Tax on rental income can be confusing, particularly for landlords who are living abroad. While non-resident landlords are subject to the same taxations as those living in Ireland, there are a few key differences that you must be aware of. In this guide, we’re going to take a look at the rules regarding tax collection for non-resident landlords as well as exactly what taxes you need to pay and which you can avoid.
How To Pay Tax As A Non-Resident Landlord
One of the main things to know about renting out Irish property from abroad is that you can’t pay your taxes in the same way as someone living in Ireland. If you were a resident landlord, you could simply submit your annual tax return and pay your bill online via the Revenue website.
However, if you are living elsewhere, you have two options that you must choose from. Both options have their pros and cons depending on your personal circumstances, which we’ll explore here. Whichever you choose, it’s important that you understand how both work, as non-compliance can have serious repercussions for you and your tenants.
Tenant Withholding Tax
The standard practice for non-resident landlords is to get their tenants to withhold the standard 20% income tax from their rent each month and pay it to Revenue on the landlord’s behalf. At the end of the tax year, the tenant would then fill out an R185 form to give to the landlord outlining how much tax has been paid. In practice, this works as follows.
Say you rent out a property in Ireland for €1000 per month to your tenant, John. Rather than transfer you €1000 per month, John would send you 80% of the rent, which in this case is equal to €800. He would send the remaining 20% of €200 to the local tax office.
Pros And Cons
If you are renting out your property to someone you trust, such as a close friend or relative, then this approach can be an easy solution as it doesn’t require involving any third parties or additional costs. However, if you are renting to other tenants then it could prove problematic.
It’s quite a big responsibility to take care of someone else’s taxes, and as a landlord you would have no real sense of whether it is being done correctly. You may also find it hard to get suitable tenants who want to take on this extra burden, particularly when there are other properties available that don’t require them getting involved with taxes. You must remember that with this option, even though your tenant will hand over money on your behalf, you are still obliged to fill out and submit your own annual tax return (or enlist the services of an accountant).
Submitting Your Tax Return As A Non-Resident Landlord
If your net rental income exceeds €5,000 you will need to register for self-assessment and complete a Form 11. If your net rental income is less than €5,000, you can declare this income as non-PAYE income through your online Revenue account.
Your second option is to nominate an Irish resident as your collection agent. This could be someone you know or could be arranged through a property management company, lettings agency or accountancy firm. The collection agent is then responsible for both filing and paying your taxes, requiring no involvement from your tenant.
The collection agent should be set up under their own PPS number and should not issue a R185 form to the landlord. Instead, they simply retain a portion of the rent to cover taxes and then pay it to Revenue when they fill out the annual tax return. Even though the assessment is done under the collection agent’s name, the tax is charged as if the non-resident landlord was being assessed in their own right. However, if the collection agent incurs any fees or penalties from not filing or paying the taxes correctly, it is them who will be liable as opposed to the landlord.
Pros And Cons
Using a collection agent is a convenient option for non-resident landlords that doesn’t involve any extra responsibility for your tenants and minimises the risk of penalties for non-compliance. It is particularly helpful for landlords who have little contact with their tenants or own multiple properties.
This option also has the added convenience of having someone else fill out and submit your tax return on your behalf. While there is a cost involved with a collection agent service (unless you ask someone you know) you can claim the expense against your tax bill as detailed below.
What Taxes Do You Pay As A Non-Resident Landlord?
Now that you know your options for how to pay tax, let’s talk about exactly which taxes you have to pay. While income tax will usually be your most significant tax bill, there are a couple of other taxes you are liable for as a non-resident landlord.
Local Property Tax
LPT, or Local Property Tax, is charged to the owners of almost all residential properties in Ireland, and is calculated according to the owner’s own assessment of its market value. The basic LPT rate is currently 0.18% for properties valued under €1 million and 0.25% on the amount of the value over €1 million, though local authorities can vary the rate on residential properties in their area.
Even if you live abroad, you will still be liable to pay LPT, which is due every year. The interest on unpaid tax is 8% per year with the potential for additional penalties, so it’s important that you remember to pay on time.
As a non-resident landlord you are liable to pay USC (or Universal Social Charge), but only if your Irish income (including rental income) is more than €13,000 a year. The standard rate for USC is currently 0.5% for the first €12,012 and 2% for the next €8,675.
Non-Resident Landlords And PRSI
Tax Relief For Non-Resident Landlords
Just as landlords living abroad are subject to the same taxation as resident landlords, you are also entitled to claim the same tax relief. There are a wide range of allowed expenses, including:
The interest portion of your mortgage
Insurance premiums relating to the home
Fees from property management companies, lettings agents, solicitors and accountants
Advertising and marketing fees
Your RTB registration fee
Any rates you pay to the local authority for the property
Being clear on your tax requirements in Ireland as a non-resident landlord is essential for not only avoiding penalties and charges but also overpaying on your tax bill. But when you’re living abroad, it can be hard to keep on top of everything.
At SCK Group, we have a team of in-house chartered accountants and property experts that specialise in working with non-resident landlords. We provide a complete end-to-end service as your collection agent covering letting, management, maintenance, compliance, accounting & taxation. By offering a single point of contact for your Irish rental property, we help to make the whole process smooth and stress-free, no matter where in the world you are. For more information, read our guide to tax requirements for non-residential landlords in Ireland.
If you would like expert advice or want to discuss our services in detail, we would be happy to help. Head over to our service page for non-resident landlords in Ireland to learn more and book your free consultation today.