Tax on rental income if living abroad

franzilein

Hi all,
I just read the article in the Sunday Indo about accidental landlords having to pay huge amounts of tax if they rent out their homes, sometimes as much as half of their rental income, even if they are still paying off their mortgage. Now I'm wondering if that also applies if you emigrate to another country, which is what we're planning to do. I mean, we wouldn't be irish tax payers any more then. Does anybody have any information on this?
Thanks

djimi

I dont know the ins an outs of it, but tenants are obliged to withhold 20% of the rent each month to be paid to revenue where the landlord lives outside of the state. What this is offset against Im not sure.

handlemaster

djimi wrote: »

I dont know the ins an outs of it, but tenants are obliged to withhold 20% of the rent each month to be paid to revenue where the landlord lives outside of the state. What this is offset against Im not sure.

unless you have an agent operating for you in the country could be a family member> but they would have to declare this on their tax return etc > could be messy

Mrs OBumble

franzilein wrote: »

we wouldn't be irish tax payers any more then. Does anybody have any information on this?
Thanks

You would not be tax-resident in Ireland.

But if you are continuing to operate a business here (eg a rental property) you may have certain tax obligations.

Time to see an accountant, methinks.

murphaph

handlemaster wrote: »

unless you have an agent operating for you in the country could be a family member> but they would have to declare this on their tax return etc > could be messy

They DON'T have to declare this on their own return. The agent just says "I'm here for you to come after if anything goes wrong with x's tax returns".

The landlord himself can continue submitting returns in his name as before with his own PPS.

I clarified this with Revenue myself as I was in this position.

A non-resident landlord will be subject to the same taxes as a resident one, without the full benefit of Irish tax reliefs (an Irish citizen who is non-resident may be entitled to a portion of his Irish reliefs, calculated as a percentage of his Irish income to his total worldwide income (generally not worth a whole lot unless you have no income outside Ireland or your Irish rental income is very substantial).

For a non-resident your non-Irish derived income plays no part in calculating your actual Irish tax liability of course.

Pawwed Rig

franzilein wrote: »

Hi all,
I just read the article in the Sunday Indo about accidental landlords having to pay huge amounts of tax if they rent out their homes, sometimes as much as half of their rental income, even if they are still paying off their mortgage.

+1 on murphaph's post.
Also, It is very unlikely you will pay half of your rental income in tax if you have a mortgage and the property is furnished to any kind of decent level.

djimi

So what does the 20% that the tenant withholds go towards?

murphaph

djimi wrote: »

So what does the 20% that the tenant withholds go towards?

If you have not nominated an agent your tenant should technically withhold 20% of gross rent and forward it directly to Revenue. That is the tenant's legal obligation in fact.

The landlord should get (I think) an R185 form from the tenant and then (generally) seek a refund of tax paid (as the 20% will for small time landlords) be more than they should have paid due to their pre-tax deductions (like mortgage interest, maintenance etc.)

djimi

Ah okay. So its a kind of "pay now, ask for it back later" type system? Makes sense I guess given the possibility of an absent landlord trying to get away with not paying tax.

franzilein

Thanks for all the replies!
So I understand the rental income would be liable to tax in Ireland and not in Germany, but if - as murphaph wrote - the non-Irish derived income plays no role in calculating our tax liability in Ireland, then how is it calculated? Property is furnished to a good standard and comparable properties in the area are rented for around €800. I know we'll have to seek advice from an accountant when the time comes, but your advice helps a lot with our rough calculations in these early stages of planning, so thanks again.

Pawwed Rig

djimi wrote: »

Ah okay. So its a kind of "pay now, ask for it back later" type system? Makes sense I guess given the possibility of an absent landlord trying to get away with not paying tax.

That is it exactly. It is very difficult for Revenue to get taxes from non residents who do not declare so they pass the obligation unto the payee. It is similar to dividend withholding tax or Interest withholding tax. DIRT is the most obvious domestic example.

murphaph

franzilein wrote: »

So I understand the rental income would be liable to tax in Ireland and not in Germany,

This is the case but this is actually a SPECIAL case that I am familiar with as Germany does NOT tax any rental income generated outside Germany but inside the EEA. Most countries, including Ireland do take an interest in and tax foreign rental income. There are specific reasons Germany chooses not to tax foreign rental income from other EEA countries which I won't go into here. I just happen to know this as I'm tax resident in Germany and I needed to find this out for my tax returns here

franzilein wrote: »

but if - as murphaph wrote - the non-Irish derived income plays no role in calculating our tax liability in Ireland, then how is it calculated?

How is what calculated? Your Irish income tax liability? No different to any Irish resident except you can't claim the reliefs (except as I outlined above through apportionment).

franzilein wrote: »

Property is furnished to a good standard and comparable properties in the area are rented for around €800. I know we'll have to seek advice from an accountant when the time comes, but your advice helps a lot with our rough calculations in these early stages of planning, so thanks again.

You're welcome. You should probably go with an accountant for your first return at least and then play it by ear. Rental income returns are not that difficult unless you have Section 23 etc. properties. There's a fairly strict list of what can be deducted when calculating your taxable gross income.

Grandpa Hassan

Is it something that is being enforced? I mean in the grand scheme of things the numbers must be pretty small, in terms of both the number of non-resident landlords, and the tax rate (20% less deductions). Certainly small relative to the number of non-compliant domestic landlords (paying a higher tax rate) and the resources spent in chasing

murphaph

djimi wrote: »

Ah okay. So its a kind of "pay now, ask for it back later" type system? Makes sense I guess given the possibility of an absent landlord trying to get away with not paying tax.

The system is not really sensible as it shifts the burden of tax compliance to the poor fecker of a tenant and away from the guy who makes the income. AFAIK the Ombudsman has already stated that this is unfair and should be changed.

Any non-resident could conceivably try to evade tax (as could any resident) so I don't know why the law picks on landlords in particular.

murphaph

Grandpa Hassan wrote: »

Is it something that is being enforced? I mean in the grand scheme of things the numbers must be pretty small, in terms of both the number of non-resident landlords, and the tax rate (20% less deductions). Certainly small relative to the number of non-compliant domestic landlords, and the resources spent in chasing....

It's 20% for those earning below the 41% threshold. A "big time" landlord would be paying top rate tax and USC is applicable as well, so it could be half the rental income over the threshold that would be destined for Revenue's coffers. They would be interested in that sort of money I'm sure.

Grandpa Hassan

murphaph wrote: »

It's 20% for those earning below the 41% threshold. A "big time" landlord would be paying top rate tax and USC is applicable as well, so it could be half the rental income over the threshold that would be destined for Revenue's coffers. They would be interested in that sort of money I'm sure.

I'm talking about overseas non resident landlords with no other Irish income where the tenants are supposed to pay the 20% to the revenue

Pawwed Rig

Grandpa Hassan wrote: »

Is it something that is being enforced? I

I have yet to hear of a tenant being forced to cough up this cash*. In the event that they would have to pay it they could just withhold rent for a couple of months (quite legally) until the debt is cleared. Generally if Revenue are getting a return from the landlord and a fair tax payment they are not too pushed with the strict legalities of who is supposed to pay who. A tenant should definitely be aware of it though especially where they are moving out of a rented property.

* that is not to say it has never happened

Pawwed Rig

franzilein wrote: »

Property is furnished to a good standard and comparable properties in the area are rented for around €800. I know we'll have to seek advice from an accountant when the time comes, but your advice helps a lot with our rough calculations in these early stages of planning, so thanks again.

If you are receiving 800 then
Gross rent = 9600
minus
insurance
maintenance costs
PRTB reg fee
75% of mortgage interest paid
1/8th of the cost of the furnishings in the property.

equals net rent of €x @20%.

It is easier for your tenant if you have a family member/friend/agent here to collect rent.

murphaph

Grandpa Hassan wrote: »

I'm talking about overseas non resident landlords with no other Irish income where the tenants are supposed to pay the 20% to the revenue

Ah ok, I don't think so because they've already been told by the Ombudsman that it's unfair. But legally the liability remains with the tenant and a rogue non-resident landlord could legally walk away pointing the finger at the hapless tenant.

Grandpa Hassan

murphaph wrote: »

Ah ok, I don't think so because they've already been told by the Ombudsman that it's unfair. But legally the liability remains with the tenant and a rogue non-resident landlord could legally walk away pointing the finger at the hapless tenant.

My point was that rogue non resident landlords must be relatively few in number compared to rogue domestic landlords, and are liable at a much lower rate. I would guess that the amount of tax revenues being missed out on hardly make it a pressing issue when compared to chasing down the resident multiple property owners.

What is the sanction if the revenue track down a non resident property owner with an upaid tax liability, if that property owner never intends to return to Ireland and the mortgage is being paid up to date, and the property tax and NPPR are paid on time. Does the legislation exist to attach that income tax liability to the property (in the same way as unpaid property tax) so that it is deducted from any sales proceeds in the future?

murphaph

Grandpa Hassan wrote: »

My point was that rogue non resident landlords must be relatively few in number compared to rogue domestic landlords, and are liable at a much lower rate. I would guess that the amount of tax revenues being missed out on hardly make it a pressing issue when compared to chasing down the resident multiple property owners.

What is the sanction if the revenue track down a non resident property owner with an upaid tax liability, if that property owner never intends to return to Ireland and the mortgage is being paid up to date, and the property tax and NPPR are paid on time. Does the legislation exist to attach that income tax liability to the property (in the same way as unpaid property tax) so that it is deducted from any sales proceeds in the future?

I don't think so. The liability remains with the tenant AFAIK so Revenue can't chase the LL for the tenant's lawful debt. Crazy set up to be honest.

Grandpa Hassan

murphaph wrote: »

I don't think so. The liability remains with the tenant AFAIK so Revenue can't chase the LL for the tenant's lawful debt. Crazy set up to be honest.

If the liability lay with the LL, but the LL does not intend to return to Ireland, I am not sure there is any way that the revenue can get at it. Trying to get it off the tenant is probably the only avenue open to them.

djimi

The only real problem I have with that setup is that its not particularly well publicized and I dont think many people know about it. I certainly didnt until I read about it on here. Luckily my landlord works through an agent so its not an issue, but given that my landlord lives in the US I could have ended up owing money for something I had no clue about.

Otherwise its not a difficult system to implement and work for the tenant. Keep 20% of each months rent in a seperate account and at the end of the year declare it and send in the money. Whether or not it should be the tenants responsibilty is a fair debate, but Im guessing it came about through absent landlords not paying tax and the necessity to find a way of sorting the issue?

SweetPotatoes

Does this situation apply to me where I paid the rent into my landlords Irish Bank account while she was working abroad? Or does it only apply if the rent goes abroad also?

murphaph

Grandpa Hassan wrote: »

If the liability lay with the LL, but the LL does not intend to return to Ireland, I am not sure there is any way that the revenue can get at it. Trying to get it off the tenant is probably the only avenue open to them.

If the liability lay with the LL then Revenue could ultimately move to have his property sold to pay his debt.

djimi

SweetPotatoes wrote: »

Does this situation apply to me where I paid the rent into my landlords Irish Bank account while she was working abroad? Or does it only apply if the rent goes abroad also?

Was she a full time resident abroad? (I think the term is tax resident?) If so then yes, unless the rent was collected by an agent over here.

lion_bar

There's always been an urban myth about a tenant who figured out their non-resident landlord wasn't paying tax and decided to tell the revenue about the undeclared income, handing over evidence of payment etc.

They got a thank you for the revenue looking for the unpaid tax which they were liable for.

SweetPotatoes

djimi wrote: »

Was she a full time resident abroad? (I think the term is tax resident?) If so then yes, unless the rent was collected by an agent over here.

yes, she was full time abroad. I paid the rent into her Irish bank account so it was not collected. I dealt with her mother and sister regarding any issues with the flat though but the flat was belonging to the woman living abroad.

djimi

SweetPotatoes wrote: »

yes, she was full time abroad. I paid the rent into her Irish bank account so it was not collected. I dealt with her mother and sister regarding any issues with the flat though but the flat was belonging to the woman living abroad.

Sounds like you should have been withholding 20% for revenue so.

SweetPotatoes

djimi wrote: »

Sounds like you should have been withholding 20% for revenue so.

So basically she can just move on and I am the one the revenue could go after. If I had any issues with the flat when leaving it she could use that against me instead of vice versa?

Luckily for me there were no issues and she was a very good landlord. But I could have been unlucky?

Grandpa Hassan

It's a bit ridiculous alright that if a tenant has been in a property for a year or two, they can't start to pay the 20% now without having to cough up the backdated amount from the start of the lease. A huge disincentive to 'fess up, especially as enforcement seems rare