate of tax now kicks in on income above €65,600. Previously, the threshold was €72,800.

The new universal social charge, which replaces the income levy and the health contribution, applies at 7 per cent on income of slightly over €16,000. Add to this the abolition of the PRSI ceiling, and most taxpayers will see a significant drop in their take-home pay.

With that in mind, and with the prospect of more harsh budgets ahead, it’s important to get your financial house in order to ensure each euro you earn goes as far as it can.

The financial habits we adopted in the boom days need to be changed, replaced with habits more suited to the current climate.

Make holding onto your cash, or at least as much of it as possible, your main objective for 2011. But before you can make changes to how you manage your money, you need to recognise your financial personality type.

The ditherer

Do you worry endlessly about your finances, but yet never get around to sorting them out? If you are worried about the financial position you are in, you must address the problems, as they won’t go away on their own.

Sticking your head in the sand and putting off important financial decisions only serves to give control of your finances to someone else.

For example, not engaging with your lender in relation to personal debt or mortgage arrears means that the ball is in their court. However, taking a proactive approach gives you more options.

Turn to p2 for The Money Doctor’s guide to getting your financial house in order and tackling your debts

The inert consumer

Do you grumble about your bank, your insurer or your mobile phone company, but continue to avail of their service? If you find that you are not getting value for money and good service, put your money where your mouth is and move.

Switching provider is easier than it seems, and there are statutory provisions in place to help you. For example, if you pay hefty transaction fees on your current account, look around at the other options.

Under the terms of the Central Bank’s code of conduct on current account switching, your bank is obliged to make the process easy for you.

If you suffer from consumer inertia, make 2011 the year that you actually shop around, rather than just intending to do it. Turn to p3 for tips on what to consider when switching provider for a variety of financial products

The impulse buyer

Do you take €50 out of the ATM and then scratch your head wondering where it went? If you are not in control of your spending, you need to become more disciplined if you want to meet your financial goals.

Taxis, takeaways, your morning coffee, a glossy magazine, expensive gizmos, underutilised gym memberships – the list of unnecessary spending goes on. If you can afford these items, great. But in most cases, these discretionary spending nasties can eat into already strained budgets.

Before you make a purchase, think about it. Keeptrack of what you spend, and realise that your spending has an opportunity cost.

Buying a coffee a day on your way to work, for example, means you are spending about €15 a week.

Don’t just let this money waltz out of your wallet. Instead, regain control of your finances by making an active consumer decision on whether you really need, or want, to make this purchase.

The saver

Are you saving and feel mildly smug that you are completely in control of your financial destiny?

Think again. Saving is about more than putting money aside each month. Firstly, are you getting the best interest rate on your savings, and are you aware of the rate your savings are earning?

Also, if you have debts, saving might not make sense. You need to compare the relative costs of each option. For example, leaving a few hundred euro in a demand deposit account at a miniscule interest rate makes no sense if you have an outstanding credit card balance that you are paying exorbitant interest on.

Saving is great, but make sure you save smarter to get the maximum benefit from your efforts.

Know your entitlements
According to the Revenue Commissioners, there were 1.4 million claims for tax reliefs last year, more than three times the number in 2004 (around 402,000).

There are no hard figures on how much in tax relief goes unclaimed every year, but it is generally assumed to be millions of euro.

Consumer and tax experts say now is a good time to start claiming any tax reliefs due to you.

Over the past couple of years, some reliefs have been abolished, while others have been scaled back. But you can still claim for tax reliefs for any expenditure made as far back as 2006.

This means that you can submit a claim for tax relief relating to expenditure which took place during the tax years 2006, 2007, 2008 and 2009, as long as the claim is submitted before December 31, 2010.

Continue reading…

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Seamus C. Kane T/A Seamus C. Kane and Associates is regulated by the Central Bank of Ireland
Seamus C. Kane T/A SCK Financial Services is regulated by the Central Bank of Ireland