Calculating Tax on Rental

dennyk

Your "friend" has dug themselves into a very deep hole, and there's no escaping the consequences at this point. Either the tenant is going to apply for HAP, or they're going to apply to claim the rent tax credit, or both, and either of those will bring your "friend" to the attention of Revenue sooner rather than later.

They should immediately talk to their solicitor and hire an accountant and throw themselves on Revenue's mercy by following the advice of said solicitor and accountant and get those unpaid taxes sorted out as quickly as possible. The consequences are usually less severe if you voluntarily go to Revenue to correct your past "mistakes" than if they have to come chasing after you for unpaid taxes. At the very least he will have to pay back all of the tax he owes on those ten years of rental income, plus interest, and given the seriousness of his delinquency, some sort of penalty is likely to be applied regardless.

As for the tenancy registration, bad news is that the RTB now has higher late fees for late registration of a tenancy. At €10 per month that he was late registering, he's probably looking at a four figure late fee plus the registration fee for a ten-year tenancy. Still a drop in the bucket compared to his tax liability, though. Again, it's imperative that he get that sorted out ASAP.

As far as raising the rent, if the property is in an RPZ, he will be limited to the RPZ rent increase limits. This calculator will show how much the rent can be raised based on the date the rent was last set. Trying to raise the rent more than RPZ regulations allow will delay the onset of the new rent at best, since the tenant can challenge the notice and it will be deemed invalid and he'll have to issue a new notice all over again for the legal rent amount, or at worst he might end up paying a hefty penalty and compensation if the tenant goes to the RTB later about having paid too much rent.

As far as what taxes he'll have to pay going forward, Revenue have all the details on their site. He can deduct certain expenses relating to the property, including mortgage interest (but NOT the mortgage principal repayments; those are not costs, as he is simply paying back a loan). The remaining net income after the allowable deductions will be subject to income tax at his marginal rate. If he has other sources of income and is over the ~€36k threshold, that means he'll pay 40% income tax on all of his net rental income.

3DataModem

There is some hyperbole in the above thread OP but the general thrust is correct... your friend needs to normalise things. I've been a landlord for a while AND I have been subject to a far-reaching audit process.

My advice is as follows;

1. Get an accountant / tax advisor experienced in tax calculation for revenue.
2. The accountant will recommend a proactive tax return for some prior years. The number of years will depend on how rent has been collected (e.g. did they take cash?) and whether the house was declared as residence (did they pay full whack stamp duty?) etc.
3. The accountant will look at the entirety of tax affairs... perhaps there are some allowances under-claimed. They can make a big difference. Expenses can be claimed even if not receipted, for example, it all comes down to what Revenue will accept as reasonable.
4. The accountant should recommend a proactive payment to the revenue to "stop the clock" on interest on penalties while they do the detailed research above. Throwing a lump in of 20 grand alongside a letter FROM A TAX ADVISOR advising the revenue that you are working on (e.g.) 6 years of returns will prevent any audit and stop clock on interest and penalties AND make Revenue look much much more positively on the returns.

BOTTOM LINE:

• If you get to them before they get to you, you are FAR FAR better off.
• Sob stories mean nothing. Every single late taxpayer has a sobstory. What Revenue like to see is proactivity.
• Tell them to assemble a lump of money (20-30k) ASAP to help stop the clock. Better off investing in this than paying any other debts, as the interest rate Revenue charge is high.
• If you employ a professional to handle this, you will save a lot more money than their likely fee. Find one who knows all the rules, not some local bookkeeper.
• If they get to you with a query, or a challenge, or anything, and they don't like the response. Boom... you'll get audited. Get to them first.

I've given this advice 4 times to people I know in the past.

• 1 guy took the advice, and are still years later ETERNALLY grateful.
• 1 guy didn't take the advice, and is under a massive amount of stress waiting for the hammer to fall. Planning on blaming all kinds of health / family issues when the time comes.
• 2 people failed to take the advice and got audited. One of them is relieved it's all sorted and is grateful. One of them blames me for not telling them harder.

Marcusm

Plus no interest relief in respect of a premises which is not registered with the RTB. While Revenue will concessionally allow interest relief for a certain degree of late registrations, this situation seems unlikely to fit within that practice.

Donald Trump

There will be a reasonable number of people like the OP's "friend" who must be sweating the upcoming tax deduction who could easily receive a demand for 100k in back taxes before penalties are added in.

People are talking about "small landlords fleeing the market". I'd say there is a chunk of those who are trying to get out before they are caught for tax evasion in the hope that they'll get away with it.

I'd say there will be some houses being sold over the next couple of years to try to repay owed tax. Revenue take no prisoners when they get their claws into you.

Eircom_Sucks

have to laugh at the scare mongering on here , like everybody is is tax compliant on here

i've a cousin who did what op friend did , paid his house off with rent and sold it and guess what ????? nothing and that was 6 years ago

like with every thread on boards , all know it all's

L1011

https://www.boards.ie/discussion/comment/119787339#Comment_119787339

People telling the OP "ah sure it'll be grand" are giving dangerously bad advice. So that's why you're not seeing anyone do it.

The specifics here are going to see the LL get noticed.

Eircom_Sucks

https://www.boards.ie/discussion/comment/119787378#Comment_119787378

i get that

i'm not excusing or condoning tax evasion , just stating i have a cousin who pretty much used rent to cover whole mortgage and paid off his house and sold it 6 years ago and nothing happenend to him , yes he may just be a lucky one , but id say 1000's get away with it

HeidiHeidi

Things have tightened up a lot since 6 years ago.

Systems are a lot more linked and connected, and as others have said, this tax allowance if it's brought it's likely to draw attention to dodgers.

Gambling in the hope that you get away with it is a very high stakes game.

3DataModem

https://www.boards.ie/discussion/comment/119787456#Comment_119787456

In fairness to your cousin, a lot do get away with it. The number is dramatically reducing, but it is true.

The people who tend to get caught are those who have multiple properties (e.g. they buy an apt, move out when they buy a house, rent apt) ... those are the ones who are flagged by Revenue.

Eircom_Sucks

https://www.boards.ie/discussion/comment/119798612#Comment_119798612

he's living with his gf in her house , so he hasn't bought anywhere else