Dáil Éireann Debate, Tuesday - 24 July 2018
249. Deputy Michael McGrath asked the Minister for Finance the treatment of rental income from residential property situated here from a taxation point of view; the rate of taxation that applies by different classes of recipients (details supplied); and if he will make a statement on the matter. [33806/18]
Amharc ar fhreagraI am advised by Revenue that, under section 18 of the Taxes Consolidation Act 1997 (TCA), rental income received by companies and individuals, whether resident or not resident in Ireland, from a property situated in the State is taxable under Case V of Schedule D of the TCA. This basis of taxation makes no distinction between rental income from property let for residential occupation and property let for commercial occupation.
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. where income is greater than expenses) or a deficiency (i.e. where expenses are 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.
While the same computational rules to calculate taxable rental income are generally applied to both individuals and companies, income from the letting of residential property, received by individuals and non-resident companies that do not carry on a trade in the State, is taxable under self-assessment income tax, while such income received by Irish resident companies and non-resident companies who carry on a trade in the State through a branch or agency, is assessable for corporation tax.
Rates of income tax for individuals
Income tax is an annual tax charged on income in respect of all profits or gains in the nature of income of an individual. The income tax rates are the Standard Rate of 20% and the higher rate of 40% on income above the standard rate tax band. The standard rate tax cut-off point depends on the individual’s status: single, one parent family, married, civil partner, whether one or both spouses or civil partners have income, etc. PRSI and USC may also be chargeable on rental income.
Rent-a-Room relief
Under section 216A TCA an individual who lets a room or rooms in her or his 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 with the letting does not exceed the threshold for the year in question, which is €14,000 for 2018. 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 individual
Where rents are paid directly to a non-resident, the tenant is obliged to deduct income tax at the standard rate from the payment, as per section 1041 TCA. Credit can be claimed for the tax withheld on the non-resident person’s income tax return.
Irish resident companies
Rental income earned by Irish resident companies is assessable to corporation tax at the higher rate of 25%.
Companies not resident in Ireland
A non-resident company that carries on a trade in the State through a branch or agency is within the charge to Irish corporation tax. Its chargeable profits will include any income from property used by, or held by or for the branch or agency, which will include any rental income. Such rental income is chargeable at the higher 25% rate of corporation tax.
A non-resident company that does not carry on a trade in the State through a branch or agency is chargeable to income tax in respect of income, including rental income arising in the State. This is also the case where a non-resident company is trading in the State through a branch or agency, but has rental income that is not attributable to the branch or agency.
Close companies
Close companies (i.e. companies under the control of five or fewer participators) are also liable to a surcharge of 20% under section 440 TCA in respect of investment and estate income, including rental income which is not distributed to the company shareholders within 18 months of the company's year-end. This measure acts to discourage the accumulation of rental income in a company subject to the 25% corporation tax rate, where such income is liable on distribution to universal social charge, PRSI and income tax at the participator’s marginal rate.
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 taxed accordingly on their share of the partnership profits or gains.
Each partner takes her/his share of rental income and returns it in her/his own income tax return for the appropriate year of assessment as if it were her/his own income from the source in question. Similarly, any expenses borne by the partnership in relation to such income, e.g., costs of repairs and maintenance of a rented property, are similarly divided between the partners and each claims any relief available in respect of her/his share of any expenses that may be deductible in computing income under Case V of Schedule D.
REITs
Finance Act 2013 introduced the regime for the operation of Real Estate Investment Trusts (REITs) in Ireland. The function of the REIT framework is to facilitate collective investment in rental property. Property rental income and gains arising are exempt from tax within the REIT and are taxed in the hands of shareholders level when distributed. Any profits from other activities are subject to corporation tax in the normal way. The REIT legislation requires that 85% of all property income profits be distributed annually to shareholders.
Dividend Withholding Tax (DWT), currently at a rate of 20%, is applied by the REIT to distributions from a REIT both to Irish residents and non-resident investors. Irish resident investors will be subject to income tax, USC and PRSI in the normal way on distributions received from the REIT with a credit given for the DWT paid. Non-resident investors, resident in a country where Ireland has entered into a Double Taxation Agreement, may be entitled to reclaim some of the withholding tax if the relevant treaty permits. Dividends paid to Irish resident corporates by REITS are subject to corporation tax in the hands of the receiving company at the rate of 25%.
