Seán Haughey
Question:301 Mr. Haughey asked the Minister for Finance the position regarding the taxation of rental income; the changes announced in relation to this; and if he will make a statement on the matter. [8707/02]
Written Answers. - Tax Code.
Profit from rental income is taxed on an actual tax year basis and income from rental property is assessable for tax under Case V of Schedule D of the Taxes Consolidation Act, 1997. For individuals taxed under the PAYE system with rental profits that are relatively small, it can be arranged to have the tax collected by the reduction of their tax credits and standard rate cut-off point. Otherwise, the tax due will be collected under the self assessment system.
Certain expenses can be claimed against rental income such as ground rent payable, rates, management, legal, accountancy fees, insurance etc. It is assumed the Deputy is referring, in particular, to the changes as regards interest relief on bor rowings for rented residential properties which are contained in section 17 of the Finance Bill, 2002, as passed by Dáil Éireann. These changes were announced in the budget and apply to interest accruing on or after 1 January 2002. Interest on money accruing on or after that date where the money was employed in the purchase, improvement or repair of residential premises will be allowed as a deduction in arriving at the profit from the letting of the property. The interest is treated as accruing from day to day.
Interest relief on money applied in acquiring an interest in a company or a partnership, where the money is ultimately applied in acquiring an interest in residential premises, is also restored as respects interest accruing on or after 1 January 2002.
These changes restore the relief for interest which applied up to 22 April 1998. The restrictions on interest relief for investors were introduced following the Bacon report. As I indicated in my budget statement, circumstances in the property market are much changed and the presence of investors is required to secure the future supply of housing to meet accommodation needs.
Tax relief can also be claimed against rental income for capital expenditure incurred, on or after 6 April 2001, on the refurbishment of certain rented residential accommodation. The expenditure is allowed as a deduction over a seven year period. Expenditure is allowed at the rate of 15% per annum for the first six years with the balance, 10%, allowed in year seven. To qualify, the premises must be used as a dwelling and before and after the refurbishment, contain one or more residential units. From the date of completion of the refurbishment, the premises must be let in its entirety under a qualifying lease throughout the relevant period, that is, ten years from the date of completion of the work or if later, the date of the first letting. The lessor must comply with the regulations in relation to standards for rented houses, rent books and registration of rented houses.
If the property concerned is designated for rented residential relief – section 23 relief – under one of the area-based renewal schemes such as the urban, town or rural renewal schemes, 100% of qualifying construction, refurbishment or conversion expenditure incurred on the property can qualify for relief which can be written off against all Irish rental income. Expenditure incurred on the provision of certain residential accommodation for third level students and expenditure incurred on the construction of certain residential accommodation located at park and ride facilities also qualifies for rented residential relief along the same lines as provided for under the various renewal schemes.