Non-Resident Landlord Queries

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Nutso

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My husband and I both currently work in the construction sector and although we are both employed at the moment, as we all know, things are not looking too good in that sector right now.

Because of this, we are considering a move to either Canada or the UAE for a couple of years till things hopefully pick up here again. This will also be an opportunity for both of us to broaden our experience and hopefully make us more employable on our return.

We recently purchased and did a lot of work on a house, which we are not too comfortable letting out to complete strangers.

We would like for a friend or relative stay in the house rent-free while we are gone, in order to keep an eye on the place for us. We would also plan to rent 2 other rooms in the house. We would register with the PRTB etc and don't expect to be covered under the RARS. We have also paid stamp duty on our house already, so this will not be an issue.

My queries are as follows:

As we will (hopefully) rent two rooms, which will nowhere near cover our interest repayment on our mortgage, would our tenants still be obliged to deduct the withholding tax of 20%?

If they do deduct the withholding tax, is there any way to confirm that they have paid it to revenue or is it possible that they could just deduct the tax and keep it themselves?

If they deduct the tax and pay it to revenue, can we then claim a refund at the year end we would be making a net loss on the rental income?

Would there be any tax issues for the friend or relative who would be acting as a care-taker?

Thanks in advance for any responses.....
 
Nutso said:
As we will (hopefully) rent two rooms, which will nowhere near cover our interest repayment on our mortgage, would our tenants still be obliged to deduct the withholding tax of 20%?

If they do deduct the withholding tax, is there any way to confirm that they have paid it to revenue or is it possible that they could just deduct the tax and keep it themselves?

If they deduct the tax and pay it to revenue, can we then claim a refund at the year end we would be making a net loss on the rental income?
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Just on that point above - the tenant doesn't deduct tax at 20% - they pay you €X per month and then apply to Revenue for a tax credit up to the relevant ceiling. They are entitled to do this regardless of your mortgage/interest situation. It isn't a withholding tax - it's a tax credit/relief for the tenant.

Sprite
 
Thanks but I'm not talking about the rental tax credit.

I was under the impression that if a tenant was renting from a non-resident landlord, they should deduct 20% of the rent and forward it to the revenue commissioners on behalf of the landloard. Is this incorrect?
 
Nutso said:
I was under the impression that if a tenant was renting from a non-resident landlord, they should deduct 20% of the rent and forward it to the revenue commissioners on behalf of the landloard.
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This is correct in relation to renting a house to a third party as an overseas landlord.

Can't advise you though with the "rent-a-room" situation or tax implications for a friend staying rent free.
 
The only way to avoid the tax deduction is to have the rent collected through an Irish resident Agent.

Assuming you don't want to go down that line you'll have to accept the Rent Withholding Tax deduction. The landlord is obliged to pay over the deemed tax deduction to Revenue. That won't be an issue for you anyway, all you need to do is to obtain the tenants PPS number and when filing your tax return you'll have to give details of the tenant.

When you make your tax return to Revenue you'll receive a deduction for the amount of withholding tax paid. Should you have no liability then you would receive the entire tax deducted back.

In relation to a friend living in the house while you were gone, in theory you're providing the friend with a benefit (I.e. gifting them the use of house for the amount of time you are gone). So the friend would be liable too pay Capital Acquisitions Tax on any gift above circa €20,000 if it's a friend and above circa €50,000 if a relative. The value of the gift would be monthly market rent by, say, twelve months.

You could go down another route and provide the friend with the use of the house in return for looking after the property while you're gone. In rhis situation you would be liable to the deemed income received. Depending on your mortgage interest etc... you may be liable to income tax on the deemed income.

You should also be aware that you will be liable to Irish Income Tax until such time that you are no longer ordinarily resident in the State (Three years after you leave the State). The exception to this is a foreign employment were tax is deducted on the earnings. As far as I'm aware UAE is a tax haven and therefore no tax will be deducted meaning you'll be liable to Irish income tax on these earnings.

Also I doubt a non-resident can avail of the Rent-A-Room relief as mentioned above.

You should seek professional advice as there are a number of ways you could substantially reduce your tax liability while being a non-resident.
 
Iceman732 said:
The exception to this is a foreign employment were tax is deducted on the earnings. As far as I'm aware UAE is a tax haven and therefore no tax will be deducted meaning you'll be liable to Irish income tax on these earnings.
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Is it not the case that any earnings made outside the state while resident outside of the state are not subject to irish income tax?
 
Iceman732 said:
The only way to avoid the tax deduction is to have the rent collected through an Irish resident Agent. ...
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This is incorrect. The only difference is the Agent deducts the tax prior to paying the Landlord rather than the Tenant. In either case, the Agent or Tentant must submit a form to the Revenue accounting for the tax with-held.

see here, which seems comprehensive - http://www.let.ie/articles/article6.html
 
As I stated in the OP, we don't expect to use the RARS, just that we would be renting rooms rather than the whole house as a friend/relative would be using one room already.

Anyone ever experienced a tenant deducting the tax from rent paid but not paying it over to revenue? What would happen in this situation?

Thanks for links & comments.
 
Thanks ubiquitous, I had searched but didn't find anything specifically on my query re: the tenant deducting tax from rent but not paying over to revenue. Also didn't find anything on letting a friend/relative stay in the house rent-free.
 
You should really forget about the possibility of asking tenants to deduct the tax on rents paid to you. I believe it would be very difficult to enforce this properly in order to protect your interests, based on the landmark Ombudsman's report on this topic which I have referenced on previous AAM discussions on this area.

The alternative option, that of appointing a collection agent, who can be a friend or relative of yours, is far easier and safer, in my opinion.
 


Mathepac please take the time to read the information below, I've unlined the bit regarding an Irish agent.

I think Mathepac comment proves you should get professional help with this query. People have a tendancy to post inacurate information at times.




NON-RESIDENT LANDLORDS -Taxation of Rental Income

Introduction

This post deals with the procedures when rents are payable to a person whose usual place of abode is outside the State. There is often confusion between the treatment where rent is paid direct to the non-resident landlord and where rent is paid direct to an Irish collection agent.

Rent paid direct to a non-resident landlord

Tenant
Where rents are paid directly to a person whose usual place of abode is outside the State, the tenant is obliged to deduct income tax at the standard rate from the payment

(Section 1041 TCA 1997). The tenant gives the landlord a certificate of the tax deducted on form R185. The tenant should account to Revenue for this tax. Payment into a bank account in the name of the landlord is regarded as payment directly to the landlord. Strictly, the tenant should make a return immediately after the tax was deducted and pay over the tax deducted. In practice, an annual return made with the tenant s return of income for the tax year together with a remittance for the tax deducted will suffice. Where payment is not received, the tenant will be asked to remit the tax deducted and in the absence of receipt of a remittance a notice of assessment will issue. In PAYE cases, recovery of the tax deducted can be dealt with by adjustment of the tenant s tax-free allowances i.e. by coding in an underpayment of the amount of tax deducted.

The obligation to deduct tax on payment of rents does not make the tenant a chargeable person (Section 950 TCA 1997).

Payments of this nature are not charges on income i.e. taxed or other income cannot be regarded as covering these payments.
Landlord

The landlord is a chargeable person and is chargeable to Income Tax, PRSI and Health Contribution Levy. The landlord is chargeable on the gross rents less any expenses which are usually allowed in arriving at the rental profit. The landlord may also be entitled to a proportion of personal reliefs and to aggregation relief. Credit for the actual tax deducted from rents by the tenant will be granted.
Where the landlord is a non-resident company, it will be chargeable to income tax, rather than Corporation Tax, unless it carries on a trade in the State through a branch or agency. If it carries on such a trade, it will be chargeable to Corporation Tax in respect of all of the profits attributable to the branch or agency.

Rent paid to an Irish agent of a non-resident landlord
Tenant

Where rent is paid to an Irish agent of a non-resident landlord the tenant is entitled to pay the rent without deduction of income tax. Where the tenant wishes to claim rent relief in respect of the rent paid, he or she must include the name and address of the landlord in the claim on Form Rent1/Rent2.
Landlord and Agent

Where rents payable to a non-resident landlord are paid to a person whose usual place of abode is in the State, for example to an Irish based estate agent, acting on behalf of a non-resident landlord, the tenant is not obliged or entitled to deduct income tax. The non-resident landlord is chargeable in the name of the Irish agent. The Irish agent is not entitled to deduct tax from the rent on payment to the landlord

The landlord is assessable in the name of the Irish agent (Section 1034 TCA 1997). While the assessment is in the name of the Irish agent, the tax to be charged is the amount which would be charged if the non-resident landlord was assessed in his or her own right. Accordingly, relief will be given for any personal allowances to which the non-resident landlord is entitled and tax will be charged at the marginal rate of income tax.
 
Iceman732 said:
Where rents payable to a non-resident landlord are paid to a person whose usual place of abode is in the State, for example to an Irish based estate agent, acting on behalf of a non-resident landlord, the tenant is not obliged or entitled to deduct income tax. The non-resident landlord is chargeable in the name of the Irish agent. The Irish agent is not entitled to deduct tax from the rent on payment to the landlord

The landlord is assessable in the name of the Irish agent (Section 1034 TCA 1997). While the assessment is in the name of the Irish agent, the tax to be charged is the amount which would be charged if the non-resident landlord was assessed in his or her own right. Accordingly, relief will be given for any personal allowances to which the non-resident landlord is entitled and tax will be charged at the marginal rate of income tax.
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Just trying to get my head around this. Am I right thinking the Irish agent pays the 20% tax on behalf of the non resident landlord?

I will be a non resident landlord. I will be getting a estate agent to manage the house while I'm away. At the moment I am studying abroad and not earning so does this have any implications regarding the 20% tax deduction for a non resident landlord?
 
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