Tax on rental property

Hi,

My husband and I have a rental property and are also PAYE workers. We submitted tax returns this year and after deducting interest and expenses from our rental income had made a 'profit' of €4,800. We calculated the tax due as being 41% of this amount and paid accordingly. We've since received a notice from the Revenue telling us we owe another €2,800 so effectively all of our profit has gone in tax.
We're really struggling with this payment as we're reluctant landlords anyway - we'd bought a tiny townhouse 10 years ago as we didn't want to get lumbered with a big mortgage. However, the arrival of twins meant we had to move to a bigger place a couple of years ago. We couldn't sell our house so decided to rent it until such time as we could sell it (now looks like never!).
I just don't understand how we've had to pay practically 100% in tax. I know we also have earnings as PAYE workers but all of our tax/levies etc. has obviously been deducted at source. Can anybody explain?

Thanks.

What expenses did you deduct from the rental income? And, if you were deducting interest, did you adjust your calculations to reflect the "75% restriction" that kicked in during April? And did you not calculate PRSI and levies? There has to be an error somewhere if you're making €4,800 "profit" and paying more than €4,000 in tax in relation to the profit. Did you claim a deduction for the capital element of the mortgage repayments?

Revenue can it get wrong .
Often some guy presses wrong button. About three times in the last twenty years they've asked for more and I've explained calculations and then they send the corrected bill .

It would be interesting to see your workings on total rent minus 75% interest, insurance, furniture depreciation etc etc and bearing in mind BazFitz's questions....

The figure I quoted earlier were a rough guess form memory - the actual figures are even worse:
Rent: 10,200
Repairs: 130
Interest: 5,239
Management fees/Insurance: 492
Capital allowance: 50
Loss from previous year 568

Basically 4339-618 (capital allowance+loss from previous year) = 3,721. We paid 1,525 and now the revenue want 2,816 which totals 4,341 (more than we actually made.

We didn't pay PRSI or levies as we thought only income tax was charged on rental income.

Old nick, you mention furniture depreciation - is this only against furniture that is purchased once the property becomes a rental i.e., not the stuff that was already in the house when we left?

I'm terrified of approaching the revenue unless I'm pretty sure it's a mistake as if they ask for any more, we certainly won't be able to pay it.

Any advice would be appreciated.

Thanks.

MaraG said:

I'm terrified of approaching the revenue unless I'm pretty sure it's a mistake as if they ask for any more, we certainly won't be able to pay it.

Click to expand...

At this stage you have no choice but to request Revenue to review the assessment - if you leave things as they are, Revenue will pursue you for payment of the assessed amount, regardless of whether it is correct.

You need to establish why the apparent underpayment has arisen. Two main possibilities are an error in completing or processing Form 11 (particularly common for manually-filed returns) and a major error (ie underpayment) in your own PAYE tax deductions. Unfortunately, your initial assumption that your income tax bill would be exactly 41% of your calculated profit was simplistic as it is necessary to factor in all your earnings, and credit/deduction entitlements as part of your self-assessment return.

I hope it works out well for you.

McGibney is right - approach them.

But maybe first you should read Revenue.ie - revenue leaflet IT 70 .
Lots of info there.
What i call furniture depreciation is called wear and tear by revenue.
Sorry, but they may want receipts, though I've never ever been asked.
Am unsure as whether it matters that you bought the stuff some time before you rented the place. Maybe a kind person here could answer...

One assumes your interest figure is 75% of the actual interest paid.

Maybe a friendly accountant can set you right ,but frankly , for one small property it may not be worth the money.

10200 - 5169 = profit of 5031 to be taxed. Rough figures.

(3929 (75%) +130+492+50+ 568 = 5169)

Your figure for house insurance and management looks very low. How much is your house insurance.

Do you have life insurance that is 'term' insurance, if yes you can claim this.

No PRTB ?

Repairs are very low, did you not have to do any gardening or other upkeep of the property.

Depreciation at 50 Euro, is this the 12.5% depreciation on furniture and fittings? Very low.

Don't be afraid of revenue. Go into a revenue office with your figures and the documents and ask them what they mean. Probably the first person you meet in revenue may not understand rental income so make sure you find someone in there who does and who will explain it to you. You are entitled to know how they came to their calculations and as previously pointed out revenue frequently make mistakes and frequently give out incorrect advice. But if you find the right person they should be able to explain it clearly to you. In any case I advice you to hire an accountant or at the very least look up revenue.ie, look up AAM under investment property and look up Irishlandlord.ie. for advice.

As previous poster advised it's probably your other income combined with your rental income that is leading to the tax being due.

oldnick said:

Maybe a friendly accountant can set you right ,but frankly , for one small property it may not be worth the money.

Click to expand...

Well if the alternative is paying a few thousand more in tax, an investment of a minor fraction of that sum in getting professional help might actually be worth it.

Bronte said:

No PRTB ?

Click to expand...

And if this is the case, then none of the interest is allowable which (along with the PRSI/levies) may explain the tax charge.

Alternatively, some of the tax may be due to a PAYE underpayment for one of you.

Hi MaraG,

Firstly, check the Notice of Assessment against the return you submitted and also against your p60s. It is possible that you or Revenue made an error in pay or tax.

Secondly, did you claim on your return all credits you had been allowed during the year? It often happens that people omit to claim Flat Rate Expenses or Service Charges, probably because they assume that Revenue already know about them because they were on their Tax Credit Cert, but they still all have to be claimed in the return, or it is assumed that they were granted in error for the Tax Credit Cert.

Thirdly, you have presumably been dealt with under self-assessment having previously been dealt with under PAYE - did you remember to claim your PAYE credits? When you say you submitted tax returns, why 2 separate ones? It is possible that some unused credits or rateband which was shared during the year was not shared if you submitted separate returns.

Sybil

Also, are you registered with PRTB and did you tick the box on the tax return(s) to say so? If not, than no interest is deductible.

I agree with some of the posters - you should consult an accountant.

Well I plucked up the courage and called them and it was a mistake on the forms - phew!

Will definitely be using an accountant this year - have learned my lesson.

Thanks to all for your advice.

What was the mistake - Not claiming the PAYE credit or something like that?

No, I'm embarrassed to say it but a simple typo on the amount of PAYE paid.