Foreign Rental Income
- Irish tax obligations
- Calculating taxable rental income
- Rental losses
- Interest relief
- Fitting out a foreign rental property
The information in the following answers is a very general outline of the residence and domicile rules and how they impact on a person’s taxable income. Depending on your residence and/or domicile you may be taxable on both your Irish and foreign source income, your Irish source income only or only on income that is actually brought into Ireland. If more detailed information is required, please consult Revenue leaflet RES1, Coming to Live in Ireland.
Is the rental income from my foreign property taxable in Ireland?
Generally speaking, you are chargeable to Irish tax on both Irish and foreign source income for a year during which you are resident or ordinarily resident and domiciled in Ireland. However, for any year during which you are resident or ordinarily resident but not domiciled in Ireland , you are still chargeable to Irish tax on your Irish source- income, but chargeable on your income from all countries and territories other than Ireland only to the extent that it is brought into Ireland. This is known as the 'remittance basis' of taxation. If you are taxed on the remittance basis you are taxable on the full amount remitted without any deductions against that amount.
How do I know if I am resident or ordinarily resident in Ireland?
Your residence status for Irish tax purposes is determined by the number of days you are present in Ireland during a particular year. You will be resident in Ireland for a particular year in either of the following circumstances:
- if you spend 183 days or more in Ireland in that year, or
- if you spend 280 days or more in Ireland over a period of two consecutive years you will be regarded as Irish resident for the second year. However, if you spend a total of 30 days or fewer in Ireland in either of those years, those days will not be counted for the purpose of the '280 day' test.
Alternatively, you may elect to be resident for a particular year if you satisfy your local tax office that you will be resident in Ireland in the following year under either of the above tests.
The term 'ordinarily resident' refers to an individual's pattern of residence over a number of years. If you come to Ireland for the first time and remain here for three consecutive years you will become ordinarily resident from the beginning of the fourth year. Conversely, you will cease to be ordinarily resident in Ireland having been non-resident for three consecutive years.
What does domicile mean?
Domicile is a concept of general law. It may broadly be interpreted as meaning residence in a particular country with the intention of residing permanently in that country. Every individual acquires a domicile of origin at birth and most individuals retain that domicile throughout their lives. If you are resident or ordinarily resident but not domiciled in Ireland you are only taxed on rental income from your foreign property to the extent that you bring that income into Ireland.
What should I do if I receive rental income from my foreign property?
Income tax is payable on the net profit rent arising on foreign properties. Such tax is payable under Self Assessment within what is known as the Pay and File system.
Under the Pay and File system, you must, on or before the 31st October of each tax year -
- pay the Preliminary Tax you owe for the current tax year;
- submit your Tax Return for the previous tax year; and
- pay the balance of tax due for the previous tax year.
For more information on tax obligations see Revenue leaflet IT10, A Guide to Self Assessment.
Notwithstanding the Self Assessment Pay and File system, where an individual -
- is a PAYE taxpayer (i.e. is in receipt of employment income or a pension which are subject to deductions at source under the PAYE System); and
- is in receipt of assessable non-PAYE income (including rent from foreign properties) of not more than €3,174 in a tax year (but see note)
- the tax due on such investment income may be paid by way of a reduction of his/her tax credits (i.e. the tax credits normally due against the PAYE income are restricted to cover the tax due on the non-PAYE income).
Note: This practice applies only where the gross non-PAYE income does not exceed €50,000 and the net assessable income does not exceed €3,174 in a tax year.
How is taxable foreign rental income calculated?
Generally speaking, rental income from foreign property is computed on the full amount of the rental income receivable in a year regardless of whether the income is ever received in Ireland. The taxable rental income is calculated in the same way as taxable rental income from an Irish property with the same deductions and allowances being available. Deductions are also normally available where tax has been paid on the rental income in the country in which the property is situated (see foreign income tax paid). However, you cannot set any deductions and allowances against your foreign rental income where that income is taxed on the remittance basis (see Irish tax obligations).
The treatment of Irish rental income is outlined in Revenue leaflet IT 70, A Revenue Guide to Rental Income.
How do I calculate my taxable foreign rental income?
From the total rents you are due to receive for the year, you deduct any allowable expenses and deductions. If the allowable expenses and deductions exceed the rents receivable you can deduct any rental loss from your rental income from other foreign properties. You cannot deduct any expenses that are not specifically allowed under Irish tax law, even if such items are deductible in the country in which the property is situated; for example, depreciation of the value of the building (see also rental losses).
What expenses and deductions are allowed?
Only those expenses and deductions that are specified in the Tax Acts and that are wholly and exclusively incurred in connection with the earning of the rental income are allowed. The types of expenses and deductions that are generally allowed are the cost of managing the property, cost of insurance, cost of repairs, local authority rates, interest on borrowings to purchase the property and the cost of fitting out and furnishing the property. For a more detailed list of the allowable expenses and deductions, see Revenue leaflet IT 70, A Revenue Guide to Rental Income.
What expenses and deductions are not allowed?
The types of expenses and deductions that are generally not allowed are pre-letting expenses (other than letting and legal fees incurred in connection with the first letting), post-letting expenses, capital expenditure or the cost of your own labour if you carry out repairs to the property.
Why are pre-letting expenses not allowed?
For expenses to be deductible they must be incurred during the term of a lease. This is why pre-letting expenses, with the exception of letting fees, advertising fees and legal expenses incurred on the first letting, are not allowed. For example, when the property is first acquired and before it is let, and occupied by a tenant, interest payments on the borrowings used to purchase the property are not allowed. Expenses, including interest payments, incurred in the period between lettings are deductible provided you do not occupy the property at that time and you re-let it at a later stage.
Does it matter if I stay in the property when it is not rented out?
If you stay in the property when it is not rented out, or if you let others stay in the property rent-free, you will not be entitled to the expenses and deductions that are normally allowed when the property is rented out. Expenses and deductions must be apportioned between the periods when you occupied the property and when it was let.
I sometimes travel to my property to inspect it or to carry out repairs. Can I claim travel costs such as airline tickets and car hire?
The cost of travelling to your let property is only allowable if the journey is undertaken wholly and exclusively for the purposes of earning rental income from the property. There can be no element of private purpose whatsoever. For example, if you or your family also use the opportunity to take a short break or a holiday or to inspect a property that you do not already own and let no part of the travel cost is allowed.
Can I claim a deduction for the cost of my own labour if I carry out repairs to my property?
You cannot claim any deduction for the time you spend working yourself in your rental business. Thus, while the cost of the actual repairs would be allowable, you are not entitled to a deduction for the time you spend carrying out those repairs.
Can I claim 'rent-a-room' relief in respect of rental income from my foreign property?
No. 'Rent-a-room' relief can only be claimed in respect of rent received on your sole or main residence, which must be located within the State.
What happens if my expenses are more than the rent receivable from the property?
A rental loss will arise if total allowable expenses exceed the rents receivable from the property.
If I make a loss from renting out my foreign property, can I use it to reduce my other taxable income?
No. A foreign rental loss can only be set against rental profits from other foreign properties. It can be set against such profits for the same year or, if there are no, or insufficient, such profits, the unused loss can be carried forward and set against any profits from the same property, or other foreign property, in subsequent years. If you incur a liability to capital gains tax on the sale of the property, you cannot set any unused rental losses against that liability.
However, there is no relief for a loss that arises in a situation in which a landlord’s maintenance, insurance, repairs and management expenses consistently exceed the rent receivable from the property.
If I make a loss from renting out an Irish property, can I set this loss against my foreign rental income?
No. An Irish rental loss can only be set against Irish rental income for the year in which the rental loss and rental income arise. Any unused loss can only be carried forward against Irish rental income arising in subsequent years.
If my foreign rental income is taxable on the remittance basis and I make a loss, can I claim that against other income?
No. However, if you have remitted some of the rental proceeds, you will have to pay tax on the amount remitted, irrespective of whether you made a loss under normal calculation rules.
I borrowed money from a bank to pay for the foreign property. Am I entitled to a deduction for the interest that I have to pay on this loan?
Interest on borrowed money that is used to purchase, improve or repair a rental property can (subject to certain conditions) be claimed as a deduction against the rental income from that property. However, for interest accruing on or after 7 April 2009, the deduction in the case of residential investment property is restricted to 75% of the interest otherwise allowable. The borrowed money must be used to directly purchase, improve or repair the property. For example, if you cannot directly purchase a property in a particular country and, instead, you purchase the property through a company that in turn purchases or owns the property, you will not be entitled to an interest deduction. This is because the borrowed money has been used to purchase an interest in the company and only indirectly to purchase the property. Please also note the restriction on pre-letting expenses outlined in calculating taxable rental income.
Is there a limit on the amount of interest relief?
A deduction is allowed (subject to certain conditions) for interest on borrowed money employed in the purchase, improvement or repair of the property concerned. However, for interest accruing on or after 7 April 2009, the deduction in the case of residential investment property is restricted to 75% of the interest otherwise allowable. Please also note that if you stay in the property or allow others to stay there rent-free, you will have to apportion the interest (see calculating taxable rental income at the question, 'Does it matter if I stay in the property when it is not rented out?’ and the restriction on pre-letting expenses outlined in that section).
I have an interest-only loan. Does this make a difference to my interest relief?
No. Interest relief applies whether you pay only interest to the lender or whether you repay part of the capital amount together with interest.
Can I deduct interest from the time that I take out the loan?
You can only deduct interest paid during the period in which the property is let. This means that interest is not deductible -
- for the period following the purchase of the property up to the time a tenant enters into a lease and occupies the property, and
- between lettings where you or others occupy the property rent-free, and
- after the property is let.
What effect did the Bacon Report have on interest relief?
Following the Bacon Report, no deduction was allowed for interest where a foreign rental property was purchased between 7 May 1998 and 31 December 2001. Interest relief has been restored for rental income earned since 1 January 2002, regardless of when the property was purchased.
Am I entitled to any relief for the cost of fitting out and furnishing my foreign rental property?
If you incur expenditure on fitting out and furnishing your foreign rental property you are entitled to capital allowances in the form of wear and tear allowances on that cost. The fixtures and furniture must belong to you and be in use at the end of each year for which allowances are claimed. Unlike other deductible expenses, these allowances are given over several years rather than being fully deductible in the year in which the expenditure is incurred. The amount of the annual allowance varies depending on when the expenditure was incurred. Since 4 December 2002, the allowance has been 12.5% of the allowable cost per year over eight years. For the period between 1 January 2001 and 3 December 2002 the allowance was 20% of the allowable cost per year over five years. Prior to that it was 15% of the allowable cost for the first six years and 10% of the allowable cost in the seventh year. The amount of the annual wear and tear allowance can be set against the rental income from the property. The allowances are not available for any part of a year when the property is used for private purposes. More information on capital allowances can be found in the Guide to Completing Pay and File returns (PDF, 834KB).
What happens if I dispose of the fixtures and furnishings?
Depending on the amount of the disposal proceeds and the depreciated (for tax purposes) value of the item(s) at the time of disposal you may be entitled to an additional allowance, known as a balancing allowance, or there may be a clawback of allowances that have already been given, known as a balancing charge. If the proceeds exceed the depreciated value of the item(s) there will be a clawback of allowances. Alternatively, if the proceeds are less than the depreciated value of the item(s) you will be entitled to additional allowances. More information on those terms canbe found in the Guide to Completing Pay and File returns (PDF, 808KB).