When you buy a holiday home or indeed any investment property, the last thing on your mind are the tax implications. Unfortunately, even if you find you aren’t making a profit you still have to tell the taxman.
I will outline briefly all you need to know, tax wise, if you own an investment property:
What do you have to do?
If you own a holiday home or investment property, either in Ireland or overseas, then you must declare income from this to the Revenue every October when filing a Self Assessed Income Tax Return.
How much tax do I pay?
You pay tax on the profit you make from renting out your property. This is calculated by subtracting your allowable expenses from the gross rental income which you receive. If you are making a loss, you do not have to pay any tax but you do still need to inform the Revenue.
What expenses can be claimed?
Well, expenses relating to the property from the date of first letting can be claimed against your rental income. These include:
· Mortgage interest on the loan used to acquire the property (restricted to 75% of interest for residential property)
· Any repairs to the property, for example, damp and rot treatment, repairing broken windows or appliances (though not if you carry out the repair work yourself)
· Maintenance, for example cleaning, painting or decorating
· Management service charges and letting fees
· Advertising costs
· Any Insurance premiums
The NPPR Charge
From 2009- 2012 there was a charge of €200 called the Non Principal Private Residence (NPPR) charge on rental properties and holiday homes situated in Ireland, but not on mobile homes. This charge is now gone but if you have yet to pay it, the Revenue can still pursue you.
Household Charge and Local Property Tax
The Household charge was introduced by the Government in 2012 and applies to both private residential and investment properties. This was a flat fee of €100 per property. This charge has now been replaced by the Local Property Tax (LPT) in 2013, but the Revenue can still pursue any outstanding household charges. The LPT tax is calculated based upon the value of your property. It applies to both private residential and investment properties. Revenue are pursuing this tax forcefully and have several successful methods of collection, for example reducing individuals tax credits accordingly and withholding tax refunds due to individuals and companies.
If you are renting out a property in a foreign country you must first pay any local taxes that arise on the property. As an Irish resident, you must also pay Irish tax on this income however you can claim a credit for foreign tax you have already paid so that you don’t pay the tax twice, subject to tax treaties in place between Ireland and the foreign country in question. If you incur a loss on your foreign property in a year, it can be carried forward for offset against future foreign rental profits only.
I hope you find this note useful and if you have any questions or queries on any of the above, do feel free to contact me. Alternatively please contact me if you require assistance in completing your tax return.