you are a non-resident landlord if you rent out a property in Ireland but live in another country (including Northern Ireland). Living abroad has many practical implications for people who rent out their homes, but there are also some tax implications to consider.
Non-resident landlords are required by law to have their tenants pay 20 percent of their rent directly to Revenue. There is, however, another option that may not only be more convenient, but may also assist non-resident landlords in lowering their tax bill
Receipt of taxes.
Non-resident landlords must follow specific rules in Ireland when it comes to tax collection and payment. When it comes to setting aside taxes for Revenue, landlords who live abroad have two options.
Tenant’s Withholding Tax
When a tenant rents from a non-resident landlord, they are usually required to deduct 20% of the monthly rent as a tax payment on your behalf. For example, if you charged your tenant €1,000 in rent per month, they would transfer 80% (€800) to you and the remaining 20% (€200) to Revenue.
This arrangement may appear unusual, but it was implemented for several reasons. It is primarily used to ensure that non-resident landlords pay their property taxes. Second, it means that the person in charge of payments is based in Ireland, which makes making payments and receiving refunds much easier.
Is It Possible For A Collection Agent To Assist Me In Reducing My Tax Liability?
Using a collection agent, as previously stated, means that 20% of the rent is not deducted before it reaches your bank account. You must report your rental income every year, regardless of the method you use, and you may be required to pay tax on it. What are the benefits, then?
On gross rental income, the tenant is required to pay a 20% withholding tax to Revenue (i.e. with no expenses deducted). Landlords can claim a variety of expenses, whether they live in Ireland or elsewhere.
To arrive at your net taxable rental income, deduct these expenses from your gross rental income. As a result, your final tax bill could be significantly lower than the 20% deducted at source by your tenants.
Expenses that are permissible
Knowing exactly what expenses you are permitted can help you save money on your taxes. While there are many options, it’s critical to understand the circumstances in which they can be used to stay compliant. Here are a few key areas where most landlords can save money.
The fee for registering with the RTB.
Almost all landlords in Ireland are required to register each tenancy with the RTB (Residential Tenancies Board). The standard fee is currently €90, and it can be deducted from your taxes. Registration is not only required, but it also prevents you from claiming your mortgage interest, which we’ll discuss next.
Your Mortgage’s Interest Component.
While you can’t claim the entire mortgage payment, since 2019, landlords have been able to claim 100% of the interest paid. However, keep in mind that you can only do so while the house is rented out (or in between tenancies, as long as you are not living in the property yourself). In other words, you cannot claim for any of the months prior to the first tenancy, even if you purchased the property with the intention of renting it out.
Maintenance and repairs.
Work is required on all properties from time to time, and some tasks can be costly. Fortunately, all necessary repairs and maintenance can be deducted from your rental income. If you don’t do the work yourself, you can include labour costs as well. The only time you won’t be able to claim these expenses is if they’re made while the property isn’t rented out.
Other Expenses Associated With Letting.
There’s a lot that goes into renting a home, and any money you spend on advertising, legal, or accounting fees can all be deducted from your rental income. Keep any relevant paperwork for the services you pay for, just like the other expenses on this list. According to Revenue, this documentation must be kept for a period of six years, and they have the right to request it at any time.
Allowances for Capital.
If you furnish your rental property with furniture or appliances, don’t forget to claim capital allowances (also known as “wear and tear allowances”). While the cost of these purchases cannot be written off all at once, capital allowances allow you to claim the cost back over time.
These allowances are currently worth 12.5 percent of the cost of the items per year and can be claimed for up to 8 years. For example, let’s say you provided a €1,000 sofa and a €400 dishwasher for your rental property. Your annual capital allowances would be €175 (12.5 percent of €1,000 + 12.5% of €400).
Fees for Agency and Management.
A professional service will manage the property and tenancies for the vast majority of non-resident landlords. Although these services are not free, you can deduct the costs from your taxes. This includes any fees you pay to a collection agency.
Premiums for insurance.
If you’re renting out a property, it’s highly recommended that you get special landlord insurance, even if it’s not required by law. Not only will this protect your investment, but the monthly or annual premium can also be deducted from your taxes.
It is entirely up to you as a non-resident landlord to choose between tenant withholding tax and a collection agent. Using a collection agent, on the other hand, has a number of advantages that can be extremely beneficial, especially when it comes to your finances. Many companies that provide collection agent services can also assist you with your annual tax return, ensuring that you save money wherever possible and simplifying the process.
TAS Consulting is a company that specialises in assisting non-resident landlords with their properties. As your collection agent, we provide a comprehensive end-to-end service that includes, compliance, accounting, and taxation. We’ll even identify any available tax credits or savings, prepare your rental accounts, and submit your tax return to Revenue, no matter where you are in the world, with our All-In solution.
If you are a non-resident landlord interested in learning more about our services, please contact us.