Leasing Premises Tax Efficient

theaviator

Hi, I am planning on leasing a premises and want to know if there is any way that I can be tax efficient. I am a PAYE employee paying rate @ 42%.
That means that any income from lease will be taxed @ 42% also.
Is there any way to make savings on this?

pigeonbutler

I'm presuming you're going to be the lessor? Also that this is a business premises and doesn't qualify for any particular incentive scheme (urban/rural renewal etc.)

You'll be allowed take a deduction from your rental income for the interest expense on money borrowed to buy/improve the premises. You can also take deductions for rates and maintenance and any other costs incurred directly in relation to the provision of the premises.

Someone more educated than myself might have some ideas, but it looks to me like there's no straightforward way around paying income tax at the marginal rate (41% plus PRSI/Health Levy btw) on this, bar ensuring you claim all available deductions as mentioned above.

I considered advising you to incorporate a company that held the premises with you as the sole owner and therefore the company would pay 25% tax on the rental profits, but I don't think there'll be any advantage to that as special provisions for "close companys" (those owned/controlled by 5 or less people) would mean you'd have to pay out dividends every 12-18months (and thus pay 41% on the receipt of them) or the company would suffer a surcharge on the undistributed interest income.

Mr. Incognito

More detail plese- are the lessor or the lesee? How long is the lease.

theaviator

SetantaL wrote: »

More detail plese- are the lessor or the lesee? How long is the lease.

Hi SetantaL, I own the premises and am the leaser. The lease is for 2 years.

Mr. Incognito

You could incorporate a rental company. Normally rental income on a CT computation is passive income and is taxed at 25% but where rent is the Case 1 trading income, specifically a rental company the rate is 12.5%. However- as above there are provisions on close companies that could even see you pay more than the 41% going down this route. Are you in receipt of capital allowances on the purchase of the building?

theaviator

The building has been in my family for years and I inherited it. I hope that answere the question. Not sure what some of that jargon means though. the 25% sounds interesting though.

Kingkong

Leasing Premises can be complicated so first i would advise you consider getting professional advice from a tax consultant if you are looking for tax saving possibilities.

Depending on the business that will be conducted in the premises if it is a trade your premises may qualify for industrial building allowance. which basically allows a 4% wear & tear allowance on the building cost. There is conditions attached to the relief and it can be clawed back.

An interesting point you might not know because you have PAYE income (Schedule E) you are not liable to PRSI say 5% on your rental income (Case V)

Premiums: Depending on your lease agreement if a premium is payable to you by the tenant at the commencement of the lease part of it would be treated as income (41%) and part chargable to capital gains tax(20%). Because your lease is only for 2 years only 2% of the premium would be taxed at 20%. While if your lease was for say 15 years 28% would be taxed at 20%.

Why this is important.
You can setup a lease say for 15 years with a "break clause" at the option of the tenant at intervals during the lease. This way the tenant can break the lease before 15 years and the landlord gets more of the premium taxable at 20%.

As I say earlier leases are complicated and there is a lot of if's and but's!