Rental Property Tax

(I did some search and could not find similar question on website, please redirect me in case I missed, Thanks)

Personal Details:

Age: 35
Spouse Age: 34

Self PAYE Income: 100 k
Spouse PAYE Income: 0 (Not working, SAHM)

Jointly assessed for revenue tax purposes

We are looking to acquire a fully managed rental investment property. Its a fully managed and hands-off service, and management company distributes rent every 6 months. All maintenance, insurance, letting tasks are responsibility of management company.

We will pay for property from our savings and there will be no mortgage.
I am looking to understand tax implications. Roughly, does our following calculations look correct:

Gross Rent: 12,000
After Management Fee: 8,000 (4K management fee, high but fully hands off student accommodation property)

Since both of us own property, incomes gets divided equally:

Myself:
Rental Income: 4,000
Approximate Tax: 2080 (since I am already at higher tax bracket, calculated tax at approximately 52% PAYE, USC, PRSI)

Spouse:
Rental Income: 4,000
Approximate Tax: 1000 (since she is not earning PAYE income, assuming tax at 25% PAYE, USC, PRSI)

Does our tax calculation looks correct or are we way off mark?

Appreciate all the help, Thanks

The income tax rate are 20% and 40%, there is no 25% rate.

Will you have any additional costs if major maintenance is needed at some point (change of furnishings, white goods, inside painting, flooring...) or is this all taken care of?

Premos said:

Will you have any additional costs if major maintenance is needed at some point (change of furnishings, white goods, inside painting, flooring...) or is this all taken care of?

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we are being told that all of that is taken care of. Management fee takes care of all of that. Hopefully, we will be able to get some contract and have it in writing.

uljha.desi said:

Hopefully, we will be able to get some contract and have it in writing

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I wouldn't be relying on hope here.

Make sure you allow for voids and unexpected expenses.

DannyBoyD said:

I wouldn't be relying on hope here.

Make sure you allow for voids and unexpected expenses.

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will keep in mind unexpected expenses. I can ask management company as well to see what has been average of unexpected expenses over last few years. will request Solicitor to get all of this in writing. Thanks
any idea, if tax calculation roughly looks correct?

Your spouse will have no USC or PRSI to pay if her only income is €4,000. Her tax will be 20% so €800. If her income hits €5,000, there's a minimum PRSI charge of €500.

Ciru75 said:

Your spouse will have no USC or PRSI to pay if her only income is €4,000. Her tax will be 20% so €800. If her income hits €5,000, there's a minimum PRSI charge of €500.

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This is very helpful, Thanks.

One point where we are getting confused is if 20% rate would actually apply to her.
We have one daughter and are eligible for Home Carer Tax Credit which is 1700 Euros per annum.

Reading on Revenue website it feels like that if there are 2 incomes involved, then only one of following can be used:
- cut off point is increased by 31,000 or lower of second income
- And if availing of increased cut off point, then Home Carer Tax Credit cannot be used

In short, reading online on revenue website feels like that either we will be able to use home carer tax credit, or she will pay lower rate of tax. But not both. However, not sure if we are reading it correct.

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uljha.desi said:

Gross Rent: 12,000
After Management Fee: 8,000 (4K management fee, high but fully hands off student accommodation property)

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Out of curiosity, what is the price of the property here?

Ciru75 said:

Your spouse will have no USC or PRSI to pay if her only income is €4,000. Her tax will be 20% so €800. If her income hits €5,000, there's a minimum PRSI charge of €500.

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On a separate point, this PRSI payment would qualify her for a contributory old age pension, and so might well be worth paying. It can be paid on a voluntary basis if the income is below the limit.

Dr Strangelove said:

Out of curiosity, what is the price of the property here?

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116 K

uljha.desi said:

116 K

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It’s not what you’re asking but an after-tax yield of 4.5% plus CGT at 33% on any capital gain is not great. You’ll also have stamp duty on purchase.

You say “fully hands off” but I’m sure there is small print and if something goes wrong you will have to get involved and maybe even be out of pocket.

In your shoes I’d put my cash in an all-equity ETF and just forget about it for a few years.

uljha.desi said:

This is very helpful, Thanks.

One point where we are getting confused is if 20% rate would actually apply to her.
We have one daughter and are eligible for Home Carer Tax Credit which is 1700 Euros per annum.

Reading on Revenue website it feels like that if there are 2 incomes involved, then only one of following can be used:
- cut off point is increased by 31,000 or lower of second income
- And if availing of increased cut off point, then Home Carer Tax Credit cannot be used

In short, reading online on revenue website feels like that either we will be able to use home carer tax credit, or she will pay lower rate of tax. But not both. However, not sure if we are reading it correct.

<looks like links cannot be added>

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Yes you're right, I hadn't thought of the home carer credit. With that in place, she'll be paying 40% tax.