Thursday 19 April 2018

'Accidental landlords' face sizeable tax bill for rental income

Louise McBride

Louise McBride

Many of the 'accidental landlords' thrown up by the economic squeeze have no idea of the financial minefield that comes with renting out their home.

One of the biggest financial headaches is the tax bill, which could easily run into several thousand euro a year. Some landlords are already running into difficulties paying these tax bills.

Accidental landlords include those who rent out their homes because they can no longer afford their mortgage repayments. It also includes those in negative equity who have moved house – yet put off selling their home until prices pick up enough to ensure a house sale pays off their mortgage.

The Free Legal Advice Centres (FLAC) last week reported a dramatic increase in the number of people seeking legal advice on landlord and tenant issues – a phenomenon it attributed to the rise in the number of accidental landlords.

Financial problems have forced many people to rent out their homes in a hurry – and this is one of the reasons that accidental landlords often don't understand their rights and responsibilities, according to FLAC, which offers free legal advice on debt and other issues.

The financial headaches that accidental landlords seek to escape by renting our their home are often quickly replaced by others.


Many of the people who rent out their home to cover their mortgage repayments are not aware that they have to pay tax on a good chunk of the rent they receive, according to Margaret McCormick, information officer with the Irish Property Owners' Association, which represents landlords.

You could have to pay tax equivalent to almost half of the rental income received in a year – even if all of that rent is being used to repay a mortgage.

You can write certain expenses off your rental income tax bill – but you cannot write off the full cost of your mortgage repayments. Only three-quarters of the mortgage interest you pay a year can be written off against the tax bill that arises from renting out a residential property.

The tax bill you face from renting out your home could run into a few thousand euro a year, depending on the amount of rent you earn. You pay tax at your higher rate of income tax and you must also pay the universal service charge on your rental income.

So, if you're a higher rate taxpayer and a PAYE worker, you could pay 48 per cent tax on rental income. If you're self-employed, you also have to pay 4 per cent PRSI which brings up the amount of tax paid to 52 per cent – or 55 per cent if you're earning more than €100,000.

From next year, everyone must pay PRSI on rental income so all landlords on the higher rate of income tax will pay at least 52 per cent tax.

A hefty tax rate like that eats into your pocket. If you're receiving rent of €1,200 a month, and you have to pay 52 per cent tax on that rental income, your tax bill would add up to about €7,500 – before any expenses are written off.

If the interest on your mortgage is not that high, and your expenses from renting out the property are about €1,000 a year, your tax bill after expenses might only be reduced to about €5,000.

Some of the rental expenses you can write off against tax include the cost of repairs to the rented property, any fees paid to a letting agent and the cost of home insurance. You can also write off the cost of any furniture or electrical appliances you bought to kit out the property over eight years (at a rate of 12.5 per cent a year).


Unless you own a property that is worth more than €1m, you will pay between €90 and €1,755 in local property tax next year – depending on the value of your property. This property tax must usually be paid on any residential properties you own.

You must also pay the annual €200 Non Principal Private Residence (NPPR) charge. The NPPR will be abolished next year, but if you haven't paid it since it kicked in in 2009 you face hefty penalties. If, for example, you have never paid the NPPR, by the end of this month the late payment fees for one property will have clocked up to €3,420.

You cannot write off the cost of the local property tax or the NPPR charge against your rental income tax bill.


When renting out your home, you are no longer entitled to any mortgage interest relief you received on your mortgage when that property was your home – and you will have to pay this back to Revenue if you continue to claim it.

"People forget to get on to the Revenue to cancel their mortgage interest relief when they rent out their home," said Cathal Maxwell, founder and managing director of the tax saving website "Once you let out your home, cancel your mortgage interest relief. Otherwise, you could easily owe Revenue a few grand after a couple of years."


If you have run into problems with debt and are signing up to one of the new personal insolvency deals as a result, Revenue may write off your tax bill.

"Tax liabilities in certain circumstances may be written off under the new personal insolvency legislation," said a spokeswoman for the Revenue Commissioners. "The landlord will have to satisfy a number of conditions – they must be insolvent and 75 per cent or more of the landlord's debts must be greater than six months old."

Even if you're not seriously in debt, if you're running into difficulties paying the tax bill on a rented property, get in touch with the Revenue Commissioners as you may be able to come to an alternative arrangement to repay your tax.

"Revenue is aware that in the current economic situation, some businesses and taxpayers, including landlords, are experiencing difficulties meeting their tax payment obligations," said the Revenue spokeswoman. "It is best to approach us directly as soon as problems arise rather than later when the problems have become more serious.

"Nothwithstanding the prevailing difficult economic and financial environment, Revenue expects businesses and individuals to maintain and organise their financial affairs in such a fashion as to ensure their tax debts are paid as they fall due."


When you rent out a residential property, you must register the tenancy with the Private Residential Tenancies Board (PRTB). It costs €90 to register a tenancy – or €180 if you don't register the tenancy within a month of renting out your home.

If you don't register your tenancy with the PRTB, you won't be able to write off three-quarters of your mortgage interest against the tax bill on your rental property. You can write off your PRTB registration fee against tax.


It will usually be easier to rent out your property if it is furnished – however, you could spend a few grand kitting out a property.

The bill could be higher if renting out a bedsit. Under new regulations which kicked in earlier this year, each flat, apartment or house must have its own toilet, bath or shower.

"In some cases the bedsit might be too small for this, the landlord may not be able to get planning permission to put in a self-contained toilet, or the cost of doing so would simply be prohibitive," said McCormick.

You can also expect to see your home insurance bills soar when renting out your home. Insurers take the view that tenants won't care for a property as well as an owner would – and they will charge landlords more as a result.

If you decide on hiring a letting agent, you could end up paying them between 10 and 15 per cent of the rent to find a tenant for your home and then manage the tenancy for you. Some of the smaller letting agents charge €1,000 a year to find and manage tenants – so shop around.

If you run into problems with your tenants, you could end up in serious financial difficulty – particularly if you are relying on the rent to cover your mortgage repayments.

"If someone doesn't pay the rent, it could take you a-year-and-a-half to get them out of the property," said McCormick. "Even at the end of that time, there's no guarantee you will get back any of the rent owed at all."

Irish Independent

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