Rental Issues

Table of Contents

Capital Allowances

Capital allowances on plant and machinery are allowed over eight years at 12.5% per annum. The write-downs on a straight-line basis.

Where the plant and machinery/fixtures and fittings forms an integral part of the premises it may be treated as part of the building where the building qualifies for capital allowances. This implies that it is part of the fabric of the building most likely being in the nature of a fixture.in this case of the burden of wear and tear need not rest with the landlord. However the write-down rate is likely to be less.

There is a distinction between renting and certain trades such as holiday letting which are taxed as trade.

Deductable Expenses

Pre-letting auctioneers’ fees, advertisement fees and legal expenses are allowed. Expenses in negotiating a lease are deductible. Expenses incurred in the period between leases are allowed, provided the person concerned does not occupy the property and the property is re-let afterwards. Where a property is only part let expenses are apportioned.

Accountancy fees in preparing rent accounts are deductible. Interest on sums to acquire purchase, improve or repair of property are permissible. Entitlement to deductions for interest on borrowed money in connection with the purchase, improvement and repair of residential property is conditional on registration with the Private Residential Tenancies Board in respect of all tenancies.

In the case of residential property allowable interest was restricted to 75% of the actual interest paid. This restriction does not apply to commercial property. Public bodies who make payment of rent are obliged to make returns to the Revenue giving details of the name and address of the payee.

Retention Incentive

Finance Act 2023 provides for a new income tax relief for individual landlords of rented residential property. The relief reduces the tax due on rented residential income by up to €600 in 2024, €800 in 2025 and €1,000 in 2026 and 2027 years of assessment. The relief is capped at the tax liability on the rental income. To avail of the relief, the property must be rented or actively marketed for rent at the end of the year in respect of which the claim is made.

Eligibility for relief is dependent on the landlord having tax clearance and complying with their Local Property Tax and RTB registration requirements.

Where a property is owned by more than one individual, relief is apportioned between owners based on the rents returned by each owner. The relief will be clawed back where, within four years of the start of the first year in which relief was claimed, any of the landlords’ qualifying residential properties are disposed of or are otherwise removed from the rental market.

Relief is not available where the property is let to connected parties such as relatives.

Agricultural Leases

There are tax exemptions for rental income of certain leases of agricultural land. Generally, the lease must be for five years or seven years or more. There are limits of €12,000 per annum for a lease of seven years €15,000 for a lease of seven years €20,000 for lease of more than 10 years. The lease may apply to the farm entitlements and land.

The maximum annual relief between

years five and six €18,000
Year 7 to 10 €22,500
Years 10 to 15 €30,000
15 years plus €40,000

The lease must be of land only so that dwellinghouse elements are excluded. The tenant must not be connected with the landlord. the must be no sub- tenancy or other arrangement with the landlord.The tenant must use land for the trade of farming.

Expired Allowances

There have been numerous tax incentives available against rental income over the last 40 years. Most of the exemptions and shelters are being phased out.

However, the allowances will continue to be relevant until the relevant tax allowance periods expire. Some are like capital allowances and allowed over at a percentage rate over a period. Others are available upfront and can be used againstt he first available income.

Rent a Room

The rent a room relief exempts from income tax entirely, sums of €10,000 derived from the letting of a room or rooms, in the taxpayer’s private residence. The Finance Act 2014 increased the rent-a-room relief to €12,000 per annum. Finance Act 2016 increased the tax-free amount under rent a room relief to €14,000 per annum.

It property must be occupied by the owner in the tax year. There is no deduction for expenses. Rent includes rent as such and also sum for services including meals, cleaning, etc. There is no margin relief. Once the threshold is exceeded, all income is taxable.

There must be a letting for at least 28 consecutive days so that short-term lettings are expressly excluded from the incentive. This does not affect the application of rent relief to certain types of short term residential accommodation which are not leisure or business related. These include the provision of accommodation for respite care exchange language students and five day a weeks digs.

The exception does not apply in respect of a person for the room room to use for a minimum of four consecutive days per week for not less than four consecutive weeks.

It does not apply to a resident person is in the room who is incapacitated by reason of mental or physical infirmity.

Anti-avoidance provisions deny the relief where the tenant is a child of the landlord or where the tenant is a corporate of which the landlord is an officer such as a director or secretary or is connected.

Premiums

Premiums are lump sums received on the grant of a lease of less than 50 years’ duration (term). They are treated partly as income, and partly as capital. The following rules correspond to the capital gains tax rules, so that the part of the premium deemed income is not deemed capital and vice versa.

Where a lease less than 50 years is granted, for a premium which is less than full value and is then assigned for an amount more than a consideration, the difference is itself a premium and is taxed on the lessee under Schedule D Case IV (miscellaneous income). The excess premium representing the previous undervalue, is itself taxable to the lessee on assignment.

The part of the premium that is deemed taxable income depends on the term of the lease. A formula applies such that all of the premium is taxable as rent in the case of a one-year letting and none of it, is taxable in the case of a 50 year letting. In between, a straight line apportionment formula, apportions the premium between capital and income. The element deemed income is taxable as rental income.

Dediutions for Premium

Where a tenant sublets a premises for which he is paid a premium, part of the premium may be allowed as a deduction. Where the letting is not at a premium, he is allowed a deduction in respect of the part of the premium payable, which is subject to income tax. If the subletting is itself at a premium, part of the premium receivable is offset against the premium paid by the landlord to his head landlord, for the purpose of tax on it.

A tenant who carries on a business is entitled to a deduction against trading profits for the premium paid, apportioned evenly over the duration of the lease. He would, in the normal course and under general principles, also be entitled to a deduction in respect of rent payable under the same lease.

Reverse Premium Anti-Avoidance

In the case of a reverse payment, where a tenant is given an inducement, any sum received is taxable as miscellaneous income in the case of a trading tenant, or rental income. Reverse premiums may be in money or in kind. It may cover rent free periods and other concessions not defined in money terms.

In the case of lettings between connected persons, with de facto reverse premiums/subsidies due to the variation from the market rent / premium, the deemed premium arising from the benefit is itself taxable to the tenant who receives the benefit.

Anti-avoidance legislation (Section 106A) taxes dispositions of rent for a capital sum. This would not apply to a genuine sale of the property.

A premium may be deemed to arise to the landlord, where the tenant is obliged to carry out permanent improvements, which increase the value of the landlord’s interest. The value of the permanent improvements are treated as a premium and are taxed on the above basis as income and/or capital.

Adjustment of Rights

Any adjustment in the terms of a lease whereby a capital sum is paid in respect of a change in rental obligations, may be taxable as a premium. For the purpose of apportionment of the income element, the remainder of the term only, is taken into account (rather than full term of the lease).

The above treatment seeks to tax as income of the landlord, any capital or quasi-capital receipts, which arise from the adjustment of the rental income rights, where a lump sum is paid for a period in commutation of rent. This is taken into account for the purpose of apportionment of the income element. The above principle applies to a lump sum paid for a surrender.

Sale with Reconveyance Right

Where land is sold on terms that may be reconveyed to the seller, the seller is taxable on the difference between the sale price and the price at which it is to be reconveyed.

The amount subject to income tax is determined in accordance with the above formula (in respect of premiums,) again with a denominator of 50. Accordingly, the entire excess may be taxable if it is re-conveyed within one year as income tax. None of is taxable if the period is 50 years.

Retrofitting

Finance Act 2023 amends the deduction for certain retrofitting expenditure incurred by landlords of rented residential properties. Landlords of properties to which Part II of the Housing (Private Rented Dwellings) Act 1982 applies – that is, properties which were previously subject to rent controls – are eligible to claim a deduction for retrofitting expenditure under section 97B.

Non-Resident Landlords

Where rent is paid to a non-resident, the tenant is obliged to deduct income tax at the standard rate. Revenue permit the obligation to be complied with in the annual tax return. The tenant is obliged to give a certificate of tax withheld / paid to the landlord. The landlord obtains a credit for tax paid and is taxed on the gross income.

If the rent is paid to a resident agent tax need not be deducted. The agent may be taxed in the name of the non-resident and must remit tax on income received for the non-resident landlord. The agent need not be a professional or regulated agent. It may be any agent, in the broad legal sense of the word.

Finance Act 2022 amends the taxation procedure that applies to rental income and other lease income received by a non-Irish resident person in respect of property located in the State. The person (for example, a tenant) making a payment directly to a non-Irish resident person, is required to deduct a sum equal to income tax at the standard rate (currently 20 per cent) and remit that amount to the Revenue Commissioners using a R185 form. Finance Act 2022 provides that the person making the payments will also be required to give certain information as required by the Revenue Commissioners concerning the landlord and the rental income on which tax is being withheld.

Finance Act Amendments

Finance Act 2023 amends the taxation procedure that applies to rental income and other lease income received by a non-Irish resident person in respect of property located in the State. These amendments clarify that, where a tenant of a non-resident landlord pays rent to a collection agent, the tenant is not obliged to deduct and remit withholding tax to the Revenue Commissioners.

In such cases, the collection agent may either deduct and remit to the Revenue Commissioners withholding tax at the standard rate of income tax, or may remain assessable and chargeable to tax for the rental income of the non- resident landlord.

Finance Act 2023 amends requirements that a sum equal to income tax at the standard rate should be deducted and remitted to the Revenue Commissioners from certain payments to ensure it applies to collection agents who receive rents due to a non-resident landlord.