TAXING INVESTMENT PROPERTIES

It’s that time of year again – the annual charge on investment properties and holiday homes is due from this week, The Sunday Post notes.

Property owners will become liable for the 2011 non-principal private residence charge from Thursday. The good news for those owners is that despite both coalition parties flagging large increases, the €200 annual fee remains for the time being.

More than €132m has been collected since its introduction in 2009; last year around €65m was raised on almost 320,000 properties. The main types of properties liable are private rented properties, vacant properties – apart from unsold new houses – and holiday homes. If a property is let in several units, the charge applies to each individual unit.

Property owners have from March 31 to June 30 to pay – a surcharge will apply from July 1. Payments can be made to local authorities or online at www.nppr.ie.

In an accompanying piece, tax expert John Lowe advises on the key issues property investors should consider when buying or owning an investment property. Lowe calls property “the most complicated investment you can make” because:

• If you make a profit on the rent, you will have to pay income tax
• If you make a profit when you sell, you will have to pay capital gains tax (currently 25%)
• There are myriad expenses you can claim against but you have to keep up to speed with them

Lowe notes the “several generous tax advantages to be had from property investment” including:

• A drop in capital gains tax from 40% to 25% if you sell the property at a profit
• An ability to earn up to €10,000 a year tax at your private residence courtesy of the Rent a Room Allowance
• A “surprisingly wide” range of expenses against rental income that will help keep overall income tax bills to a minimum

The main tax incentives include:

• “Very generous” capital allowances in relation to industrial buildings. And the word “industrial” can include everything from factories to creches to nursing homes and even holiday cottages. He notes that most of these are being withdrawn
• Additional tax incentives to designated deprived urban areas to encourage development
• Incentives to make homes more energy efficient. Relief will be given for up to €10,000 spent on such improvements at the standard rate of tax, with the credit given in the following tax year. Grants are also available for roof and wall insulation and the installation of a high-efficiency boiler, including a heating controls upgrade

And Lowe also gives a list of deductible expenses from rental income for tax purposes, including:

• Rates payable on the property
• Rent payable on the property eg ground rent
• Interest paid on money borrowed – up to 75% on residential investment properties to acquire or improve the premises
• The cost of anything supplied to the tenant that isn’t covered by rent eg lawns mowed
• The cost of maintenance, repairs, insurance or management fees
• A capital allowance of 12.5% a year on the value of fixtures, furniture and fittings

However, Lowe warns rental income is treated in the same way as self-employed income and because of this it may push someone into a higher tax bracket as a result.

Contact Anthony Casey to assess the tax implications of your investment properties.