When you become a landlord, one of your main considerations will be how your taxes are affected. Being clear on exactly what is required is vital to your success, and doing your research early on will help you better plan your finances and get the most from your investment.
It’s not always easy to find the information you need, so in this article we’ll be exploring the key rules and guidelines to follow to make sure you are compliant. Here is our guide to tax returns for rental property in Ireland.
Do All Landlords Need To File Tax Returns?
If you are renting out a property in Ireland, regardless of how much money it generates, you must file a tax return at the end of each tax year. How you file your taxes depends on how much rental profit you make (as opposed to rental income) and your personal circumstances.
If you are a resident landlord (i.e. living in Ireland), then you are required to fill out either a Form 11 or Form 12. To find out which one you will use, first you need to know how to calculate your rental profits.
Rental Profits Explained
In a nutshell, your rental profit can be calculated by determining your gross rental income minus your allowable deductions and expenses. It is this amount that is subject to income tax.
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.
What If You Don’t Have A Profit?
If, after doing the calculations, you find that you have made a loss, you can carry forward your rental losses until you can offset them against a rental profit. Note that you must deduct capital allowances first before doing so. This reduces the amount of rental income available to absorb the losses you bring forward.
Note that you can only offset a loss against Irish rental profit. You can not offset rental losses made by your spouse or civil partner, foreign rental losses or losses made from uneconomic rentals (where it is not possible to make a profit from the rent you receive).
The Forms You Need For Rental Income In Ireland
If you are renting out an entire property, you will need to use one of two forms to declare your rental income. Note that the rules are different if you rent out a room in your own home.
Whichever form you use, you will need to have both filed your taxes and paid your bill by October 31st of each year. If you fail to submit them on time you will be subject to late charges.
Both forms can either be filled out online and submitted via the Revenue website, or filled in on paper and posted to Revenue. You will need to have various information to hand including:
Your PPS Number
Your Employment Detail Summary for the relevant year
If you are jointly assessed, your spouse’s Employment Detail Summary for the relevant year
Your tax Credit Certificate or details of tax credits to be claimed (e.g. single parent family credit, PAYE credit)
Details of allowable expenses
If you expect to have rental profits of more than €5,000 per year, then you are considered a ‘chargeable person’ by Revenue. This means that you must register for income tax by completing a TR1 Form and then file a Form 11 at the end of each tax year. This form is designed for self-assessed tax payers.
If you expect your rental profits to be less than €5,000 per year, then you are not required to register for income tax. However, you will still need to file a tax return using Form 12 (this applies even if you aren’t making a profit at all). This form is designed for those whose main source of income is PAYE employment or pension income, but who have a smaller source of income from elsewhere (in this instance, a rental property).
The forms are not necessarily the easiest to fill out, as they assume you have some prior tax knowledge. As a result, it can be easy to miss some important information or note things down incorrectly. For instance, the forms don’t explain which tax reliefs and credits are available to you, so you need to know this prior to filling them out.
If you are at all unsure, it’s always best to enlist the services of a professional. Entering incorrect information against your tax record may come back to bite you, and can even result in some rather heavy fines.
Tax Return For Non-Resident Landlords
If you let out property in Ireland but live in another country (including Northern Ireland), you are considered a non-resident landlord. Non-resident landlords are not able to file and pay taxes on their rental income in the same way as those living in Ireland. Instead, there are two available options.
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 your behalf.
At the end of the tax year, the tenant would then fill out an R185 form to give to you outlining how much tax has been paid. It is then your responsibility to file an annual tax return using the same guidelines above.
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.
For a more in-depth look into what is required as a non-resident landlord, take a look at our guide, ‘Tax on Irish Property While Living Abroad’. Check out our post on the 7 services every landlord needs as well.
As you can see, filing your tax return for rental income isn’t always straightforward. If you have any doubt about dealing with your taxes yourself, it’s always worth getting in touch with a professional. Doing so will not only help you avoid any nasty penalties, but will give you peace of mind that everything is being dealt with as it should.
SCK Group is a team of chartered accountants and property professionals with all the knowledge and skills to help you maximise your rental income. As well as making sure you are compliant, we can also identify any credits and reliefs that are available to you to help lower your bill. Get in touch over on our contact page and we’ll respond within one working day.