Under section 18 of the Taxes Consolidation Act (TCA) 1997, rental income earned by both Irish resident and non-Irish resident companies and individuals from a property situated in the State is taxable under Case V of Schedule D of the TCA 1997. This basis of taxation makes no distinction between rental income from property let for residential occupation and property let for commercial occupation.
While the same computational rules to calculate taxable rental income are generally applied to both individuals and companies, income earned by individuals from the letting of residential or commercial property situated in Ireland is taxable under self-assessment income tax, while rental income earned by companies is assessable for corporation tax.
Each property must have a separate tax computation in which the rental expenses for each property are deducted from the related rental income for the same property in order to arrive at a surplus (i.e. income greater than expenses) or a deficiency (i.e. expenses greater than income) of taxable rental income in respect of the property. The total of surpluses and deficiencies are then aggregated to arrive at Case V profits or gains arising in the year.
Rates of income tax
Rental income forms part of the landlord’s total taxable income for the relevant tax year and is liable to tax at the individual’s marginal rate of tax – the standard rate of 20% if total income is below the standard rate band and the higher rate of 40% if above. PRSI and USC are in general, also chargeable on rental income.
Rent-a-Room relief
Under the ‘Rent a Room’ scheme provided for in section 216A of the TCA 1997 an individual who lets a room (or rooms) in his or her sole or main residence as residential accommodation may be exempt from income tax, PRSI and USC in respect of income from the letting where the aggregate of the gross rents and any sums for meals or other services supplied in connection with the letting does not exceed the threshold for the year in question, which is €14,000 for 2017. Although the income is exempt it must be included in the individual’s tax return for the year in question.
This relief does not apply to companies or partnerships.
Non-resident individuals
As noted above, non-resident individuals are liable to Irish tax in respect of rental income from Irish property. Where rents are paid directly to a non-resident individual, the tenant is obliged to deduct income tax at the standard rate from the payment, as per section 1041 of the TCA 1997. Credit can be claimed for the tax withheld on the income tax return of the landlord.
Partnerships
For the purposes of taxation each partner is regarded as individually carrying on a separate trade; this concept is referred to as the partner’s “several trade” and each partner is liable to income tax on his/her share of the partnership profits or gains, including Case V rental profits.
Companies
A company, whether resident or non-resident, is chargeable to tax in respect of rental income arising in the State. Such rental income is chargeable at the higher 25% rate of corporation tax. If the company is a “close company” (that is, a company under the control of 5 or fewer participators or participators who are directors) it may also be liable to the 20% close company surcharge on undistributed estate and investment income if the rental profits are retained within the company.
REITs
Finance Act of 2013 introduced the regime for the operation of Real Estate Investment Trusts (REITs) in Ireland. A REIT is a collective investment vehicle designed to hold properties in a tax neutral manner. The function of the REIT framework is to facilitate collective investment in rental property by removing a double layer of taxation which would otherwise apply on property investment via a corporate vehicle.
Rental profits arising in a REIT are exempt from corporation tax. However, profits from any other activities are subject to corporation tax in the normal way. A REIT is subject to strict conditions including an annual requirement to distribute 85% of its property income by way of property income dividend. It must not be a “close company” and it must be a listed company.
Dividend Withholding Tax (DWT) at the standard rate is withheld on distributions to an individual from a REIT. An Irish resident individual is taxable on the distribution received at their marginal rate of income tax, plus USC and PRSI, with credit for the DWT suffered. The tax treatment of the distribution for a non-resident individual will depend on where the individual is resident, whether Ireland has a Double Taxation Agreement with that country, and what the terms of the Double Taxation Agreement are.
Working Group on the Tax and Fiscal Treatment of Rental Accommodation Providers
As the Deputy may be aware, a working group was established in early 2017 to examine and report on the tax treatment of landlords (or rental accommodation providers) and to put forward options, where appropriate, for amendments to such treatment. The establishment of this group was one of the commitments contained in the ‘Strategy for the Rental Sector’ which was published by the Department of Housing, Planning, Community and Local Government in December 2016. The working group is chaired by the Department of Finance and its membership consists of officials from the Department of Finance; the Revenue Commissioners; the Department of Housing, Planning, Community and Local Government; and the Residential Tenancies Board. As part of the group’s work, a public consultation lasting for four weeks was conducted from March to April 2017 which received almost 70 written submissions from a wide range of interested parties, including individual landlords, representative bodies and charitable organisations. The report of the working group is due to be presented to me by the end of July 2017, to allow for consideration of any of the options put forward as part of my deliberations for Budget 2018.
