Section 23
- Thread starter fcdub
- Start date
If you have no rental income they are no good to you. If you have mortgages on them and the interest (75%) and allowable expenses are greater than the rent, they are no good to you.
The advantage of a section 23 is that you can write off a certain proportion (usually around 90% of the value of the apartment) against rental income. So intead of paying 41% tax on the rental profit you use your allowances against this. You cannot use it to write off against paye income tax.
From experience you would usually need a couple of non section 23 properties to make use of the tax write off. By the way you will have probadly paid ove the odds for the section 23's relative to a similar non section 23 property. You mist also hold the section 23 properties for 10 years other wise there is a claw back on the relief (assuming that you have used some of the relief).
The advantage of a section 23 is that you can write off a certain proportion (usually around 90% of the value of the apartment) against rental income. So intead of paying 41% tax on the rental profit you use your allowances against this. You cannot use it to write off against paye income tax.
From experience you would usually need a couple of non section 23 properties to make use of the tax write off. By the way you will have probadly paid ove the odds for the section 23's relative to a similar non section 23 property. You mist also hold the section 23 properties for 10 years other wise there is a claw back on the relief (assuming that you have used some of the relief).
Thanks Galwayboy!
no need to rub it in that i overpaid though
, i feel bad enough already!
I am still confused however as I am a bit thick! heres the scenario
apt 1: currently rented for 650 / mortgage is 700
apt 2: currently rented for 700 / mortgage is 700 (but the guy is moving out)
assuming I can rerent at 600-650 on apt 2 with the section 23 should I have any tax to pay. (obviously best guess please)
i also have an apt in france can I use the section 23 for relief against that??? I know its a stretch............
no need to rub it in that i overpaid though
, i feel bad enough already!I am still confused however as I am a bit thick
! heres the scenarioapt 1: currently rented for 650 / mortgage is 700
apt 2: currently rented for 700 / mortgage is 700 (but the guy is moving out)
assuming I can rerent at 600-650 on apt 2 with the section 23 should I have any tax to pay. (obviously best guess please)
i also have an apt in france can I use the section 23 for relief against that??? I know its a stretch............
Am I wrong in thinking that the Budget has now limited mortgage interest relief to 75% and that the S23 relief is now likely to be needed to keep the income from these rentals free of tax liability?
i.e. simply assuming an interst only mortgage
Before budget
rent - less relief = 1300-1400 = -50
After budget
rent - relief = 1300-1050 = +250
Dont forget that you have other expenses that you can write off before you use the section 23. These include 12.5% wear and tear on furniture and carpets etc, Management fee's and letting expenses but to name but a few. If you figure given above are for interest only and taking into account the new rule of only allowing 755 of your interest bill as a deduction I still think you probadly wouldn't have to use any of the section 23.
Just to put your mind at rest, what I meant when I talked about you over paying for the section 23, is that the developer would have simply added on the price/benifit of the tax releif to the cost of a similar non section 23 apartment. In 10 years time if you haven't used any or all of the section 23 allowance you apartment will be worth more in a re-sale situation than a non section 23 apartment (for similar reasons).
As an example say you paid 200,000 for your apartment (section 23) with 90% relief available then you can write off €180,000 rental profit, which would equate to €73,800 in you pocket (assuming your paying tax at 41%). So in theory your apartment should be worth an extra €73,800 to an investor than an apartment that has no relief. I dont want to confuse you too much so hope that helps a bit. An remember that if the top rate of tax went up to 48% then this would increase the value of the write off to €86,400.
Just to put your mind at rest, what I meant when I talked about you over paying for the section 23, is that the developer would have simply added on the price/benifit of the tax releif to the cost of a similar non section 23 apartment. In 10 years time if you haven't used any or all of the section 23 allowance you apartment will be worth more in a re-sale situation than a non section 23 apartment (for similar reasons).
As an example say you paid 200,000 for your apartment (section 23) with 90% relief available then you can write off €180,000 rental profit, which would equate to €73,800 in you pocket (assuming your paying tax at 41%). So in theory your apartment should be worth an extra €73,800 to an investor than an apartment that has no relief. I dont want to confuse you too much so hope that helps a bit. An remember that if the top rate of tax went up to 48% then this would increase the value of the write off to €86,400.
elgransenor
Registered User
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Some people use the phrase 'Section 23' loosely.
For example, if your property had 'Rural Renewal' tax relief, then in addition to sect 23 relief you would also have an additional relief which would allow you to offset rental income against Paye income.
In Rural renewal if you occupy the property you could write off 100% of the qualifying expenditure against PAYE income.
If you don't occupy you could write off 50% of the cost(qualifying expenditure) against paye.
You may only have sect 23 in which case this does not apply.But maybe you should double check the precise tax avoidance scheme that benefits your property.
For example, if your property had 'Rural Renewal' tax relief, then in addition to sect 23 relief you would also have an additional relief which would allow you to offset rental income against Paye income.
In Rural renewal if you occupy the property you could write off 100% of the qualifying expenditure against PAYE income.
If you don't occupy you could write off 50% of the cost(qualifying expenditure) against paye.
You may only have sect 23 in which case this does not apply.But maybe you should double check the precise tax avoidance scheme that benefits your property.
Not quite, elgran.
"Rural Renewal" is an umbrella term to cover a number of different property tax reliefs within certain designated areas, all with separate rules. This would include capital allowance schemes on commercial properties (where there is a possibility of setting some relief off against PAYE income) and "section 23" schemes on residential properties. In general, all resdiential properties in these areas attract "section 23" relief only and section 23 relief can only be used against rental income.
"Rural Renewal" is an umbrella term to cover a number of different property tax reliefs within certain designated areas, all with separate rules. This would include capital allowance schemes on commercial properties (where there is a possibility of setting some relief off against PAYE income) and "section 23" schemes on residential properties. In general, all resdiential properties in these areas attract "section 23" relief only and section 23 relief can only be used against rental income.