Do you have to pay tax on rental income?

Renting out a property generates taxable income, and individuals/landlords must collect and annually pay the corresponding taxes to the Irish Revenue through an Income Tax Return.

Rental income includes all funds from leasing various properties, such as houses, flats, apartments, offices, or farmland/conacre lettings.

This article provides valuable insights into your rental income tax obligations and the process of filing rental income tax returns in Ireland. For tailored guidance on allowable expenses, rental income computations, and any unique tax considerations that may apply to your situation, contact our team for more information on our professional accounting services.

How is rental income taxed?

The taxation of rental income involves the calculation of gross rental income for each calendar year and deducting allowable rental expenses from it.

Calculate gross rental income

The total amount of money you receive from renting out your property, such as rent payments, payments you receive for allowing advertising signs, or any payments you receive for allowing a right of way through your property.

Deduct allowable rental expenses

Typically expenses for maintaining and managing the rental property include mortgage interest, insurance, maintenance and repairs, and property management fees. Deducting these expenses helps reduce the taxable portion of your rental income.

Keep accurate records

Establish a system to organise and store all relevant documents related to your rental property. Documents can include receipts, lease agreements, invoices, and other financial records associated with your rental income and expenses.

What tax do you pay on rental income?

The taxes you pay on rental income include income tax, Pay-Related Social Insurance (PRSI) and Universal Social Charge (USC). However, it’s important to note that various factors, including your total income and personal situation, will determine the rate of tax you pay.

For example:

If you are a single person and your total income, including rental income, falls below €40,000, you are subject to a 20% tax rate.

However, if your income exceeds €40,000, the portion above that threshold is taxed at 40% income tax. Additionally, there may be a 4% charge for the Pay-Related Social Insurance (PRSI). It’s important to note that you must also pay the Universal Social Charge (USC) on your rental income.

Understanding the tax rates and obligations associated with rental income can help you effectively manage your finances and ensure compliance with tax laws. We recommend that you consult with a tax professional or accountant who can provide tailored advice based on your circumstances. Our team of chartered and certified accountants can help you accurately calculate your tax liability and guide you in fulfilling your obligations on time.

What expenses can landlords in Ireland claim?

You can claim various expenses against your rental income to reduce your tax liability. Here are some common expenses that you can claim:

  • Rent payable by the landlord in respect of the premises
  • Rates
  • Insurance
  • Costs of maintenance, repairs, management fees
  • Residential Tenancies Board fees
  • Utility bill costs, if not reimbursed by the tenant 
  • Interest incurred on loans for the purchase, repair or improvement of the premises

Remember, keeping detailed bookkeeping records and retaining supporting documentation for all claimed expenses is essential. This includes invoices, receipts, and bank statements that clearly show the nature and amount of each expense.

What expenses can you not claim as rental expenses?

There are certain costs that you cannot claim as rental expenses. Being aware of these limitations is essential to assess your tax deductions accurately.

  • Capital expenditure incurred on the premises; however, capital allowances can be claimed on fixtures and fittings acquired for the rental property written off over eight years.
  • Expenses not related to the part of the premises which is let
  • Expenses incurred before the letting of the premises or after the termination of the lease. However, a deduction is available for negotiating a lease before it commences.
  • Mortgage repayment (only mortgage interest may be claimed)
  • Cost of own labour if carrying out work on the premises 
  • Local property tax

An example of income tax on Irish rental income

A single person rents out an Irish property for €750 per month in 2023. They also have a PAYE income of €28,000.
Rental income 9,000
Less rental expenses:
Repairs 900
Insurance 750
PRTB fee 90
Mortgage interest 850
Total rental expenses 2,590
Net rental income 6,410

In 2023 a single person can earn up to €40,000 at a tax rate of 20%.

Rental income 6,410
PAYE income 28,000
Total income 34,410
Tax at 20% 6,882
Less personal tax credit 1,775
Less PAYE tax credit 1,775 3,550
Total tax due 3,332

Non-resident landlords tax / Irish landlords living abroad

If you rent out a property in Ireland, you must pay Irish tax on it regardless of where you reside for tax purposes. One way to do this is to ask your tenant to withhold 20% of the rent and pay it to Revenue or appoint a collection agent.

If you do not have other income in Ireland, you do not need to file an Irish income tax return, provided you have engaged the services of a collection agent to file a return of your rental income. Please note that if you do not engage the services of a collection agent, then you will need to file an Irish income tax return each year.

You must file an Irish income tax return each year if you have other income in Ireland.

Non-Resident Landlord Withholding Tax (NLWT)

From 1st July 2023, a new Non-Resident Landlord Withholding Tax (NLWT) system will be in place.

When rent is paid to non-resident landlords, Rental Notifications (RNs) will be made by collection agents or tenants. Collection agents or tenants will withhold and remit 20% of the rent payment to Revenue. This withheld sum will be credited to the non-resident landlord when they submit their annual return. For individuals, the return will be Form 11, and for companies, the return will be Form CT1.

Irish landlords with properties abroad

You must pay Irish income tax on the rental income you receive from renting out a foreign property if you are resident or ordinarily resident and domiciled in Ireland. Domicile refers to the place which you consider your permanent home. 

The rental income amount is assessed in the same manner as if it was an Irish property, e.g. you are allowed all the same rental deductions as already outlined.

If you are not domiciled in Ireland, you generally only pay Irish tax on the foreign rental income you bring into Ireland. You are taxed on the total rental income you bring in without any deductions against that amount.

You may have to pay tax on your foreign rental income in the country your property is located in and also in Ireland. This will depend on your residence or domicile status.

Generally, you can deduct some or all of the foreign tax you have paid when calculating how much Irish tax you owe. The amount you can reduce your Irish tax will depend on whether Ireland has a Double Taxation Agreement (DTA) with the country your property is located in.

Is Airbnb taxed in Ireland?

In Ireland, income from Airbnb is subject to taxation. Instead of being taxed as rental income, it is necessary to determine if you are engaging in the trade of short-term guest accommodation. This determination is based on the frequency of the activity and whether it is conducted to make a profit on a commercial basis. In this case, you can claim capital allowances and pre-trading expenses up to three years before the commencement of the trade, so the cost of repairs, e.g. painting, can be claimed.        

If the Airbnb letting is an isolated or infrequent occurrence, it will not be considered the trade of short-term guest accommodation. This differentiation is significant because it impacts the deductions that can be claimed against the rental income.

Can you claim expenses on short-term guest accommodation?

If you are not considered engaged in the trade of short-term guest accommodation, only specific expenses directly related to providing the guest accommodation are allowable as deductions. These include commission paid to online booking sites, cleaning fees, the cost of providing breakfast to guests, and a reasonable portion of utility costs like electricity, gas, and heating.

However, general annual costs associated with the property, such as insurance, TV license, and overall maintenance expenses, are not considered directly incurred for the accommodation service provided. These costs are typically incurred regardless of whether a service is offered, and therefore, they are not eligible for deductions. In this case, you could not claim capital allowances or deduct pre-trading expenses.

It’s important to note that the deductibility of expenses can be complex, and the specific circumstances of your situation may impact what can be claimed. Consulting with a tax professional or accountant well-versed in Irish tax laws will provide accurate guidance tailored to your circumstances. They can assist in determining which expenses are deductible and ensure compliance with tax regulations.

Rental income tax returns – when are they due?

Rental income must be declared to Revenue annually on your tax return. This return is due for filing and payment by 31st October following the year in question. It’s advisable to start the process of preparing your rental income tax return well in advance of the deadline. This allows sufficient time to gather necessary documentation, accurately calculate income and expenses, and seek professional advice or a landlord tax accountant.

Kinore can assist with the preparation and submission of these tax returns, along with providing advice in relation to which expenses are allowable and the preparation of rental income computations. 

Frequently Asked Questions

What is the Rent-a-Room scheme?

You can earn a gross income of up to €14,000 from letting a room in your home, and you do not have to pay tax. You do not have to own this house, but it does have to be your principal private residence. This amount is the total income without deducting any expenses. If the income exceeds €14,000, then the entire amount is taxable.

The room must form part of the house and can be in the basement or a connected garage. The relief is only available for a room attached to the house. The tenant must use the space on a long-term basis. The relief is not available for short stays. You must submit an income tax return each year and declare this income even though it is tax exempted.