Non-Resident Landlord - Management Agency refuses to collect Tax

J

JamesUK

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In another thread, frequent poster ubiquitous correctly reminded me that, as a non-resident landlord, I have an obligation to appoint a "collection agent" in Ireland to deduct 20% tax on rents received, or (where there is no agent) my tenant is obliged to deduct tax at source. This subject is important to me, and also to other non-resident landlords, and I'm keen to read others' opinions about how to comply with Irish tax law in this respect.

I moved to the UK in August 2004, and since then my property has been let and managed by a well known estate agency, which at the beginning did not suggest collecting the tax. Later, when I discovered this is required by Revenue, I asked the agency about collecting the tax. They pleaded ignorance about any such requirement and had no interest in being involved in collecting tax. Earlier this year, I asked the agency again, but same response. I am registered with the PRTB.

For 2004, I was deemed tax resident in Ireland , and I declared the rental income (or rather the profit after expenses were deducted) in my 2004 returns (via my Irish accountant). This was assessed by Revenue, without question. My plan again is to include rental income in my 2005 returns. I was both non-resident and ordinarily resident for 2005 (as I will be for 2006 and 2007). My question is, will Revenue be happy with me declaring the rental income in my returns, though this is technically not the correct way?

James
 
You need to get someone else to act as "collection agent" for you. For example this can be a friend, relative or any other Irish-resident person.

It is generally a very bad idea to ignore Revenue rules and procedures such as those governing tax deduction at source on non-resident landlords. By doing so you are knowingly breaking the law and the fact that this situation has continued uncorrected for two years at this stage would leave you highly vulnerable to prosecution and imposition of interest (1% per month) and penalties at the Revenue's discretion. The fact that you have in the meantime declared this income on your annual tax returns is neither here nor there.

As I mentioned on the other thread, you really need to regularise your affairs as a matter of urgency.
 
As ubiquitous correctly pointed out there is withholding tax obligations on tenants who have non resident landlords if there if no agent appointed in ireland. If there is an "irish collecting agent" then there is not tax obligations and the rent may be paid gross

the management company do not need to collect tax as they would be an agent and therefore the tax deduction is avoided they would need to however confirm that they are collecting agents for the landlord something they may not wish to do

james - do they receive your rent or is it paid direct to you!

i would not worry to much about your failure to appoint an agent since 2004 as you are now making the effort as uubiquitous said anyone can be an agent including your family or accoutant.
however in my experience revenue will write to you once you go up on there system when you file a non resident return once then you do something about i would not worry about it revenue would never prosecute such a case

i have copied in an extract from an income tax book i have:

RENTS PAID TO NON-RESIDENTS

Under section 1041 TCA 1997, where rent is paid direct to a non-resident, tax at the standard rate must be deducted by the payer. The recipient of the rents is entitled to claim a repayment of the tax to the extent that his/her liability to Irish income tax on the net rent is less than the tax deducted.

Rents paid to agents in Ireland are not paid under deduction of tax. In this case, (section 1034 TCA 1997) the agent will be assessed in the name of the non-resident landlord in the same manner as the non-resident would have been assessed if resident in Ireland.
 
ubiquitous, have you personal knowledge of any non-resident landlords being prosecuted, or having interest imposed?

For 2004, I was tax resident in Ireland, my total income profit (self-employed + rental) within Ireland was under the exemption limit, and my Notice of Assessment for 2004 indicated no tax to pay (other than €253 self-employed PRSI), so no penalties can arise from tax on rent for 2004. Probably no risk of prosecution either, as I was tax resident for 2004.

However, the situation may be different for 2005, if I proceed to declare the rental income through Form 11. For 2005 I was non-resident, and there is tax due. As bazermc suggests, indicating non-resident in my 2005 Form 11 may trigger Revenue to instruct me how the rental income tax should be processed. Whether they will then include this tax in their Notice of Assessment for 2005 anyway, but ask me to process it the correct way for 2006 and later, or whether they will reject my Form 11 and instruct me to process the 2005 rental tax correctly, we can only guess. I suspect the risk of prosecution (or interest) may arise if I don't subsequently follow their instructions (whether for 2005, or later years).

Prior to these discussions, the way I was intending to process rental income tax was at least efficient, and simple, with no additional agent or forms required. But that's my opinion, and I guess only Revenue rules matter. I was seeking to honestly declare rental income. Perhaps Revenue rules are based on the assumption that non-resident landlords cannot be trusted!

From what you both say, it appears the estate agent has no obligation under law to collect the tax. This would explain why they showed no interest in my query. But notice the following extract from IT 70 - A Revenue Guide to Rental Income. Although the Collection Agent can be a family member or other person, this extract suggests that where a property management agency is appointed, it is responsible as Collection Agent:

What if Rents are payable to a non-resident landlord?
Where an agent, resident in the State, is appointed by the non-resident landlord to manage the property and the agent is collecting the rents, the rents must be paid gross to the agent. The agent is then chargeable to tax on the rents as Collection Agent for the landlord and is required to submit an annual tax return and account for the tax due under Self Assessment.


bazermc, you asked if the estate agent receives the rent, or if it is paid direct to me. Every month, the tenant pays the gross rent to the estate agent. The estate agent duducts their fee plus any expenses incurred directly by them during that month (e.g. boiler service), and deposits the difference in my Irish bank account. To calculate my profit, I sum the bank deposits for the year, and deduct any expenses incurred directly by me during the year (e.g. house insurance).


Assuming I have to appoint a Collection Agent (other than the estate agent), other practical and logistical questions arise:

What does 'at source' mean?
(a) Does the agent collect the tax from the tenant, and provide the tenant with a receipt? One advantage of the estate agent is to ensure the tenant pays in full each month. They have experience of doing this, but a relative or friend may not be experienced in reliably collecting tax.
Or (b), can the agent collect the rent from the estate agent, pay the tax, and deposit the remainder in my bank account? If so, should the estate agent not deduct expenses incurred directly by them, but rather invoice me for such expenses?

The property letting agreement (lease) is a legally binding contract. It states the rent amount and requires it to ba paid monthly to the estate agent. How will this contract be reconciled with Revenue rules?

How does the agent submit the tax to Revenue, e.g. letter plus cheque? Or, is there a special form? To whom and where is it submitted?

Should the tax be collected and submitted monthly, or once at end of year?


My thanks to ubiquitous and bazermc for your input so far, and I welcome your further comments.

Have any other landlords reading this had issues similar to mine, and how did you resolve them?

James
 
Ok, Im really confused and slightly alarmed.

Im a non resident landlord. I use a management company, I make sure my tenants are happy. Im registered with the PRTB and at the end of every year I pay an accountant to calculate how much I owe in rental tax which I then pay immediately to the revenue.

Neither the revenue commissioners, the accountant, the PRTB or the management company mentioned anything about assigning a rent tax collector.

Am I breaking the law?
 
JamesUK,

I am an accountant with considerable ongoing experience of representing non-resident landlords. For reasons of professional confidentiality, I don't really want to go into the details of specific cases I have been involved in. I certainly don't want to get into a position here of trying to second-guess the Revenue or of implying (even indirectly) that it is ok for you to ignore the relevant tax laws on the basis of efficiency or any other motive.

I have already stressed to you on a number of occasions on two different threads that you really need to regularise your affairs as a matter of urgency, and if I were in your shoes I would refer to your existing accountant for advice on how you should proceed.

casiopea,
Yes you are breaking the law and you will need to take steps to address the problem.

See [broken link removed]
 
Im baffled.

I suppose this isnt a question for AAM but why:
1) didnt my accountant tell me this
2) the management company (who deal with non resident landlords) tell me this.

I will contact my accountant about this but given that for 2 years now Ive been breaking the law how can I rectify this?
Should I ring the revenue commissioners and tell them Im trying to rectify the situation and submit back forms? The tax has already been paid on the rental income (ie the revenue commissioners have the money) so it just a matter of submitting the R185 form?
 
casiopea said:
Ok, Im really confused and slightly alarmed.

Im a non resident landlord. I use a management company, I make sure my tenants are happy. Im registered with the PRTB and at the end of every year I pay an accountant to calculate how much I owe in rental tax which I then pay immediately to the revenue.

Neither the revenue commissioners, the accountant, the PRTB or the management company mentioned anything about assigning a rent tax collector.

Am I breaking the law?
Click to expand...

I don't think so.

You are a non-resident landlord. You are not obliged to have a collection agent. If your tenant is paying the rent directly to you, it is he who is breaking the law as he is obviously not withholding any tax.

Either way, at the end of the year you are paying what tax is due and I've never come a cross a situation where Revenue will enforce any penalties on the landlord. Has anybody else?
 
Ham Slicer is correct. If the tenant is paying into an account held by the non-resident landlord the tenant is legally responsible for deducting the tax.

The intriguing bit is that the tenant, if they are PAYE, must request their employer to increase their tax payment by the amount the landlord owes. Then annually the tenant is also responsible for providing the landlord with form R185.

Revenue presupposes that landlords are generally tax cheats with non-resident ones being somewhat of a lower order than that.
 
The 1998 Annual Report of the Ombudsman pretty much wrecked forever the Revenue's ability to enforce responsibility onto tenants for collection and remittance of tax deductions from non-resident landlords.

[broken link removed]

If they are not in a position to enforce compliance from tenants, then it does not take a genuis to work out who will be their next target.

People can make up their own minds as to whether it is worth going to the effort to comply with this particular law, but if I were a non-resident landlord I think I would prefer to have my own affairs in order in this regard as opposed to rather needlessly getting on the wrong side of the Revenue, especially given the prevalence of the rather jaundiced presupposition that Max so aptly illustrates above.
 
ubiquitous said:
People can make up their own minds as to whether it is worth going to the effort to comply with this particular law
Click to expand...

This is my problem ubiquitous, I made up my mind to comply with the law. I pay all monies and declare everything. I didnt know about this law. Im not an accountant. Now that I know about the law I will comply but surely it is the responsibility of the revenue commissioners to make this law known? Or the PRTB who have my details and know Im resident outside of Ireland. How many other laws am I breaking without my knowledge?
 
I totally agree that it's inequitable to enforce the law on the tenant as would be applied here.

However, as Revenue keep telling us ignorance is no defence. In fact, I was at a Revenue chaired seminar recently and all questions from the floor re Joe Builder who doesn’t understand RCT, VAT etc. were met with this very answer.

The report of the ombudsman from 1998 finishes with a recommendation for the legislature to change the law. No change has been made in the last 6 yrs.

Thus, while Revenue may never pursue the tenant, the landlord is still not obliged to appoint a collection agent.

Casiopea - Can you please explain to me exactly what law you have broken.
 
Ham Slicer said:
Casiopea - Can you please explain to me exactly what law you have broken.
Click to expand...

Just read the thread from the beginning its explained there with a link from ubiquitious.
 
ubiquitous,

POST EDITED 17th MAY

I accept what you suggest, that using Form 11 to declare tax (as I did in 2004 - while tax resident in Ireland) is not keeping the letter of law in 2005 or later (while non-resident). THIS STATEMENT IS INCOMPLETE, AND SHOULD READ "... that only using Form 11 ... , and not appointing a Collection Agent, this is not keeping the letter of law ...".

However, even if you cannot openly say so in this forum, in your mind you might accept that I am keeping the spirit of the law - by declaring in full and paying the Irish tax due on my rental income.

Clearly, some other non-resident landlords are doing the same, and I believe Revenue are probably pragmatic and recognise that such landlords are at least honest (cue halo), keeping the spirit of the law. I suggest it is the tax evading non-resident landlords "who will be their next target".

Yes, you have already stressed that I need to regularise my affairs. I acknowledge there is an issue here, which needs my attention. When presented with an issue, it is reasonable to resolve it in a methodical way. I'm at the stage where I'm fact finding, learning, and looking at options. I'm using this forum to get information and ask questions - that's what this forum is for. Hence the series of practical and logistical questions in my last post, on which I would welcome your comments.

As you suggest, no doubt I will require the services of an accountant in Ireland.

I believe this thread shows I'm taking action about this issue!

James
 
Han Slicer and Max Hopper,

Unless casiopea corrects me on this, his original post says he employs a management company, so I assume he does not collect rent directly from tenants.

This thread is about the other scenario, where a management company collects the rent for the non-resident landlord, and in that case Revenue require the appointment of a Collection Agent.

James
 
JamesUK said:
Han Slicer and Max Hopper,

Unless casiopea corrects me on this, his original post says he employs a management company, so I assume he does not collect rent directly from tenants.
Click to expand...

I use a management company but the rent is paid directly to me via direct debit, though Im not resident in ireland. To be honest, Im still pretty confused by all of this.

JamesUK said:
As you suggest, no doubt I will require the services of an accountant in Ireland.
Click to expand...

Again, I did this, and was not informed about this law.

Ill look into this more closely and post back my findings.
 
casiopea said:
Just read the thread from the beginning its explained there with a link from ubiquitious.
Click to expand...

I've read the full thread and I also work in tax.

So answer the question.

You are a non-residnet landlord having rent paid directly to you. Ubiquitous link has illustrated that Revenue will probably not pursue the tenant for not operating withholding tax. However, it does not show that the landlord is obliged to appoint a collection agent.

So go back and read the full thread again and let me know where you fall foul of the law.
 
Ham Slicer said:
So answer the question.

So go back and read the full thread again and let me know where you fall foul of the law.
Click to expand...

Im not trying to avoid your question Ham Slicer, as youve read the whole thread you'll know as much about me breaking the law as I do. You'll have seen that I said twice that Im confused and baffled by this. Im not certain how Ive broken the law and doubt (to be honest) if I have and if I have its the fault of the revenue commissioners for not making this law known, given that for 2 years now the have happily acknowledged receiving my rental tax.

According to the link ubiquitous posted:

"If a landlord resides outside the country and rent is paid directly to him/her or to his/her bank account either in the State or abroad, tax must be deducted by the tenant at the standard rate of tax (currently 20%) from the gross rents payable. Failure to deduct tax leaves the tenant liable for the tax that should have been deducted.

Example:

Gross rent per mnth € 1,000
Deduct tax (1000 x 20%) € 200
Pay to Landlord (1,000-200) € 800

The tenant must also give a Form R185* to the landlord to show that the tax has been accounted for to Revenue. "


In the above scenario, I receive the gross. I do not have a tax collection agent. The tax is not deducted by the tenant. I do pay the tax myself however at the end of year. As far as Im aware (unless the tenant did it without my knowledge) nobody submitted an R185 form. Thats it.

JamesUK, Ubiquitous, thanks for bringing this to my attention, Ill speak to my accountant about it and the revenue commissioners and post back my findings if they are relevant or any use.
 
Casiopea,

I'm interested in specific details of the procedure you use, for my own benefit.

Does your accountant both calculate your tax and submit your tax returns to Revenue? Or, does he only do the calculation and then you submit the returns via Form 11?

Do you then receive a Notice of Assessment from Revenue, posted to your Swiss address (i.e. Revenue has your Swiss address on record)? Does it include an entry called ‘Profit from letting premises’ (or similar), and indicate the balance of tax due? Do you then pay this balance by the required date? If so, then it appears that Revenue accept your declaration of rental income.

I cannot see why Revenue would ever prosecute you, or impose interest or penalties, since you do declare the rental income and they accept that by confirming it in the Notice of Assessment, and then they receive your payment of tax by the due date.

James
 
casiopea said:
According to the link ubiquitous posted:

"If a landlord resides outside the country and rent is paid directly to him/her or to his/her bank account either in the State or abroad, tax must be deducted by the tenant at the standard rate of tax (currently 20%) from the gross rents payable. Failure to deduct tax leaves the tenant liable for the tax that should have been deducted.
Click to expand...

I think you're missing the point. Read the example above again. What has the LANDLORD done wrong in this scenario. I'll say it again and for the last time - there is no obligation on the the landlord to have a colection agent. Form R185 is only relevant in the situation where tax has been withheld. If it hasn't, it's irrelevant so you don't need or get one.
 
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