No tax paid on rental income and now bank forcing sale

Hi,

KBC are planning to force a sale on a property we've been renting since April 2008. There'll be a shortfall of 120k + on mortgage owed.

We've never registered property with PRTB or paid second home tax, property tax or household charge on it as we've never been able to afford it. We've been paying at least 200 euro per month on top of rent to cover interest only mortgage.

What are the implications for us tax-wise if we sell the house either with or without a PIP?

Average rental income of 7200 euro per year since May 2008 give or take a few months off between tenants. We always, naively, assumed that because we were paying out more than rental income we would not become liable for tax on rental income. As we never registered with PRTB, I gather than we can not even write off 75% of interest paid (which would probably cover rental income). If we now register with PRTB and plead ignorance is there a chance of sorting this out?

Any advice welcome.

There are (at least) two seperate issues here.
1) The NPPR or second home tax as you call it has not been paid so unless you pay that the sale will not go through. The penalties for not paying this are huge so it is a serious problem.
2) Your tax liabilty with revenue. This is not all that bad as you can back register with PRTB (you have to pay double for late registration for every year) so you can avail of the tax concessions.
As you are in serious NE and the bank are forcing the sale, I'm not sure what happens here. Either way you are not in as bad a situation as you think cos after all the bank wants to do the deal and you really have not much to lose.

Thanks elcato.

1. As far as PIP advises, it will be taken out of sales proceeds as we have no way to pay it.
2. That's good to hear. i'll look into registering asap.

You can progress to deal with KBC in respect of selling the property and postpone any dealing with the Revenue as one is not dependent on the other. If KBC force a sale of the BTLproperty the unpiad property tax will be their responsibility as it will need to be paid before title can be passed on to a purchaser. However any tax due on RI is a separate issue and you can either address this yourself with the Revenue in oline with Elcato's advice or hope that Revenue will not chase you for it. It's an income tax liability and has nothing to do with the sale of the property!

elcato said:

There are (at least) two seperate issues here.
1) The NPPR or second home tax as you call it has not been paid so unless you pay that the sale will not go through. The penalties for not paying this are huge so it is a serious problem.
2) Your tax liabilty with revenue. This is not all that bad as you can back register with PRTB (you have to pay double for late registration for every year) so you can avail of the tax concessions.
As you are in serious NE and the bank are forcing the sale, I'm not sure what happens here. Either way you are not in as bad a situation as you think cos after all the bank wants to do the deal and you really have not much to lose.

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Just to clarify a minor point, the PRTB registration fee applies per tenancy (up to 4 years) and is not an annual charge. Good advice otherwise though.

I would also add that if the interest bill each month exceeds the rent by €200, it is highly likely that no rental profit was made, even allowing for the 75% restriction on interest. Hence there may not be a significant income tax liability.

44brendan said:

You can progress to deal with KBC in respect of selling the property and postpone any dealing with the Revenue as one is not dependent on the other. If KBC force a sale of the BTLproperty the unpiad property tax will be their responsibility as it will need to be paid before title can be passed on to a purchaser. However any tax due on RI is a separate issue and you can either address this yourself with the Revenue in oline with Elcato's advice or hope that Revenue will not chase you for it. It's an income tax liability and has nothing to do with the sale of the property!

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Thanks for your advice.

I understand they're separate issues but the tax issue arose on a separate thread and I was advised to ask here.

How can the Revenue discover that rental income has been accrued for 5-6 years? Will something to do with house sale/inevitable registration with PTRB flag it with them?

T McGibney said:

Just to clarify a minor point, the PRTB registration fee applies per tenancy (up to 4 years) and is not an annual charge. Good advice otherwise though.

I would also add that if the interest bill each month exceeds the rent by €200, it is highly likely that no rental profit was made, even allowing for the 75% restriction on interest. Hence there may not be a significant income tax liability.

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So, do we have to register for every tenant we've had? Only been two since 2008 anyway.

The interest bill has been at least 900 euro every month since 2008. Rental income has been 700 euro for years, may have been 750 euro pm initially.

So, basically can we now register with PTRB, plead ignorance, and figure out difference between rental income since 2008 (can check bank statements) versus interest paid (can check KBC's annual statements to us)? Also, we can take house insurance costs from it (probably 300-400 per year)

Mortimer said:

So, do we have to register for every tenant we've had? Only been two since 2008 anyway.

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In short, yes. See the PRTB website for full details.

The interest bill has been at least 900 euro every month since 2008. Rental income has been 700 euro for years, may have been 750 euro pm initially.

So, basically can we now register with PTRB, plead ignorance, and figure out difference between rental income since 2008 (can check bank statements) versus interest paid (can check KBC's annual statements to us)? Also, we can take house insurance costs from it (probably 300-400 per year)

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There are other deductions available. See the Revenue Guide IT70 or this summary: http://www.mcgibney.com/tax_on_rental_income.htm

Mortimer said:

How can the Revenue discover that rental income has been accrued for 5-6 years? Will something to do with house sale/inevitable registration with PTRB flag it with them?

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There's any number of ways they can find out, a few being:
They will know that you were liable for NPPR on that property so at some point are likely to question what you used it for.
If any of your tenants used that as their official address it would indicate to Revenue that you had tenants.
Also if any of your tenants claimed the rent tax credit they may have given Revenue your name and address, and again the property address itself will be linked to that claim / letting.
And the sale of the property will be a stamp duty event, which will also be linked back to you as vendor.

No point sticking your head in the sand, if you leave it too late and can't backdate PRTB (not sure if they impose any kind of time limit), you risk creating an entirely avoidable tax liability, and if that crystallises after you're out the other side of a PIA you'll be on the hook for it.

You can include Revenue debts in either a DSA or PIA as long as Revenue consents when asked by the PIP. Revenue debts are 'excludable' debts.

Just to clarify a minor point, the PRTB registration fee applies per tenancy (up to 4 years) and is not an annual charge

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Actually quite a major point so apologies for mistake. I this case you would have to register twice at double bubble but still is only < 400 in total.
You need to fill out a form 12, just the rental income section will do, for every year since renting and send them all in together. Once you get the first done the rest will be easy. See post #4 or 5 here for a sample of what you can claim. Your tax liability is probably close to zero but better to get it sorted out.

NPPR late fees

According to Joe Duffy show yesterday, the late fees/interest for unpaid NPPR charges are huge so best to tackle that as well before the 'Amnesty' expires.

Ok, thank you everyone for your kind help.

Gonna trawl through bank statements since 08 and KbC are gonna send interest paid statement for same.

This is a great site for assisting those in need, thanks again.

T McGibney said:

Just to clarify a minor point, the PRTB registration fee applies per tenancy (up to 4 years) and is not an annual charge. Good advice otherwise though.

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If the OP has had a different tenancy agreement with different tenants then each tenancy agreement would require PRTB registration.

When a tenancy starts it should be registered. Most initial tenancy agreements are for 12 months. At the end of that tenancy, if the tenants vacate, and a new agreement with new tenants starts, a new PRTB registration is required.

In order for the original tenancy to continue to its full potential, either the original tenants must remain for the 4 years or by an assignment of the lease agreement to other tenants who take over all the responsibilities and obligations of the tenancy agreement.

IMHO, if a landlord wants to prove to the PRTB that the tenancy was assigned, he would have to have a Deed of Assignment duely completed and signed by all parties.

Thus the OP may in fact have to pay 6 or 7 late registration fees.

I think you can only register the current tenancy, backdated to when it began (maximum of 4 years ago, as tenancies run in 4-year cycles). I don't think that you can retrospectiviely register a tenancy which has ceased. Where this leaves you vis-s-vis claiming the tax relief on mortgage interest for rental income received during an unregistered tenancy I don't know, but I would suspect that you wouldn't be able to claim it.

Andarma said:

I think you can only register the current tenancy, backdated to when it began (maximum of 4 years ago, as tenancies run in 4-year cycles). I don't think that you can retrospectiviely register a tenancy which has ceased. Where this leaves you vis-s-vis claiming the tax relief on mortgage interest for rental income received during an unregistered tenancy I don't know, but I would suspect that you wouldn't be able to claim it.

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This contradict the past experiences of some of my clients. If you can provide a source to support your view, that would be great.

I can't find anything on the PRTB website, but a couple of years ago my tenants has been in place for 4 years, so I had to re-register the tenancy. At that time ( maybe it's changed now), you couldn't do a re-registration on the PRTB website, so I was told by a PRTB employee to register as a new tenancy. The website would only allow you to register the tenancy retrospectively for 4 years (I checked this when doing the registration as strictly speaking my tenancy wasn't new and I wanted to show when it had actually started but I wasn't able to).There is something on the Irish landlord website about this I think.

Rental income 700 X 12 = 8400, possible 750 X 12 in year 1 = 9000

Interest of 900 X 12 = 10,800.

2008 (figures need to be recalcuated as it's only let from April. So 9 months)

Rent 9000
Mortgate interest @ 75% 8100
House insurance 300
Life insurance
W&T 1200*
Gardening
Bins
Rates/water
repairs

(Tommy, I can't remember, was their PRSI in 2008? And when did the USC come in?)

Voids???


2014

PRTB X by 180 = 360
Problem in relation to prsi/USC


* W&T will bring it below taxable level, assuming about 10K of fixtures and fitting

Mortimer looks like you'll be ok. Why don't you post up the figures on here for each year.

The problem you have is to register with the PRTB have you or can you get the PRSI no of the tenant, but I do know this, for some tenants that don't have a PRSI no they allow registration anyway, something to do with foreign nationals.

But I bet over on the Irishlandlords website they have ideas on how you can back register and poster accountant Tommy McGibney on here has clients who managed it.

NPPR/Household charge/property tax

These 3 separate taxes/charges you don't have to worry about. Make sure, for yourself, that you inform any potential purchaser to ensure that they are paid, tell them to tell their solicitor. Then the bank will have to pay it.

USC came in 1/1/2011.

Prior to that, Income Levy was in place for 2009 & 2010.

Rates & rules are all online, if you search year by year.

Also, 75% restriction on mortgage interest deduction came in April/may 2009 (can't remember offhand).

Mortimor you'll have to have a look at revenue.ie for the rules per year, but you have the gist of it now. If the 75% interest didn't come in until 2009. Then you take the full interest for 2008 but take 9 months of it. First step is to register for PRTB.

I understand you are losing the property, but it's important if you are not going down the insolvency/bankruptcy route that you deal with outstanding potential tax liability now.

A lot of people are so concered with the banks taking their properties that they are forgetting about potential tax implications, but revenue never forget.