Total tax take on an investment property?

[robert 200]

I am trying to persuade a friend not to borrow and buy an investment property and let it out.

I remember a thread that stated that the real tax take on renting was around 70%.

Can anyone remember the breakdown of this 70% please?

 

[Sarenco]

I remember a thread that stated that the real tax take on renting was around 70%.

Is this the thread?

https://www.askaboutmoney.com/threads/tax-take-on-rental-income-is-staggering.200198/

 

[dub_nerd]

Not trying to be smart or rude, but if your friend can't already tell you what the taxes and costs are down to the last euro he/she has no business going near an investment property.

 

[robert 200]

Many thanks Sarenco ,but I thought there was a breakdown of the 70% on some thread???

 

[robert 200]

Dub nerd ,

He has €80k burning a hole in his pocket and his options are very limited as we know and I would like to convince him with the 70% tax facts

 

[Gordon Gekko]

I rent out a property. I get €1,620 a month / €19,440 a year. The interest cost is negligible, probably circa €750 a year. The service charge is circa €1,500 a year. I pay an agent circa €1,300 a year. I spend circa €300 a year on repairs etc. Mortgage protection is circa €240 a year. I claim capital allowances of €1,000 a year in respect of furniture, fixtures, and appliances. I pay property tax of circa €300 a year. My tax bill is circa €7,500 a year.

My after-tax return is therefore circa €7,500 a year which isn’t bad.

The ultra low interest cost (0.5%) is clearly transformational. At the prevailing rates, the position would be far less rosy. I would not buy a property funded at north of 4%.

You can see that the total tax take on my property is circa €7,800 which is fair enough I’d have thought.

 

[Andy836]

Many thanks Sarenco ,but I thought there was a breakdown of the 70% on some thread???

I presume the c. 70% figure comes from the (i) the fact he's most likely earning at the marginal rate so straight up going to pay 50%+ between Income Tax, PRSI & USC and (ii) the fact he can only offset 75% of mortgage interest against the rental income.

 

[Steven Barrett]

I rent out a property. I get €1,620 a month / €19,440 a year. The interest cost is negligible, probably circa €750 a year. The service charge is circa €1,500 a year. I pay an agent circa €1,300 a year. I spend circa €300 a year on repairs etc. Mortgage protection is circa €240 a year. I claim capital allowances of €1,000 a year in respect of furniture, fixtures, and appliances. I pay property tax of circa €300 a year. My tax bill is circa €7,500 a year.

My after-tax return is therefore circa €7,500 a year which isn’t bad.

The ultra low interest cost (0.5%) is clearly transformational. At the prevailing rates, the position would be far less rosy. I would not buy a property funded at north of 4%.

You can see that the total tax take on my property is circa €7,800 which is fair enough I’d have thought.

How much are your loan repayments?


Steven
www.bluewaterfp.ie

 

[Gordon Gekko]

How much are your loan repayments?


Steven
www.bluewaterfp.ie

Circa €1,100 per month.

The capital repayments are clearly just a cashflow issue, on the basis that they represent a form of deferred savings.

 

[Steven Barrett]

Circa €1,100 per month.

The capital repayments are clearly just a cashflow issue, on the basis that they represent a form of deferred savings.

That's fine for you in that you are aware of that and have the disposable income to pay the additional costs each year.

The issue is that a lot of people don't realise that that an investment property with a mortgage is an actual cost and for a long time too. They want a property because we are obsessed with property in Ireland. They neither understand the risks of gearing or the costs involved.


Steven
www.bluewaterfp.ie

 

[elcato]

I am trying to persuade a friend not to borrow and buy an investment property and let it out.

Is your friend a shoe-shine guy or a taxi driver ?

 

[T McGibney]

I presume the c. 70% figure comes from the (i) the fact he's most likely earning at the marginal rate so straight up going to pay 50%+ between Income Tax, PRSI & USC and (ii) the fact he can only offset 75% of mortgage interest against the rental income.

(iii) Several other overhead costs are non-allowable for tax purposes. (iv) Capital allowances are non-allowable for USC purposes.

 

[Sarenco]

...and LPT is still a non-deductible expense...

It might be more accurate to say that the tax liability, expressed as a percentage of net rental profit, often exceeds 65% on a mortgaged rental property.

That's a pretty staggering tax burden.

 

[InfoSeeker]

The revenue outlines what can be deducted below, another item is insurance. As a recent purchaser of a holiday home which we let out when we are not there, putting a % away for tax from each booking though hard is a necessity for us!!

https://www.revenue.ie/en/property/rental-income/irish-rental-income/what-expenses-are-allowed.aspx

 

[Vanessa]

Landlords are unpaid tax collectors used by Government to provide housing

 

[cremeegg]

Landlords are unpaid tax collectors used by Government to provide housing

That is a very interesting perspective.

If more than 50% of the rent paid by the tenant goes to the government in tax. It is reasonable to view the whole thing as a tax collecting service with accommodation provided, rather than property rental business with a tax burden.