If you are thinking about becoming a landlord in Ireland, you’ll no doubt have considered the rental income tax implications of letting out a property. While you will almost certainly have a tax liability, you may not be sure exactly how to work out what tax you need to pay or be aware of the tax relief available to you. This guide will give you all the essential information for calculating rental income tax. This will help you to better plan for your income tax return, keeping your finances healthy and ensure your success as a landlord in Ireland.

What Counts as Rental Income?

The tax rate you pay on your rental profit will depend on your personal circumstances, your total income (from all sources including your work) and any tax reliefs you may be entitled to. Generally speaking, you’ll pay either 20% or 40%.

It’s very important to keep thorough records of all your expenses, and you should keep them for 6 years unless your local tax office advises you otherwise. If you are subject to an audit and don’t have these records available, you may have to pay a penalty.

Additionally, it’s essential to consider rent pressure zones in Ireland while estimating your rental income. These zones restrict annual rent increases, potentially affecting your gross rental income. Being aware of these regulations helps in accurate income projections and ensures you stay within the legal framework while operating as a landlord.

Expenses You Can Claim

Though your rental income profit will be taxed, there is plenty of opportunities to reduce your tax bill thanks to a long list of deductible expenses you can claim. Making the most of these deductions will go a long way in ensuring your financial success as a landlord in Ireland.

Mortgage Interest

Though you can’t claim your entire mortgage payment, since January 2019 landlords have been allowed to claim 100% of their mortgage interest against their rental income. This is usually applied to the mortgage used to purchase the property but also applies to a mortgage used to repair or improve it.

Note that this cannot be backdated. You can only claim your mortgage interest from the first month you rented out your property, not since you bought it (even if you did so with the intention of renting it out). You can, however, continue to claim mortgage interest in between tenancies, provided you do not move into the property yourself.

Capital Allowances

If you have provided furniture or white goods in your rental property, then you can claim capital allowances (also known as ‘wear and tear allowances’). The 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).

General Expenses

There are various other one-off and recurring expenses that you are allowed to claim against your rental income. These include:

Your registration with the Residential Tenancies Board
Any rates you pay to the local authority for the property
Insurance premiums against fire and public liability
Repairs and maintenance costs (unless they were carried out when the property was not being rented – see below for more information). Read our post on renovating a rental property as well.
Costs incurred through the lettings process, for example, property management fees, agency, legal, advertising, collection agent, or accountancy fees
Fees for any services that are not repaid by your tenant, for instance, waste collection

Expenses You Can’t Claim

While there are many costs you can deduct from your tax bill, there are certain expenses that you aren’t allowed to claim against your rental income. It’s just as important to familiarise yourself with these as with your allowable expenses so you don’t run into any trouble when submitting your self assessment tax return.

Pre or Post-Letting Expenses

A good rule of thumb is that if a cost was incurred on the property before you began to let it out, then you are not able to claim it as an expense. For example, you couldn’t claim the cost of a roof repair carried out before your first tenant moved in, and you couldn’t claim your mortgage interest payments from the time you bought the property to the time you first let it out. There are a few exceptions to this rule, so if you are unsure if something can be claimed it’s always worth checking with an accountant.

Your Labour

If you carry out repairs or maintenance on your rental property while it is being rented, you can claim the costs. However, if you do the work yourself, you are not allowed to include the cost of your labour as part of this expense.

Local Property Tax (LPT)

Almost every residential property owner in Ireland must pay Local Property Tax, which is calculated according to the value of the property. This payment can vary from €90 to upwards of €1,755 for the most valuable homes and must be paid annually.

Stamp Duty

If you purchase a property in Ireland you are liable for Stamp Duty. This is not tax-deductible even if you are buying the property with the intention of letting it out. However, any costs for legal aid you receive in relation to Stamp Duty are. For more information, it’s best to consult a property broker.

An Example Of Income Tax On Irish Rental Income

Using the information above, let’s take a look at an example of calculating income tax on rental income. Say that you rent out a flat in Ireland for €1000 euros a month, making your gross rental income €12,000 a year. This year, your expenses were as follows:

Your insurance premiums at €50 per month (€600 for the year)
The interest of your mortgage payment at €300 per month (€3,600 for the year)
Capital allowances at €175 for the year
Repairs carried out during the tenancy at €400

If you add these allowable expenses together, it comes to €4,775. Deduct this from your gross rental income of €12,000 and you are left with €7,225. This is your rental profit on which you will be taxed.

In this example, let’s say you are single and also have PAYE income from your job amounting to €30,000 for the year. That would make your total taxable income €37,225 (€7,225 rental income + €30,000 regular income). In 2021, the standard tax rate for a single person is €35,300.

As your total income is €37,225, the first €35,300 is taxable at 20% with the balance taxable at 40%. €35,300 taxed at 20% gives €7060, and €1,925 (the balance) taxed at 40% gives €770. This leaves a total of €7,830 (€7060 + €770).

You would then deduct any tax credits you might have. As you are an employee, you would have €1,650 of employee tax credit and €1,650 personal tax credit (a total of €3,300). Provided you had no other tax relief available to you, this would leave you with €4,530 (€7,830 – €3,300).

Note that as your PAYE income will already have had the tax paid by your employer through payroll, you would also get a deduction on your end of year tax computation for any taxes already ‘paid on account’. In this example it would be roughly €2,700 in taxes already paid through PAYE, giving you an estimated tax bill of €1,800 (€4,530-€2,700). On top of the income tax, you will also be liable for USC and PRSI if you are a resident in Ireland.

What are the USC and PRSI rates on rental income in Ireland?

Irish tax residents must pay 4% PRSI (Pay Related Social Insurance) on their rental income profit. Non-residents do not have this obligation.

Non-resident landlords must pay the Universal Social Charge (USC) if their annual Irish income, including rental income, exceeds €13,000. The USC rates vary from 0.5% to 8%, based on total income. Payment of the USC is due with the rental income tax return in October.

For non-resident landlords in Ireland, an important note is that the typical 20% tax deduction can be circumvented. By designating an Irish-resident agent to take on the tax liabilities of your property, you may be able to achieve a more favourable tax outcome. Understanding these possibilities is key to maximising your tax efficiencies.

If you are not a resident in Ireland, read our post on Tax Requirements For Non-Resident Landlords In Ireland. We also recommend reading our tips for first-time landlords if you are new to all of this.

When Should I Pay Rental Income Tax?

If your rental income is your main source of income and you are self-employed, you must pay your rental income tax by 31 October each year. The deadline for filing and completing property tax return in Ireland is also 31 October annually.

For those whose main income is from PAYE and the tax owed on rental income does not exceed €5,000, the tax may be collected through the PAYE system. In such cases, you should complete a Form 12 tax return by 31 October.

Conclusion

Irish tax isn’t always straightforward and will vary depending on your personal situation. Add rental income into the mix, and things can easily become confusing. For peace of mind that your tax return has been completed as it should (and that you’ve saved as much money as possible), we would always recommend working with an experienced accountant. This will not only get you the best results but will also cut down on any unnecessary stress in filling out the tax return for rental income profit yourself.

At SCK Property, we have a team of in-house accountants who are well versed in rental income and Irish tax laws. They can provide you expert advice. If you opt for our all-in property management package, we will even include your annual tax return at no extra cost. To find out more, you can take a look at our property management pricing or head over to our contact page to get in touch directly.