Frequently Asked Questions
| Q.1 | Which is better for letting purposes, an apartment or a house? |
| A.1 | Location is the key. Younger people prefer living in or around the city centre and generally speaking apartments are more available in these locations. Further out of town people prefer houses as you can accommodate either families or a couple of individuals who prefer to share accommodation. Some investors prefer to buy property nearer to their own home so that they can keep an eye on it. |
| Q. 2 | Should I buy a residential property or a commercial property? |
| A. 2 | Many people prefer buying residential property because they are more familiar with this. Purchasers often intend to pass the units on to their own family. Commercial property is let on a different basis to residential and individual units will generally be more expensive than an individual residential unit. |
| Q. 3 | How is rental income taxed? |
| A. 3 | There are special rules for calculating the amount of the rental income upon which you will be charged tax and PRSI. Various expenses are deducted from the gross rental income in arriving at the net rental profit. Once this figure is calculated it is included with your other income for taxation purposes. |
| Q. 4 | I am a PAYE person with two investment properties. What tax returns do I need to make to the Revenue? Can I claim relief for the properties against my PAYE income? |
| A. 4 | Because you are in receipt of rental income you will have to make tax returns each year to the Revenue showing the calculations of the rental account for the properties. This will be included with your normal income tax return form. Unfortunately you cannot offset the expenses on the rental properties against your PAYE income. |
| Q. 5 | Can my children use our investment property? |
| A. 5 | Your children can use the property. However, if they do not pay a market value rent then any losses incurred on letting the property will not be available for offset against other rental income. |
| Q. 6 | What is the best type of loan to obtain maximum tax relief? |
| A. 6 | Tax relief against rental income is available in relation to mortgage interest on a loan to purchase the investment property. There are three basic ways of repaying your loan to the lender. These are a repayment mortgage, an endowment mortgage and a pension mortgage. The repayment mortgage is the more traditional method used. This means you are repaying both capital and interest during the term of the loan. At the end of the loan period you have paid off your loan in full. Your interest costs are reducing gradually during the period of the loan. However, this also means that your tax relief on the mortgage interest is also reducing. The endowment mortgage involves the use of a life assurance product. You pay interest throughout the period of the loan and at the end of the loan term the capital is paid off when the life assurance product matures. In this way you obtain maximum tax relief on the mortgage interest. A further alternative is the pension mortgage. This is similar to the endowment mortgage. At the end of the loan term the balance owed is paid off by way of a tax free lump sum from your pension scheme. During the term of the loan you are repaying interest only which qualifies for tax relief against your rental income. Interest only loans were very popular. When combined with other tax reliefs in respect of the property it can reduce the amount of capital required from own funds to buy the property. Which of these methods is most suitable for you depends on your own particular circumstances. You could also have a mix of the three methods outlined above. It is very important that these matters are examined in detail before taking out your mortgage to ensure you obtain the most suitable mortgage for your own particular circumstances. |
| Q. 7 | I am married and own a number of investment properties in my own name. Are there any tax implications for transferring the properties into joint names with my spouse? |
| A. 7 | Spouses can transfer assets between them without incurring any tax transaction costs. The transferring of the properties into joint names will not give rise to any tax liabilities. There may also be opportunities to structure matters in a more tax efficient manner. Professional advice should be sought before doing anything. Click here for further details. |
| Q. 8 | My spouse and I bought two investment properties several years ago which are now quite valuable. We want to extend our own home and pay off other debts and propose selling one of the properties to fund this. What are the tax implications? |
| A. 8 | A capital gains tax charge may arise on the proposed disposal of one of your investment properties. A calculation should be done to see which property gives rise to the lowest capital gains tax charge on its disposal. Our Capital Gains Tax Calculator will do this for you. |
| Q. 9 | I have been running my own business for many years through a limited company which has accumulated substantial profits in the business. I would like to invest in property. How can we achieve this in a tax efficient manner? |
| A. 9 | More detailed information would be required to deal with this question. However, on the face of it, it may be possible to obtain a full tax write off against your business profits for the purchase of an investment property and also to earn tax free rental income from it. This can be achieved through the use of pension funds. We provide advice on these type of arrangements by way of consultation for which a charge will arise. |
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