Negotiating on Tax Liability on Rental Income

[BridgetF]

Hi. We are in a situation where we have had to rent out our 3 bed duplex in Dublin while we as a family rent a house in Clare as we haven't been able to get another mortgage due to the negative equity against our Dublin house.
As rental incomes increase in Dublin so too do the tax bills for us and people alike. As we receive about €400 a month more than our mortgage repayments. Bear in mind this has to cover Property mgmt fees etc.
Anyway, we have submitted our tax returns and this year we owe €3800 on income tax! How can a couple be expected to pay this in less than one year?
We have been asked by Revenue to complete a PPA1 form and provide 6 mths bank statements and they will advise if they will allow a payment plan or agree to one we suggest.
Is there any advise you could give when negotiating with Revenue on income tax debt?

Thanks in advance

 

[Black_Adder]

The first thing is to get someone to assess the Rental Income return you made. One of the common issues is that most people are totally unfamiliar with the deduction that form part of the Rental assessment. For example what value did you put on fixtures and fittings - as there is a deduction available - and there is more. 75% of the interest (if you have registered with PRTB) etc.

Maybe you did all that and the tax bill is where it is at, but that is where I would start. I am happy to reply again.

 

[BridgetF]

The first thing is to get someone to assess the Rental Income return you made. One of the common issues is that most people are totally unfamiliar with the deduction that form part of the Rental assessment. For example what value did you put on fixtures and fittings - as there is a deduction available - and there is more. 75% of the interest (if you have registered with PRTB) etc.

Maybe you did all that and the tax bill is where it is at, but that is where I would start. I am happy to reply again.

Yes Black Adder, we did all that and this is the amount due unfortunately.

 

[Joe_90]

You receive €400 more than the mortgage what are you doing with that?

The Mgt fee could not be €4,800.

 

[Jon Snow]

I'm not sure what you think is to be negotiated on? You owe €3,800 in tax, and you're going to continue to owe a similar amount each year, so you need to get used to the fact that it's going to be an ongoing overhead.

As Joe pointed out, it is an overhead that has to come out of the positive cash flow that the rental generates.

 

[landlord]

As rental incomes increase in Dublin so too do the tax bills for us and people alike.

This statement says to me that you may not have a good financial or business sense.

PAYING TAX ON RENTAL INCOME IS GOOD....... IT MEANS YOU HAVE MADE A PROFIT.
PAYING MORE TAX ON RENTAL INCOME IS BETTER SINCE YOU HAVE MADE MORE PROFIT!!!!!

Your problem seems to be budgeting for this tax settlement.
Every year I expect my rental tax bill to be approximately 22,000 Euros, so once A month I take €2000 out of my property investment current account (rent money) and place it in a separate current account I use just to pay tax. These savings are considered off-limits and are left untouched each year till tax is due in October. I could potentially also transfer money to this savings account for management fees, advertising, repairs etc....
What is important is what is left in my property investment current account at any point in time usually equates to profit. So no nasty surprises!!!!

 

[gar32]

Just checking here.

Tax on rental income profit is 20%.

€3800 = 20%

Income would be €19000

€1600 a month Rental

So with deduction extra the amounts would be higher.

I don't see your problem? Everyone has to pay 20% on rental income.

Maybe you need to plan as other posters have suggested.

Good luck with getting out of negative equity.

 

[Bronte]

You receive €400 more than the mortgage what are you doing with that?

The Mgt fee could not be €4,800.

While that is true, that 4800 has to pay for a lot of things, LPT, PRTB, house insurance, management fee, life insurance, repairs. If there were voids it could quite easily mean they don't have the tax and have to find it from their own salary income.

 

[Bronte]

Every year I expect my rental tax bill to be approximately 22,000 Euros, so once A month I take €2000 out of my property investment current account (rent money) and place it in a separate current account I use just to pay tax.

What is important is what is left in my property investment current account at any point in time usually equates to profit. So no nasty surprises!!!!

Well there's actually no need to remove the money, you just pay revenue directly from your rental current account, that's what I do. You're also not counting the fact that strictly speaking rent is paying down capital, which is also profit.

I agree about having no nasty surprises so that's a matter for the OP to budget.

 

[Bronte]

Just checking here.

Tax on rental income profit is 20%.

€3800 = 20%

Income would be €19000

€1600 a month Rental

So with deduction extra the amounts would be higher.

I don't see your problem? Everyone has to pay 20% on rental income.

Maybe you need to plan as other posters have suggested.

Good luck with getting out of negative equity.

Some people are in the higher rate tax bracket, so not 20% around 40%, factor in PRSI and USC and your closer to 50% for some people.

 

[Bronte]

Yes Black Adder, we did all that and this is the amount due unfortunately.

Even so there are cases where important items are missed. We had a poster on here only yesterday missed out on claiming something that his accountant missed and could only go back four years. Can you list your rental deductions. What is your tax rate, your prsi, your usc on your tax. Also what do you do with the 400 Euro extra a month, are you using some of it to pay rental costs but also using some of it to pay towards your own household bills.

I presume revenue are going to come to an 'arrangement' with you to pay down this large bill that you don't seem to have the money for. Not sure if they will also charge you interest etc.

What you also need to do now is put money aside each month to pay your tax, I presume part of that tax amount is preliminary tax. Ask your accountant how much you'll be due to pay next year, rough figure, and keep that much aside each month to build up the amount needed so you don't have another nasty surprise.

If you have social welfare tenants, there's a complicated, new scheme for 100% tax relief, but it will be backdated in four years time.

 

[cremeegg]

Anyway, we have submitted our tax returns and this year we owe €3800 on income tax! How can a couple be expected to pay this in less than one year?

Income tax in this country can be in excess of 50% of income, and for some landlords depending on the amounts of interest being paid, tax can arise even while losses are being incurred.

Nevertheless Tax law is there and Tax has to be paid in accordance with the rules.

It a bit lame to come along after the fact and ask how can you be expected to pay this in a year. You will have to pay tax again next year.

Is there any advise you could give when negotiating with Revenue on income tax debt?

Yes. Look here. http://www.revenue.ie/en/practitioner/ebrief/2016/no-162016.html see in particular paragraph 13.

That will be €4,568 please.

(joke for readers of this thread http://www.askaboutmoney.com/threads/is-this-accountants-fee-reasonable.197343/page-2#post-1459429)

 

[T McGibney]

Income tax in this country can be in excess of 50% of income, and for some landlords depending on the amounts of interest being paid, tax can arise even while losses are being incurred.

In one case I handled a few years back, I calculated my customer was paying an effective tax rate of over 70% on his rental income from his former PPR, when addbacks and NPPR were factored in.

 

[landlord]

Well there's actually no need to remove the money, you just pay revenue directly from your rental current account, that's what I do. You're also not counting the fact that strictly speaking rent is paying down capital, which is also profit.

Sorry I should've been more specific I'm interest only on all my investment properties (bar one), so not paying off any capital ( well hardly any )

 

[Bronte]

Sorry I should've been more specific I'm interest only on all my investment properties (bar one), so not paying off any capital ( well hardly any )

One time on here that was the holy grail of being a landlord. ie the best tax advice, we had mega rows about it back in the day.