Rent apt or keep trying to sell

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Thrifty1

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Hi, not sure if i have this in the correct forum so please move if i dont.
My query is whether or not myself and husband should rent out an apartment we are currently unsuccessfully trying to sell.
Details are as follows.

Mortgage on 2 bed apt - €150,000 outstanding, 26 years left @ 5.79% with Ulster Bank, monthly payments €860

We also have a mortgage on 3 bed house we are living in
€296,000 outstanding, 24 years left @ 4.99 (discounted tracker for another year) with PTSB, monthly payments €1,780.

We have had apt for sale almost 2 years, there are 4 other apts in complex for sale ranging in price from €199k to €248k and none selling.

Personally i would sell for less than the €199k but as there seems to be no interest at the moment im not sure if we reduced the price more would it sell anyway.

Husband bought property 4 years ago as FTB and house ceased to be his PPR a year ago.

Rental in area for similar properties is about €800- €875 a month about 10 properties in area currently for rent.
I was considering renting property out at around €700 -€750 a month in the hope of attracting tenants quickly.

Questions are

1) If interest on mortgage repayments is around €600 and rental income is €700, profit of €1200 a year.Can i offset management fees of €1,800 per annum against this and therefore pay no income tax?

2)If i switch mortgage to a different bank will it be an investment mortgage?

3)Plan was originally to use profit on sale of appt to pay off principle of mortgage on house, would you advise trying to sell apt for about €180,000 and putting €30,000 (less fees) against it and just be done with it.

4)As my husband has owned the apt 4 years before renting will he be liable to stamp duty clawback (i find the new rules confusing)

Thanks very much i know its difficult to advise but any additional info or guiding would be much appreciated, especially any liabilities i may have overlooked.
Please let me know if further info required.
 
WRT #1

As this apartment was a PPR I am not so sure than interest income would be an allowable charge against taxable income (the rent). The Revenue position being that you didn't borrow to purchase a property for investment purposes, you owned the property already.
 
Is this correct Camry?
I did not think that this was the case (I am open to correction, of course).
Nicola
 
Check out number 4.

[broken link removed]

4.1 The restriction [on the deduction of interest on borrowing against gross rental] also applies where at any time on or after 23 April, 1998, a person vacates his or her principal private residence and turns it into rented accommodation.
Click to expand...
 
So does that mean that anyone who bought, for example, an apartment as their PPR, then after several years bought and moved into a house, can not subsequently rent out the apartment and claim the interest against their rental income for tax purposes?
 
NicolaM said:
So does that mean that anyone who bought, for example, an apartment as their PPR, then after several years bought and moved into a house, can not subsequently rent out the apartment and claim the interest against their rental income for tax purposes?
Click to expand...

The way I read the Revenue FAQ, that is true, since 23 April 1998.

I think the reason this was brought in was to close a tax loophole. You could load up your PPR with debt before you moved, then take the capital you raised to by a new PPR.
 
Wow. I'm really surprised.
Thanks for that information
I had actually considered doing something like that at some stage in the (now far-away) future.
However, that rule makes it completely tax in-efficient to consider at all.
Nicola
 
Thrifty1 said:
Does that mean we are liable to income tax on all the rent received ?
Click to expand...

Given the information you supplied I would say yes.

Although, maintenance, repairs, wear and tear etc. should be allowable.
 
I'm sure lots of people have done that, rented out their PPR after moving on to a bigger place.
I feel completely ill informed, never ever realised that the rental income wasn't allowed against the mortgage interest.
That makes a huge difference, as the whole income (bar expenses) therefore is assessed for tax. Which makes renting a PPR out a bit untenable really for lots of people I'd imagine.
Am I the only person who hadn't copped on to that?
Nicola
 
NicolaM said:
I'm sure lots of people have done that, rented out their PPR after moving on to a bigger place.
I feel completely ill informed, never ever realised that the rental income wasn't allowed against the mortgage interest.
That makes a huge difference, as the whole income (bar expenses) therefore is assessed for tax. Which makes renting a PPR out a bit untenable really for lots of people I'd imagine.
Am I the only person who hadn't copped on to that?
Nicola
Click to expand...

Somehow I doubt you are alone.
 
You're certainly not alone! Jeez, this info has just changed my entire outlook, and not in a good way:-(

Revenue website says:

Conversion of principal private residence into rented residential premises Q. I intend to let the house which is currently my main residence and purchase another house as my main residence. If I let my current residence, can I claim the mortgage interest as a rental deduction?
A. No.




From [broken link removed]

I just called the PAYE section and they confirmed it, albeit the lady simply said "yes that's correct" and more or less hung up on me before I could ask her for more details. The second person I got through to didn't have the answer and pointed me to the Income Tax section but they are closed for the day by the look of things.

eek!
Sprite
 
I didnt realise that either. I has been putting it off as i knew i would have a stamp duty claw back and would also have to pay CGT on any profit when we do sell but always thought the rental income could be offset against the interest on repayments.
That then makes this completely unaffordable. :(

Is there anyway around this like if i (just in theory) purchased the apt as an investment property from my husband for €150k ?
 
Thrifty1 said:
Is there anyway around this like if i (just in theory) purchased the apt as an investment property from my husband for €150k ?
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I would seriousl doubt that. I think the only way interest would be deductable against rent would be if you sold the apartment, then took out a mortgage to buy another apartment for investment purposes.
 
Camry said:
I would seriousl doubt that. I think the only way interest would be deductable against rent would be if you sold the apartment, then took out a mortgage to buy another apartment for investment purposes.
Click to expand...

I thought not. Id say very few people know this cos i have spoken to a lot of people about it and not one person mentioned it.
Glad i posted on here now.

Thanks for the info.
 
i was totally unaware of this also and it ill affect me soon! damn and blast but it seems unfair to me. why should an 'accidental landlord' receive lower allowances than a btl'er?!

Edit: Just read the whole page and reaslise they are treating btl'ers just the same but is it just me or are loads of people claiming interest relief when they shouldn't?

2nd edit: It seems unfair that of you remain in the PPR and rent out a room or two you can claim relief, yet if you move out completely you can't :-(

Also, it seems unfair that you 'lose twice'-ie, you lose the ability to claim relief on interest and yet you also lose PPR status so pay CAT on disposal. Down with this sort of thing!
 
I think deductabiity of interest costs was restored for BTL from 2002. The test is borrowing used in the purchase etc. of the property.

The technacility is that if renting out your PPR you didn't actually borrow for the purchase, it was already there.

Another point about "accidental" landlords. Nobody is an accidental landlord. You might not like the price at which the market presently values your property, but that is not a impedement to sale.

In addition, such "accidental" landlords get 12 months grace in the determination of capital gains ( technicallythe last 12 months prior to sale is deemed as owner occupied, even if it is rented out).
 
What does this mean?
I'm afraid I am no wiser with this. (Thanks for link though)
Nicola
 
I don't think that the reference in IT70 is dispositive of the issue. You can deduct interest against rental relief in respect of certain properties (emphasis in IT70) so the line "...the relief for interest on borrowed money was restored for such interest accruing on or after 1 January 2002..." I believe applies only to those certain properties (i.e. investment properties) and not to properties which were previously PPRs.

I will call the Income Tax unit tomorrow morning and try to get a definitive answer on this and get back but my initial call to the Revenue today gave a fairly clear answer too. Any accountants out there have a view?

Sprite
 
This is not great Sprite is it? Thanks for phoning Revenue, by the way.
Not nice to have this confirmed though!
:(
Nicola
 
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