The taxation of rental income-the essentials

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You are thinking about buying a buy to let investment but you are concerned about the taxation situation?

Let’s take a look at the taxation of rental income in Ireland, shall we?

Firstly, this income must be declared to the Revenue Commissioners using a form 11 for self assessed taxpayers or form 12 for paye taxpayers. This income is added to your other income and the rate of tax you pay will depend on your total income and personal circumstances, allowances etc.

Writing off expenses

In calculating your rental income you are allowed to write off some expenses such as rates, insurance, maintenance, property fees, management company fees, the costs of any services you supply, repairs, certain capital allowances, mortgage interest provided the property is registered with the Residential Tenancies Board (RTB).

The capital allowances are in respect of the cost of furniture and fittings (white goods) in the property. This is also known as depreciation or a wear and tear allowance and is at a rate of 12.5% of the cost per year, subject to a maximum of 8 years.

Expenses that are not allowed include capital expenditure on property improvements, pre-letting expenses, post-letting expenses, interest from the time you purchase the property to the time you first let it out, LPT, and the cost of your own labour in repairs to the property.

Rate of tax payable

The rate of tax you pay will depend on your personal circumstances and your total income, including from other sources. 

Your net rental income is added to your other income and your rental income could be taxed at 20% if you had no other income or at 40% if your other income and tax allowances are such that you have used up your standard tax band.

If you incur rental losses-that is, your rental income is less than your rental expenses in a given year-you can carry forward the rental losses to offset against rental profit in later years.

You cannot offset uneconomic rentals, however. These are rentals where it is not possible to make a profit from the rent received.

If you have multiple rental properties you must calculate a rental profit or loss for each rental property.

Declaring rental income

If your rental income is less than €5,000 and you are a paye earner you can declare it through your income tax return (form 12). 

If it is greater than €5,000 you will have to register for self-assessment and use form 11 to declare your rental income as you are considered a ‘chargeable person’.