Thursday 22 August 2019

Landlord asks: 'How can I minimise my tax bill? Can I deduct the new driveway as an expense?'

Sinead Ryan answers your property questions

Certain expenses can be offset against tax on rental income
Certain expenses can be offset against tax on rental income

Q. I have recently become an "accidental landlord" in Dublin. I'm wondering if you can offer any advice to minimise the tax bill on rental income which I believe is 40pc (it seems to me to be an excessive tax)? I hope to rent out the property in its present condition, but expect to have to redecorate etc, at the end of the first letting. Can I deduct the cost of a new driveway as an expense or do expenses only relate to internal decoration and wear and tear?

A. There's quite a bit of information that your email doesn't say. For instance, was the house left to you as a bequest, or is it mortgaged and you had to move out to rent yourself?

Tax deductions depend on specific circumstances, but I asked Barry Flanagan of for an overall sense of what is, and is not allowable.

"Rental income is computed on the basis of the gross amount of rent receivable less any allowable expenses and capital allowances. The applicable tax rate is your marginal rate (20pc or 40pc) plus USC and PRSI.

"Allowable expenses which may be deducted in calculating your rental profit include rates payable to local authorities, maintenance of the property ie repairs, cleaning etc, insurance, management fees, accounting/advertising/legal fees and mortgage interest (only 80pc allowable if it is a residential property and the landlord also must be registered with the PRTB).

"It is important to note that pre-letting expenses are not allowed, ie expenses incurred prior to the date the property was first let. There is an exception for auctioneer/advertising fees and legal costs incurred prior to the first let.

"In respect of the driveway, usually expenditure of this nature would be categorised as 'capital' in nature, and would be subject to relief as a capital allowance over eight years, rather than as a 'repair'. Wear and tear allowances are also available for the capital cost of fixtures and fittings (for example, furniture, kitchen appliances, etc) at a rate of 12.5pc over eight years."

The Ryan review

From the Department of Deja Vu comes the news that the numbers looking to purchase a new home are outpacing the expected rise in house building for yet another year.

The KBC survey shows that intended movers now stand at 36pc, including first-time buyers (well incentivised by the taxpayer to take a punt) and prospective trader-uppers, who enjoy no similar benefits of DIRT-free savings, lower deposit requirements or Government cash to help them.

Trader-downers and investors are still making up to four in every 10 property transactions, sucking out much of the available supply. Again.

Almost half say they'd consider moving more than 10km away from their desired location to secure property or make significant other compromises to so do and anyone who has experienced the increase in commuter traffic on and off the M50 in the last year doesn't need a fancy report to tell them that Breakfast Roll man and Kells Angel are back.

David McWilliams' fictional characters from a decade ago are now buying 30km from where they expected to be, and count themselves lucky.

As the Finance Ministry continues to insist all is well, and the Housing Ministry that we're on track, the late Winston Churchill seems the only port in the storm.

"Politics is the ability to foretell what will happen tomorrow, next week and next year. And to have the ability afterwards to explain why it didn't happen."

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