Tax can be complicated for anyone, and adding a rental property into the mix can make things even more confusing. However, to make sure that becoming a landlord will make financial sense for you, you must have a clear idea of the various tax implications of renting out a property. To help you make sense of it all, here are a few of our tax tips for first-time landlords in Ireland.
Is the Rental Income From My Property Tax-Free?
Rental income from property is generally not tax-free. It is typically subject to income tax and needs to be reported to the Revenue Commissioners, the Irish government agency responsible for customs, excise, taxation and related matters.
Declaring Rental Income Tax in Ireland
Not declaring rental income in Ireland can lead to serious consequences, including fines, interest on unpaid taxes, and potential penalties from the Revenue Commissioners. In Ireland, you are considered a ‘chargeable person’ if your rental profits are greater than €5,000 per year. If this is the case, you must register for income tax with Revenue from the date the property is first let. You can do this easily online through your Revenue account.
As rental income is taxable, you are required to complete an annual tax return to declare the income to Revenue (regardless of how much profit you make). If you are a self-assessed tax payer you can do so through Form 11, and if you are a PAYE employee you must use Form 12. You can find both of these through your online account.
For more information, read our post on the paperwork needed to become a landlord in Ireland.
Tax Return For First-Time Landlords
In addition to registering for and declaring your income tax, first-time landlords in Ireland should also understand the significance of their rental income and associated expenses. Your rental income includes the rent you receive from your tenant, along with any funds received for services such as cleaning, waste disposal, or laundry.
Simultaneously, you’re allowed to deduct certain expenses incurred during the rental period like maintenance costs, insurance, and management fees. These will decrease your taxable rental profit. Getting familiar with the specifics of these incomes and expenses can help you accurately calculate and declare your rental profits while ensuring you take advantage of all applicable deductions.
You Need To Register With The RTB
It is a legal requirement for landlords to register with the RTB (Residential Tenancies Board). This is also very important for tax purposes, as if you don’t register you can’t claim tax relief for mortgage interest against your rental income. It costs €90 to register (when registering within one month of a tenancy starting) and you can claim the fee as a tax deduction.
You Need To Pay USC And PRSI (If You Are An Irish Tax Resident)
You are also liable for 0.5% to 8% Universal Social Charge (USC) and 4% PRSI. The rate of USC you have to pay will be the top rate applicable to your total income, though chances are it will be at 8%. You will also be subject to a 3% surcharge if your non-PAYE income is more than €100,000 a year.
If you are not an Irish resident, read our post on Tax Requirements For Non-Resident Landlords In Ireland.
You Are Responsible For Local Property Tax (Not Your Tenants)
Almost all residential properties are subject to Local Property Tax (LPT), which is calculated depending on its market value. In almost all cases, it is the owner’s responsibility to pay LPT. Exceptions occur when:
- The tenant has a long-term lease (of more than 20 years) or a life tenancy
- The tenant occupies the property on a rent-free basis over an extended period and without challenge to their right of occupation
You are not allowed to claim LPT as an expense when completing your tax return. Read our guide to income tax for rental income in Ireland as well.
You Cannot Claim Mortgage Interest Tax Relief At Source
Tax Relief At Source is a form of tax relief for the interest you pay on your mortgage that is paid at source by your bank or mortgage provider. Your monthly mortgage payment is automatically reduced. If you rent out your property, you are no longer entitled to receive TRS for your mortgage. This means that your monthly mortgage repayment will increase.
If you currently receive TRS, it’s your responsibility to inform Revenue that you are no longer entitled to it. You can do this by filling in a TRS 4 form, which you will find on the Revenue website. If you fail to do so, you will not only have to pay back the TRS you’ve received but may also be subject to interest and penalties.
You May Have A Tax Liability Even If Your Rental Income Doesn’t Cover Your Mortgage
For the sake of taxes, the word ‘profit’ has a different meaning to what you might expect. This catches out a lot of first-time landlords, and here’s why. Even if your rental income does not cover your mortgage payments you may still have a tax bill because your full mortgage repayment is not tax deductible. Instead, only the interest of your mortgage payment is allowed as a tax deduction against the rent you receive.
For example, say you pay €1,200 a month for your mortgage (€400 of which relates to interest) and you have a tenant who pays you €1,000 a month in rent, leaving you with a shortfall of €200 per month.
Per year, that would mean that you receive €12,000 (€1,000 x 12) in rental income that you would have to declare. If you deduct your interest payments for the year (€400 x 12) you can subtract only €4,800 from your total. Assuming you had no other expenses, that leaves you with €7,200 (€12,000 rental income – €4,800 allowed expense) that you will be taxed on, regardless of the fact the rental income doesn’t cover your mortgage payments.
You May Be Required To Pay Preliminary Tax
Preliminary tax is essentially a payment towards your bill for the current tax year which you are liable for if you are a ‘chargeable person’. For your first year as a self-assessed tax payer, you are not required to make a preliminary tax payment. However, you can choose to pay preliminary tax of 90% of your tax due for the current year if you like. This will help to reduce the amount you need to pay in the year that follows.
If you choose not to pay anything, then you may end up with a ‘double’ tax payment in the second year. This is because even though you are not required to pay during your first year, the first year is still subject to tax.
For example, say you rent out a property for the first time in 2021 and decide not to pay. In 2022, you would have to submit your tax return and pay tax for 2021 but your tax bill for 2022 would also be due.
Amid these financial considerations, don’t forget the influence of Ireland’s rent pressure zone laws on your rental income.
There Are Lots Of Expenses You Can Claim
Though there are a few restrictions on what expenses you can claim against your rental income, there is plenty of opportunity to lower your tax bill. Allowable expenses include things like ground rent, rates you pay to the local authority, insurance premiums, maintenance, repairs and more.
Enlisting the help of an accountant who has experience in dealing with landlords will ensure that you minimise your tax bill as much as possible. The fee you pay for their services is also tax-deductible, and they will not only offer you peace of mind but will likely save you a lot of money in the long run.
For more tips, check out or post on How To Rent Out Your Residential Property In Ireland.
Conclusion
There’s a lot to think about for first-time landlords, and putting in the time and effort to get to grips with your taxes is essential for your financial success. If you would like some assistance getting set up as a landlord in Ireland, we would be delighted to help.
At SCK Group, we have a fantastic team of in-house chartered accountants who can advise you on all the deductions and tax reliefs available to you. Plus, if you opt for our all-in property management service, we include your annual tax return for no extra charge. If you would like to find out more, please head over to our pricing for property management in Ireland page or fill in a contact form and we’ll get back to you as soon as we can.
