Preliminary Tax refund

Hi All,

I rented out a property for a year and a half before selling it. I will be paying the tax on the rental income for 2018 and I understand there is similar liability for preliminary tax for 2019 to pay.

I received one months rent in 2019 before I sold it. So the preliminary tax is will be a significant overpayment and is leaving me a bit stretched financially.

I would assume the tax has to be paid regardless, so my best option is to put in a tax return as soon as practicable in 2020 to claim the refund on the overpayment.

The rule for preliminary tax is that, TO AVOID INTEREST, you pay THE LESSER OF 90% of the current year liability OR 100% of the prior year liability.

There’s 2 elements there.

The first is that the consequence of underpaying your preliminary tax is interest, not a firing squad.

The second is that the threshold amount is the lesser of 2 figures. If you know your current year liability is going to be very small, then your preliminary tax liability is also very small (as is the potential interest charge in the event you don’t pay that very small preliminary tax liability).

torblednam said:

TO AVOID INTEREST, you pay THE LESSER OF 90% of the current year liability OR 100% of the prior year liability.

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Just for clarification here, in this case (Form 11 for 2018) current year = 2019 and prior year = 2018. Correct ? So the OP should pay 90% of what he believes will be his final bill for 2019 which shpuld be quite small as there is only one months rent liable.

Yes, correct I am submitting my form 11 for 2018.

I am using an online tax return system which automatically calculated my preliminary tax for 2019 as more or less the same as my 2018 liability. I guess it can't factor in my 2019 rent so defaults to the 100% of prior year.

So based in the answer here I should over ride that and just pay the tax owed on one months rent.

Paying 100% of prior year is acceptable but you can pay more if you want