If you rent out a property in Ireland but live in a different country (including Northern Ireland), then for tax purposes, you are considered a non-resident landlord. Living abroad has many practical implications for people letting property, but there are also some tax considerations to bear in mind.
The standard procedure for non-resident landlords is for their tenants to pay 20% of the rent directly to Revenue. However, there is another option that may not only prove more convenient, but could even help non-resident landlords lower their tax bill.
Overseas Landlord Tax: How Is It Collected?
In Ireland, there are specific rules in place surrounding tax collection and payment that all non-resident landlords must abide by. When it comes to putting aside taxes for Revenue, there are two choices available to landlords living abroad.
Non Resident Landlord Withholding Tax: How Much Should the Tenant Pay on My Behalf?
Typically, when a tenant is renting a property from landlord living abroad, they are required to take 20% of the monthly rent amount and use this as a tax payment on your behalf. For example, if you charged €1,000 monthly rent to your tenant, they would transfer 80% (€800) to you, with the remaining 20% (€200) going straight to Revenue.
This may seem like an unusual arrangement, but was introduced for a couple of reasons. First, it is used as a way to ensure that landlords that are not residents pay their taxes in the first place. Second, it means that the person responsible for payments is based in Ireland, making the process of making payments or receiving a refund much more straightforward.
Another option for non-resident landlords is to appoint a collection agent to deal with taxes for you. The collection agent can be someone you know, like a friend or family member, but is often a professional such as a property manager or letting agent.
This person will be set up with their own PPS number that they use solely for dealing with your property. They essentially act as an intermediary, collecting rent and filing income tax on your behalf and making sure that all tax obligations are met.
Using a collection agent has several benefits over tenant withholding tax. Paying taxes for you each month is a big responsibility to place on a tenant, and you have no way of knowing whether it is being done correctly or on time. Even an honest mistake, like forgetting to transfer the 20% to Revenue one month, could result in negative consequences for you.
There are also some potential financial advantages. When you use a collection agent, you receive all of the due rent (via the agent) and can take control of your own taxes. We’ll take a closer look at this below.
Can A Collection Agent Help Non Resident Landlords Reduce Tax Liability?
As we covered, using a collection agent means that 20% is not deducted from the rent amount before it hits your bank account. However, regardless of the method you use, you will still have to declare your rental income in Ireland each year and may have to pay tax on it. So what are the benefits?
The 20% withholding tax that the tenant must pay to Revenue is levied on gross rental income (i.e. with no expenses deducted). However, there are many allowable expenses available to both resident and non resident landlords in Ireland.
These expenses can be deducted from your gross rental income to arrive at your net taxable rental income. This means that your eventual tax liability could be significantly lower than the 20% deducted at source by your tenants.
Thoroughly understanding tax responsibilities is crucial for all landlords, particularly non-residents. Conducting detailed research and seeking professional tax advice can help optimise your financial situation. Filing your tax return as a landlord punctually and accurately will also aid in avoiding penalties and ensuring all potential deductions are captured.
Knowing exactly what expenses you are allowed can go a long way in reducing your tax bill. While there are many available, it’s important to be aware of the circumstances where they can be applied to ensure you stay compliant. Here are some of the key areas that most landlords can make a saving.
Your RTB Registration Fee
Almost anyone letting a property in Ireland is obliged to register each tenancy with the RTB (Residential Tenancies Board). The standard fee is currently €90 and can be claimed as an expense. As well as being a requirement, without registration, you will not be entitled to claim your mortgage interest, which we’ll cover next.
The Interest Portion of Your Mortgage
While you cannot claim your entire mortgage payment, since 2019 landlords have been entitled to claim 100% of the interest paid. However, bear in mind that you can only do so while the property is being rented out (or in between tenancies, as long as you are not living in the property yourself). In other words, you cannot claim for any of the months prior to the first tenancy, even if you purchased the property with the intention of renting it out.
Repairs and Maintenance
All properties need work done from time to time, and some tasks can come with a hefty bill. Fortunately, you can claim all essential repairs and maintenance against your rental income. Labour costs can also be included, provided you do not carry out the work yourself. Again, the only time you cannot claim back these costs is when the repairs are done while the property is not being rented out.
If you provide any furniture or appliances for your rental property, then don’t forget to claim capital allowances (sometimes called ‘wear and tear allowances’). While the cost of these purchases can’t be written off in one go, capital allowances give you a way to claim back the cost over a number of years.
The current rate for these allowances is 12.5% of the cost of the items per year and can be claimed for a maximum of 8 years. For example, say you provided a sofa that cost €1,000 and a dishwasher that cost €400 for your rental property. Your capital allowances would be €175 per year (12.5% of €1,000 + 12.5% of €400).
Agency and Management Fees
The vast majority of landlords that are not residents will use a professional service to manage their property and tenancies. While these services do come at a price, the fees can be claimed as an expense. This includes any fee you pay for a collection agent.
Other Lettings Costs
A lot goes into renting out a property, and any money you spend on advertising, legal or accountancy fees can all be written off against your rental income. As with the other expenses on this list, make sure to keep any relevant paperwork for the services you pay for. Revenue states that this documentation must be kept for a period of 6 years, and they could ask for it at any time. We also have a guide for non-resident corporate landlords in Ireland.
Though it’s not a legal requirement, it’s highly recommended that you get special landlord insurance if you are renting out a property. Not only will this help protect your investment, but the monthly or annual premium can be claimed as an expense. Check out our post on the services every landlord needs.
As a non-resident landlord, whether you opt for tenant withholding tax or a collection agent is completely up to you. However, using a collection agent has several perks that can be highly beneficial, particularly when it comes to your finances. Many companies that offer collection agent services can also help with your annual tax return, ensuring that you are saving money wherever you can and making the whole process more convenient.
At SCK Group, we specialise in helping landlords living abroad with their properties. We offer a complete end-to-end service as your collection agent covering letting, management, maintenance, compliance, accounting and taxation. With our All-In solution, we will even identify any tax credit or savings available, prepare your rental accounts and submit your tax return to Revenue, no matter where you are in the world.
If you are a non-resident landlord and would like to find out more about our services, we would be happy to help. Send us a message via our contact page today and we’ll be in touch soon.