Seeking advice on tax not paid on house rented out

C

Cormac_09

Guest
About three years ago my sister-in-law moved out of her own home back to the family home to look after her elderly mother. She rented out her house at that stage and has had two social welfare families living in it during that time.

Long story short, last night she admitted to me and my wife (her sister) that she hasn't paid any tax on the rent she has received. Absolutely stupid and unforgivable, I know, but she was left with huge debts by her ex who was a serious gambler - no excuse, she buried her head in the sand.

She wants to clear it all up now and pay what is owed, including penalties obviously.

She asked us for advice on what she should do next but we honestly haven't a clue. Should she just contact Revenue directly and tell them about the unpaid tax, or would it be better to go through an accountant?

Would really appreciate any advice, thank you.
 
Cormac,

I'm not an expert - but if she had a mortgage on that property she would be able to offset the interest against any rentals received, also she would be able to offset necessary costs - insurance - any utility bills she may have paid - refuse etc along with any repairs she would have paid for.

I think it might be better to seeek advice of an accountant (especially one that specialises in tax) - in that way at least she'll know if she has a debt and what the likely impact of any interest/penalties would be. Against that there will be a cost of seeking the advice of that accountant.

I'd suspect she didn't register with the PRTB either - might be better to check out and see what the implications (if any) are if this is the case also.

That's my view - others may advise differently....
 
The implications of not registering is that the 75% mortgage interest off-set cannot be back-dated.

Search previous threads about non-registration.
 
pjmn said:
Cormac,

I'm not an expert - but if she had a mortgage on that property she would be able to offset the interest against any rentals received, also she would be able to offset necessary costs - insurance - any utility bills she may have paid - refuse etc along with any repairs she would have paid for.

I think it might be better to seeek advice of an accountant (especially one that specialises in tax) - in that way at least she'll know if she has a debt and what the likely impact of any interest/penalties would be. Against that there will be a cost of seeking the advice of that accountant.

I'd suspect she didn't register with the PRTB either - might be better to check out and see what the implications (if any) are if this is the case also.

That's my view - others may advise differently....
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Thanks a million for your reply pjmn, you're great to go to the trouble.

Based on what you said I think it would definitely be best to advise her to go to an accountant. I have to say I've always found Revenue very helpful when I've had queries about my own tax issues, but I'd be a bit nervous about her just going straight to them without getting some advice first.

She is still paying the mortgage on the house (she only bought it about 5 years ago).

She told us she registered with the PRTB when the first family moved in but 'forgot' to register again for the second family. She did, though, fill in a social welfare form for the second family who were applying for rent supplement. If that is true I'm surprised, to be honest, that she hasn't heard from Revenue by now.

Thank you again, I was told this was a helpful wesbite - and so it is!
 
Cormac_09 said:
She is still paying the mortgage on the house (she only bought it about 5 years ago).
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Has she also been claiming tax relief for home mortgage interest (Mortgage TRS) over the period when it was not her principal private residence? If so, she is liable for a clawback of that and possibly stamp duty.
 
eggerb said:
Has she also been claiming tax relief for home mortgage interest (Mortgage TRS) over the period when it was not her principal private residence? If so, she is liable for a clawback of that and possibly stamp duty.
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God, I hoped we could tell her this would be straightforward, but it sounds complicated! Time for her to hire an accountant, I think.

Thank you.
 
Cormac,
It is important that your sister in law gets this matter sorted as soon as possible. Interest will continue to mount on the unpaid taxes each day that the tax remains outstanding. The tax outstanding, surcharge for late submission of tax returns and interest on outstanding taxes will all have to be paid. On top of this penalties may apply that in a worst case scenario could be 100% of the outstanding taxes. These penalties can be mitigated but to ensure the maximum reduction is received an unprompted voluntary disclosure needs to be made to Revenue. However it is important that the correct procedure is followed in making the unprompted voluntary disclosure. The 2008 Finance Act introduced changes to making unprompted voluntary disclosures whereby the tax, surcharge and interest needs be made at the same time as making the disclosure. This applies to defaults after Dec 08. Prior to that you could verbally confirm to Revenue of your intention to make an unprompted voluntary disclosure and avail of the maximum mitigation in penalties. Therefore your sister in law should get professional advice prior to approaching Revenue. PM me if you require any further information.
 
Thank you so much for that Breninio. You actually address the main thing we talked about with her, ie she wanted to go straight to Revenue to make that voluntary disclosure but we were nervous about this without her getting advice first.

I fear for her that with penalties this will turn in to a financial disaster for her, but she knows she has to face the music now.

If it's okay I will send you a PM just to ask your opinion on something.

Thank you again.
 
Actually there may be no tax due. If the first family was registered with the PRTB and the second family is still there she can register the second family immediately so that all is not lost in relation to the mortgage interest.

She should do up a profit and loss account. Have a look at the key posts on what is allowed to be deducted from rental income. If you like do a summary on here of the accounts in case you miss something others can point it out to you.

I've always found revenue to be very helpful. But it is important to speak to the person who understands the particular area you are enquiring about.

If she can afford an accountant then that is even better. But the more knowledge she has the better.
 
I agree that if the second family is still in the house they can now be registered with the PRTB. However, if the tax filing date for any tax year that they were in the house has passed the registration will not enable interest for that year to be claimed as a deduction.
 
Breninio said:
I agree that if the second family is still in the house they can now be registered with the PRTB. However, if the tax filing date for any tax year that they were in the house has passed the registration will not enable interest for that year to be claimed as a deduction.
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I don't understand this, what if you have a new tenant on the day before tax filing date and you fill out the PRTB form a week later ? It would be physically impossible to be registered within one or two days in any case as it takes the PRTB anything up to 6 months to register and that's if everything on the form is correct which in many cases it is not.

My understanding from the literature was that revenue accepts a letter from the PRTB of registration as proof of registration and that was enough?
 
On a strict reading of the legislation, each tenancy during the tax year concerned needs to have been registered with the PRTB during the tax year concerned. Revenue do accept a letter from the PRTB confirming late registration as proof of registartion. As a concession (and to cover situations such as you have pointed out i.e. tenancies commencing late in the tax year), Revenue will treat a registraion as having been made provided it has been made by the return filing date. I have set out the relevant section of the tax briefing below:

"Late Registration
Certain time limits are specified in the RTA within which an application for the registration of a tenancy should be made. For instance, new tenancies should <%-1>be registered within 1 month of their commencement. However, provision is also made for the late registration of tenancies at double the normal registration fee. An acknowledgement from the PRTB confirming registration in the case of a late registration will be accepted by Revenue as evidence that a chargeable person has complied with Part 7 of the RTA. However, a chargeable person claiming an interest deduction in his or her annual return must be in a position to indicate compliance with the Part 7 requirements at the time of making the return"

Therefore, in my view, if the return filing date has passed, an interest deduction is not avilable. My understanding is that "at the time of maing the return" is the return filing date, not when the return is filed if filed late.
 
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I'm totally lost on this.

If your tenancy commences on the 30th October

Tax filing date is 31st Oct (is this correct?)

You send off your PRTB form on the 7th November or 7th Dec (with late fee payment) , it's registered by the PRTB in say February 2010

Then you are not registed by the return filing date and you are not eligible for mortgage interest relief

This can't be right?

I must say I've been late with my PRTB registrations but I never checked about return filing dates in relation to this. Have I done something wrong?
 
If the tenancy commenced 30 October 2009 the you would have until 31 October 2010 to register with the PRTB as that is the filing date for the 2009 tax return.

However if the tenancy commended in 2008 and you were not registering until late November 2009, my understanding is that an interest deduction will not be available for 2008 as the the return filing date for the 2008 tax year (i.e. 31 October 2009, or extended date for ROS) will have passed. However as outlined above, a deduction will be avilable for 2009.
 
Brenino is correct.

Go to

[broken link removed]

Select file 4.8.10 - Letting of Residential Property – Interest Deduction – Requirement to register tenancies with the Private Residential Tenancies Board

In part 4 on page 2 it states :-"landlord is required to state in the annual return of income that he or she has complied with the registration requirements. Revenue regards the registration requirements for a particular chargeable period as met if they are met by the return filing date for that period".
 
So let's say in the OP's case the tenants are there for the last 3 years and she goes to register now, she has her confirmation number/letter from the PRTB. According to the revenue rules, the registration letter from the PRTB satisfies revenue, where does this come in?

What is the logical behind the tax return date? Surely what's important is that you're registered?

From the revenue website:


For Revenue audit purposes written confirmation of the registration of a tenancy from the PRTB will be accepted as evidence of compliance with the registration requirements for that tenancy

and this

Interest relief that has been denied for a particular chargeable period because a tenancy was not registered by the return filing date for that period can subsequently be restored if the landlord avails of the late registration facility, subject to the usual 4 year time limit on claims for repayment of tax.
 
Bronte said:
From the revenue website:



Interest relief that has been denied for a particular chargeable period because a tenancy was not registered by the return filing date for that period can subsequently be restored if the landlord avails of the late registration facility, subject to the usual 4 year time limit on claims for repayment of tax.
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Bronte, the above quote is very interesting and indeed suggests that a deduction for interest would be allowed even if registration occurred after the tax return filing date. However, what is odd is that the above paragraph is not present in the two tax briefings (63 and 65) on which the section of the Revenue manual containing the quote is based.

The tax briefings just state that registration must occur before the return filing date (they don't allow for a retrospective claim beyond that date). In answer to your question re the relevance of the return filing date, when completing your tax return you need to state whether registration requirenments have been met. If this has not occurred prior to the return filing date then you can't confirm this and an interest deduction will not be allowed.

There does seem to be contradictory information on this. I must say, my view is that the registration must occur prior to the return filing date. I will have a look into it.
 
Bronte, from what I can find on the subject it looks like you are correct that it is possible to retospectively register a tenancy (after the tax return filing date for a particular tax year) and avail of an interest deduction for that year provided the tenancy is continuing. I tried to confirm this with Revenue today and am waiting for them to come back to me. As mentioned above, my only concern is that this was not mentioned in the relevant tax briefings. However the section of the Revenue manual you have quoted certainly seems to give scope for such a claim.
 
Thanks for that Breninio, I actually thought you were a revenue person. I've never seen that document before and had a panic attack yesterday in relation to my own registrations. I've had enormous problems with the PRTB and registrations and I have one where I sent the form in late and months later they returned it for I think expiry date on a credit card and then I sent it back and in December (after tax year deadline end) it was registered. I have another one that they sent back, I returned it and they lost the documents but as it's the prtb I took no notice of the time periods and you'd be talking months and years with the ping pong. They denied for months that I'd sent it back and then I had to get the tenant's to sign a new form. I'm much more in tune with the way they work now but still they are taking months to send confirmation letters and after this yesterday I went to my LARGE prtb file and discovered a tenancy for which I did not receive the confimation letter which I sent to them in August (I contacted them and they are now sending it !)
 
Breninio said:
However if the tenancy commended in 2008 and you were not registering until late November 2009, my understanding is that an interest deduction will not be available for 2008 as the the return filing date for the 2008 tax year (i.e. 31 October 2009, or extended date for ROS) will have passed. However as outlined above, a deduction will be avilable for 2009.
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Providing this was the first tenancy and there was no other self employed income then the filing date would be 31 October 2010 (not '09).
To the OP seek professional help. Get a referal for an accountant from someone you know and get a quote up front for the work. Find out if a fee is payable for the initial meeting. Anything more than €250 per year I would consider as being expensive. Good luck.
 
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