If circumstances arise that require you to move abroad and you decide to rent out your property you will be classified as a non-resident landlord (NRL). Non-resident landlords are required to declare their rental properties with Revenue and file a tax return related to any income earned from those properties.
It is important to understand who classifies as a non-resident landlord to ensure you do not overpay tax on rental income. Luckily, our expert accountants at Tax Return Plus have compiled this guide to help you understand everything you need to know about tax on rental income in Ireland for non-residents.
What is a Non-Resident Landlord
You are classified as a non-resident landlord if you let property in Ireland but you live either in Northern Ireland or abroad in another country. Any rental income earned from properties in Ireland by people living outside the state is subject to the same tax as residents of Ireland must pay.
There are particular rules for non-resident landlords that specify how tax must be paid on rental income. The rules ensure that tax returns get submitted to the Revenue Commissioners on time. Non-compliance with the tax rules can have serious repercussions for both non-resident landlords and the tenants renting their properties.
How Tax is Paid By Non-Resident Landlords
The tax arrangement for non-resident landlords is different than what you’d normally expect. In a non-resident landlord situation, the tenants withhold the income tax and pay it to the Revenue Commissioners on your behalf. The standard rate of income tax is currently 20%.
As an example, a landlord living in New York who lets a property out in Ireland charges €950 per month of rental income to a tenant. From the €950, the tenant sends 80% of it as payment to the landlord, which works out as €760. The remaining €190 is sent to the tax office nearest the location of the rented property.
At the end of the tax year, the tenant fills out a form known as a Form R185 and submits it to the landlord who uses the form as a record of the tax they pay. Placing the responsibility on the tenant to ensure the correct tax payment might seem confusing, but it is necessary and simpler to depend on someone present in the country for the right tax payments as opposed to sending money back and forth overseas between non-resident landlords and tax offices.
Using A Collection Agent
A Collection Agent is a great option for non-resident landlords. Both you and your tenants might feel it is unfair to pass the burden of collecting taxes on to them. Furthermore, there is no guarantee that a given tenant will pay the requisite taxes, which could cause a lot of hassle down the line for a non-resident landlord.
A Collection Agent is a person or company that files tax returns on the behalf of non-resident landlords. They can be a professional person, a family member or any other person prepared to be responsible for the non-resident landlords annual tax returns.
The Collection Agent solution tends to work out best for both tenants and non-resident landlords. Tenants avoid the burden of becoming responsible for another person’s tax affairs, while landlords receive their rental income with full knowledge that they are complying with taxation laws.
Rental Income Tax Relief
Non-resident landlords are entitled to the same tax relief in the form of expenses as landlords who live in the Republic of Ireland. Some examples of the expenses you can claim to reduce the overall amount of tax you end up paying to Revenue include:
• PRTB Registration Fee. You need to pay this fee of €90 per tenancy to the Private Residents Tenancy Board within one month of a tenancy start date. The registration fee can be claimed as a deductible expense to provide tax relief.
• Qualifying Mortgage Interest. If you secured a mortgage to purchase, repair or renovate a residential rental property, you may deduct 75% (80% from 01/01/2017) of the interest accruing on the loan once your tenants are registered with the PRTB.
• Management and Agent Fees. You can deduct fees paid to a property management company or agent to collect rent and manage the property on your behalf from the tax you pay.
• Insurance Premiums. Landlords who buy insurance policies to protect their rental properties can deduct the premiums as an allowable expense.
Filing Rental Income Tax Returns:
Non-resident landlords who live outside of the Republic of Ireland must pay tax on rental income. This tax onus normally falls on the tenant of a rented property in the case of a non-resident landlord.
Using a tax collection agency is a simpler solution to paying tax for non-resident landlords that suits both landlords and tenants. Non-resident landlords who pay tax are entitled to the same tax relief by claiming expenses back as normal resident landlords.
If you are a non-resident landlord in need of help with rental tax returns, we can help you take the stress out of filing your taxes in Ireland. A standard tax return starts from just €150+ VAT. Find out more about tax on rental income or get a quick quote here.