Re-investing in the property market: know your tax liabilities
Q. I AM considering taking advantage of falling property prices, to purchase a residential investment property, in the hope of earning rents and possibly selling in the future should the market improve. Can you please tell me of any tax liabilities which may arise as a result of this?
A. The current property market certainly presents an opportunity to acquire an investment property at a price, far lower than may have been the case during the boom. Although the likelihood of short term gains, available during that time, has unquestionably diminished. Should you find a property that you believe to be a sound investment there are a number of tax consequences that you will have to consider.
The first tax you will encounter is stamp duty on the purchase of the property. The current rates of duty applicable for residential property, whether new or second hand is 1% on the transfer of any property for a consideration of one million euros or less and 2% on any transfers above this amount.
Rental Income earned from any investment property is subject to Income Tax. It is therefore vitally important that records of any rents received as well as details of any expenses incurred in relation to any lettings are properly maintained.
Claimable rental expenses include, but are not limited to, 75% of the annual interest paid on monies borrowed to buy the property, insurance, management fees, repairs and maintenance, advertising and agency fees etc. Any deductions of this nature will help minimize the tax that you may have to pay on your rental income and as a result all details of such expenses should be recorded.
Should you sell the proposed investment property in the future at a gain, this gain will be liable to Capital Gains Tax, currently at 25%. The gain on which tax arises is calculated by subtracting the cost of the investment, any further enhancement expenditure incurred on the property and any costs relating to the sale from the proceeds received.
As well as the taxes outlined above, there are also a number of other consequences of owning a residential investment property. The Residential Tenancies Act 2004 provides that landlords must apply to register tenancies with the Private Residential Tenancies Board (PRTB). While from the 1st of January 2009 a BER certificate is compulsory for all homes being rented.
A BER is similar to the energy label for a household electrical appliance like your fridge. The label has a scale of AG. A-rated homes are the most energy efficient and G the least efficient. As well as this, The Local Government (Charges) Act 2009 introduced a €200 annual charge on non principal private residences, payable by the owners to the local authority in whose area the property concerned is located.
As a result of the potential tax consequences of your proposed investment, I would advise that you discuss any purchase decision with a qualified tax professional to ensure all potential tax liabilities are identified and all property reliefs which may be available to you are considered. Jim Doyle ACMA QFA is a partner in RDA Accountants offering full accountancy, business advisory, tax advisory and financial services. RDA Accountants | 5 Upper George Street, Wexford | Louisville House, Waterford Road, Kilkenny | 053 91 70507 | www.rda.ie RDA Wealth Ltd trading as RDA Accountants is regulated by the Central Bank of Ireland