Reluctant landlords are left facing the taxman
Published 26/10/2015 | 02:30
One of the most cruel effects of the economic downturn is the creation of a group of 'reluctant landlords' around the country.
They tend to be couples who purchased an apartment during the boom years, with the intention of moving to a larger home when the family came along.
However, their property was in negative equity. So when the children arrived, they had to rent a larger house to accommodate the additions to the family.
They rented out their apartment and the fees to cover the mortgage.
If you are in this situation, there are tax implications. As a landlord, the rules are different for taxing rental properties. So this problem should be addressed immediately.
Why? Because the Revenue Commissioners now have the best database on Irish property, thanks to the local property tax.
They are matching this with the register of property landlords, managed by the PRTB (Private Residential Tenancies Board).
So the chances of getting away with it are now very low. Indeed, many reluctant landlords are requested to complete their tax returns on the property they let.
For example, one couple lost tax relief for the rent paid on their new home, as they had moved in after December 2010.
In addition, they didn't tell their lender about the move for fear of losing the tracker mortgage.
They were also afraid to tell the Revenue Commissioners about letting their original home and didn't register the letting with the PRTB.
As a result, the family lost the mortgage interest tax relief against the rents earned from the apartment and had to pay tax on the full rents.
They were not eligible for Tax Relief at Source (TRS) on mortgage interest for their first home mortgage, as it had become a rented property. So they also had to repay the tax relief allowed by the bank. In this case, the bill came to a total of €20,000.
What should you do if you are a reluctant landlord?
Regularise your tax position before the Revenue Commissioners with three simple steps that could save you a lot of tax:
1. Register your letting with the Private Residential Tenancies Board Ireland
2. Cancel your TRS tax relief for your home mortgage
3. Get professional help
The longer it takes for the Revenue Commissioners to catch up with you, the bigger the problem, leading to penalties and interest charges.
Cathal Maxwell, FCA, AITI,QFA, is a tax consultant and founder of Paylesstax.ie, the online service that helps individuals complete and file their own tax returns.