Rental Income Tax

Hi,

I am writing this in bed at 3.12am while my wife sleeps beside me without a care in the world.

I really hope I can get some good advice here; I've simply stuck my head in the sand over the last few years; and it looks like this stupid strategy has run out of time.

I recieved a letter from Revenue today requesting that I complete a Form12 for income in 2014 and return it by the end of Oct.

We own a 2 bed apartment which we rented out in 2011 Jan-Dec; as it was simply too small after the arrival of our first baby. We rented a 3 bed house in the same estate.

During this time we did not declare rental income or cancel TRS; as I was advised that since I wasnt claiming rental tax credits; this would balance the books.

We moved back into the 2 bed apartment in 2012; and lived there for 17 month; up until we rented it out again in May 2013; due to lack of space after the arrival of our second baby.

All of this was done as the property was in huge negative equity after the property crash.

We have now rented the place out for 30 months; and rented a 3 bed house during this time; again we have not declared rental income or cancelled TRS, and have not claimed Rental Tax Credits.

We registered with the PTRB in 2014 at the request of out tennant; we have not registered our tenancy at the 3 bed house we currently occupy; I pay rent on a monthly basis to our landlord who happens to live next door.

I have now researched our rental income tax liability, as I understand it the rental income after deductions for Management fees; maintenance etc will be taxes at the same rate as PAYE income tax in my case that's 42% + PRSI 5% + USC 7%; totalling to 54% Is this correct?

Also as I understand it; Interest will be applied at 8%; and a Penalty of 3% will also be applied, I understand that the 3% is the minimum and it's at Revenues discretion to apply penalties of between 3 - 100%
Is this correct?

If I declare all rental income over the 42 months the property has been rented; will I be able to retrospectively apply for rental tax credits for the same time frame?

My rough estimate of total tax due Inc interest & penalty is €20k; this based upon the 3% penalty scenario.

Unfortunately I don't have any saving; infact the property is still in negative equity some 30K; and I have personal debt of circa 14k.

We are a single income family and although I earn a very decent salary, we are always broke by the end of the month.

Once the true Tax liability is confirmed how many yrs will Revenue allow an individual to pay it off?

I was already very stressed with our current level of debt; I think this latest revelation might be the final death blow.

Would a PIP be the best course of action, although not sure if this is available to employed people.

Any advise would be greatly appreciated!

Many thanks in advance

The good news is that the problem is, in all probability, not nearly as bad as you are fearing. You mention that the property is in huge negative equity so I am assuming it is heavily mortgaged. You will entitled to a deduction for 75% of mortgage interest paid, if you retrospectively register your pre-2014 tenancies with the PRTB. This will instantly decimate your likely liability.

In addition you will entitled to further deductions such as insurance, mortgage protection costs and capital allowances all of which add up.

In that context, I can't see your ultimate liability being next or near €20k.

You will of course have to terminate your TRS claim and refund to Revenue the amount you have overclaimed to date, but take it one step at a time, at least for the moment.

All other things being equal, interest and penalties shouldn't be an issue either, especially if you regularise your tax affairs and file all outstanding returns as soon as you can and in advance of any enforcement action by Revenue.

If the issue is causing you to lose sleep, I recommend that, for your own peace of mind, you should get proper professional help from an accountant or tax advisor in order to resolve this - sooner rather than later.

Good luck with it.

Who advised you that rental tax credits would balance the books? And when exactly did you begin to rent the three bedroom house? Because no rent tax credits were available to people who started renting after December 7th 2010.
Also have you an NPPR liability outstanding?

Many T McGibney; this has somewhat put my mind at ease; I will take your advise and seek professional advice; you mention that I'll be entitled to a deduction for 75% of mortgage interest paid.

So if I understand you I will need to repay the TRS claimed during the tenancies at some stage.

Retrospectively registered past tennants with the PTRB.

Work out deductions during this period;
This should calculate my tax liabilities.

Thanks so much for your advise

You're welcome

Gusdaddy13 said:

Many T McGibney; this has somewhat put my mind at ease; I will take your advise and seek professional advice; you mention that I'll be entitled to a deduction for 75% of mortgage interest paid.

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Tommy is an accountant and maybe you should hire him. I'd say your biggest problem is the NPPR.

You mentioned you're on a good salary, yet you have no money each month. I'd suggest you need to sort this out. Perhaps you'd like to do the money makeover thread and get some advice.

Yeah possibly Bronte; between servicing personal debt; mortgage; propetty management fee, mobiles; insurances; food fuel; clothing; not to mention the rare pint out; you'd be smashed!

I actually called and old school friend who now has a tax advice firm, she has confirmed that when you offset the rental income against the mortgage interest relief, I won't have any rental income tax liability; she is going to walk me through all the steps to file my returns.

Thanks again Tommy

Bronte said:

Tommy is an accountant and maybe you should hire him. I'd say your biggest problem is the NPPR.

You mentioned you're on a good salary, yet you have no money each month. I'd suggest you need to sort this out. Perhaps you'd like to do the money makeover thread and get some advice.

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Hi; well I finally got to the bottom of this with revenue; I now owe a grand total of 10,200. this includes 700 in surcharge penalties which they may waiver if I enter a repayment arrangement with the collector and auditor general. This is for unpaid rental income tax; on a rental income of 31,000 collected over 31 months between 2012 - 2014.

So roughly 30% of the rental income, does that sound excessive to you?

Thanks

Gusdaddy13 said:

So roughly 30% of the rental income, does that sound excessive to you?

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In the absence of any info it 30% sounds high!

What was the annual service charge? What was the annual interest amount? Did you have letting fees? Was the property in joint names?

Was there a 10% late filing surcharge? Was there interest on late payment included in the €10,200?

Joe_90 said:

In the absence of any info it 30% sounds high!

What was the annual service charge? What was the annual interest amount? Did you have letting fees? Was the property in joint names?

Was there a 10% late filing surcharge? Was there interest on late payment included in the €10,200?

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There's no way the 10k doesn't include interest - the underlying tax liability is probably around 7k. From previous posts the OP appears to be in the 41% IT bracket so it's probably about 14k of taxable Case V.