Buying a second house- implications

Hi all,

We are currently looking into buying a second house for us to live in and rent out our current residence. We currently have a mortgage of 230k and the location of this house is rentable @ 600/ 650 per month. Mortgage repayment currently approx 1000 monthly.

To buy new property we would just need a loan of 25k with repayments over 5 years of 548 per month.

We are currently saving that amount a month so I feel we can do it but I would really like advice on the following:

We have mortgage interest relief on first house can we retain in if its rented out?
How much stamp duty would we have to pay?
How much tax would we have to pay on the rental income?
The house/ mortgage is in my husbands name so could the new house be put in my name to benefit us in anyway?

Any advice welcome

Here are my thoughts on your questions


1) We have mortgage interest relief on first house can we retain in if its rented out?
Response - No – you will lose it.

2) How much stamp duty would we have to pay?
Response - It depends on the price of the property For properties valued up to €1 million, the new rate is 1% of the full value. For properties valued over €1 million, the rate of 1% applies to the first €1 million and a rate of 2% applies to the balance


3) How much tax would we have to pay on the rental income?
Response - There are several threads on here re calculating tax on rental income, do a search in the Taxation section. Also have a look at revenue.ie they have some good examples there of how to calculate taxation on rental income.

As a rough guide you:
a) calculate your annual rental income. Think of that as your gross profit.
b) you then subtract all allowable expenses these include:
- 75% of the annual interest you pay on the mortgage.
- insurance costs, both house insurance and payment protection are allowed.
- mgmt fees
- bin charges and any other rates you pay for the tenants
- 12.5% of the value of fixtures and fittings

You then pay your taxes on any profits. There are actually 3 seperate amts. that make up your tax liablity.
41% of your profit for the income tax (assuming that you are PAYE and in that tax bracket)
4% of your profit for PRSI
7% of your profit to cover the Universal Social Charge.
If you make a loss you are not liable to tax but should still file a tax return, for traceabilty.

A useful site, no connections to it.
http://www.irishlandlord.com/

A couple of other points on this issue:
- You don't file your first tax return until the Oct of the following year.
- You need to check if there are any terms and conditions in your mortgage contract re renting your house out, for examle if I rent mine I will lose my tracker.
- You must register the house with the PRTB - this costs approx. €200. You cant deduct this from the tax liability.
- You need to do a BER survey.

Overall, the bank will look at your ability to pay when calculating if they should give you a new loan. They will see that there will be a shortfall of 350 per month (min) if you were to rent out your house. This will go against you when they are deciding about giving you the new loan.
- Could you; wait and save the 25K or borrow it from a family member?
- If you extend teh duration of the €25K loan it will make it more affordabale in the banks eyes.

Ultimately their decision will come down to factors such as; how much you earn, other loans you have, your savings history etc.

4) The house/ mortgage is in my husbands name so could the new house be put in my name to benefit us in anyway?
Response - I don't know the answer to this.

thanks so much for your detailed reply, really appreciate the information....we have a lot to consider at the moment