Brendan has asked me to do a Key Post on this, so here it is. Let me first state that I’m not a tax professional – just someone who’s investigated the area extensively for my own tax returns. Feel free to PM me or add a comment if you have any suggestions for changes or notice any errors
What are my responsibilities as a UK-resident owner of Irish investment property?
What do I need to know about Capital Gains Tax (CGT)?
If your property is worth more than what you paid for it and it was your PPR, you should seriously consider selling it and avoiding putting it in a position where it is then liable for CGT.
The gain in property value, less allowable expenses, is liable to Irish CGT at 33% (the first €1,270 of taxable gains in a tax year are exempt from CGT). If you sell it before you became UK resident, you shouldn’t need to notify HMRC in the UK. If you sell it after becoming UK resident, you need to include the sale on both your Irish and UK tax return.
The UK CGT tax is 20% and the tax-free exemption is £10,900 for the 2013/14 tax year. If you are a UK resident, you get a credit for Irish tax paid. Therefore, as more tax is due in Ireland than would be in the UK, the Irish CGT is your total liability.
If the property is loss making, I think that you are better waiting until you are UK resident before selling it. This is because, as far as I’m aware, the loss can be carried forward against future CGT due in the UK, as well as Ireland, if you do this. As no CGT would have been due on a gain before moving to the UK, no CGT loss can be carried forward on sales before doing so.
What do I need to know about Income Tax?
The income tax due on Irish income is a flat 20% and you may be entitled to a proportion of your Personal Tax Credit as an Irish Citizen. The amount you are entitled to is worked out using the following formula:
Allowances / Tax Credits x Income within the charge to Irish tax / Total worldwide income
You can also offset allowable expenses against rental income (including 75% of mortgage interest if you are registered with the PTRB).
If you earn above the standard Irish tax band in Irish-only income, you’ll pay 41%. This is €32,800 for 2014 so, if you are earning such a high income in addition to your UK income, you should be getting professional advice.
The UK will tax your rental profits at your marginal rate, with an allowance for Irish tax already paid. For 2013/4, the rate is 20% if your total earnings (Irish and UK), is below £41,450 and 40% on anything over.
If you are a 20% tax payer, your total tax liability will be the higher of that calculated in the UK or Ireland (with the majority of it paid to Irish Revenue and the balance, if any, to HMRC). The total liabilities calculated under each tax system are usually similar and, in my experience, the liability calculated under Irish rules is usually the total liability. This is primarily because the UK allow 100% of mortgage interest to be offset against rental income.
If you are a 40% UK tax payer, the majority of Income Tax will be paid to Irish Revenue but you are very likely to have additional tax to pay to the UK HMRC.
What about PRSI and USC?
As a non-resident, you have no liability to PRSI.
With regards to USC, you have no liability if your Irish income is less than €10,036. Most people with a single property will fall under this category. If your Irish income is between €10,036 and €16,016, you would be liable to 4% USC on the entire income. If your Irish income is over €16,016, you are liable to 7% on the entire income.
As you can see, if owning two properties pushes you slightly over the €10,036 limit before which you pay USC, the removal of your liability to 4% USC is an added bonus to be considered when determining whether or not to sell one of your properties.
Any other differences between the UK and Ireland I should be aware of?
As stated above, a 20% tax-payer in the UK will have very similar tax liabilities under both systems. The amounts can be different due to the following main factors:
So, should I keep the property?
This is a complicated one and you’ll obviously need to do the figures for the property. An example of figures would be:
Property Value|€200,000
Property Cost|€100,000
Gain in Value|€100,000
Annual CGT Exemption|€1,270
Taxable Gain|€98,730
CGT Due|€32580.90
Proceeds from Sale|€167,419.10
Annual Rent|€8,000
Gross Yield|4.78%
In the above case, the property is probably worth selling because 4.78% is achievable elsewhere, without the trouble encountered by keeping the Irish property (and your net return (after expenses) on the Irish property will be significantly less than 4.78%).
If the gross yield were above 7%, you’d need to delve deeper into the figures, including expenses and whether or not you have a mortgage.
In the UK, you can open an ISA account and invest up to an annual allowance which, in 2014, is increasing to £15,000. This can be in cash savings (bad long-term due to inflation) and most other popular investments such as individual shares or funds.
In my opinion, a low yielding Irish property would be a mad idea when you could invest £15,000 annually into a UK ISA from the sale proceeds and this would be completely sheltered from the tax-man (you don’t even need to include the share/fund purchases and sales in your UK tax return). You could probably expect a return from such an investment of about 7-8% - which suggests that a gross yield of below 10% from Irish property isn’t worth the hassle.
The exception, of course, is where the Irish property is mortgaged - and, in particular, if it's a tracker mortgage. If an Irish property is mortgaged and securing a gross yield of 8%, selling it will not result in the ability to invest the entire proceeds in a UK ISA – so further analysis of the figures would be required.
Of course, in either case, investing in an ISA offers more diversification if you also own a UK property.
What are my responsibilities as a UK-resident owner of Irish investment property?
- You need to register for self-assessment with the Irish Revenue and the UK HMRC. You may already be registered with Irish Revenue if you already had rental property and I advise you to apply for the HMRC Online Self-Assessment as soon as possible because they are very strict with regards to penalties for late filing and it can take some time to get your UTR (Unique Tax Reference number) required for online filing. The fines are:
- A flat penalty of £100 if your return is one day late - even if you have no tax to pay
- An extra £10 per day up to a maximum of £900 for 90 days late - meaning a total penalty of £1,000 for a 90-day late return
- An extra £300 or 5% of the tax due, whichever is the higher, if your return is 6-12 months late
- An extra £300 or 5% of the tax due, whichever is the higher, if your return is more than 12 months late
- …. So someone with little, or no, tax liability could face a penalty of £1,600 for filing a year late
You need to nominate a ‘collection agent’ located in Ireland whose duty it is to file your returns. I believe this is to give revenue the comfort of knowing that there is someone in Ireland to chase if returns are not filed. This can be a letting agent but can also be a friend or family member. Personally, I’ve heard of people (and am one myself), who do not have a nominated collection agent and haven’t been called out on it yet – nor do I believe revenue will have a problem as long as my returns are consistently returned on time (please, do not take this as advice to do the same). Officially, if you do not have a collection agent, your tenant is supposed to withhold 20% of rent, submit it to the Revenue and provide you with a document detailing the tax paid – I’ve heard of tenants who withheld rent and didn’t submit the tax. I’m not sure what happens in such cases but you’re better to avoid such headaches where possible. If my tenant insisted on withholding rent for such reason, I’d go ahead and nominate a collection agent.- You need to register every new tenancy with the PTRB – this must be done every 4 years or with every new tenant (whichever comes first). Failure to do so has serious repercussions with regards to the ability to claim mortgage interest as an expense against rental income.
- You need to file returns for the Irish tax year (the calendar year) and the UK tax year (6th April to 5th April).
- The deadline for UK returns is 31st October for paper returns and 31st January for online returns. For Ireland, it’s 31st October and there’s usually a couple of weeks extension for filing online (but don’t rely on this being available and aim to file earlier).
What do I need to know about Capital Gains Tax (CGT)?
If your property is worth more than what you paid for it and it was your PPR, you should seriously consider selling it and avoiding putting it in a position where it is then liable for CGT.
The gain in property value, less allowable expenses, is liable to Irish CGT at 33% (the first €1,270 of taxable gains in a tax year are exempt from CGT). If you sell it before you became UK resident, you shouldn’t need to notify HMRC in the UK. If you sell it after becoming UK resident, you need to include the sale on both your Irish and UK tax return.
The UK CGT tax is 20% and the tax-free exemption is £10,900 for the 2013/14 tax year. If you are a UK resident, you get a credit for Irish tax paid. Therefore, as more tax is due in Ireland than would be in the UK, the Irish CGT is your total liability.
If the property is loss making, I think that you are better waiting until you are UK resident before selling it. This is because, as far as I’m aware, the loss can be carried forward against future CGT due in the UK, as well as Ireland, if you do this. As no CGT would have been due on a gain before moving to the UK, no CGT loss can be carried forward on sales before doing so.
What do I need to know about Income Tax?
The income tax due on Irish income is a flat 20% and you may be entitled to a proportion of your Personal Tax Credit as an Irish Citizen. The amount you are entitled to is worked out using the following formula:
Allowances / Tax Credits x Income within the charge to Irish tax / Total worldwide income
You can also offset allowable expenses against rental income (including 75% of mortgage interest if you are registered with the PTRB).
If you earn above the standard Irish tax band in Irish-only income, you’ll pay 41%. This is €32,800 for 2014 so, if you are earning such a high income in addition to your UK income, you should be getting professional advice.
The UK will tax your rental profits at your marginal rate, with an allowance for Irish tax already paid. For 2013/4, the rate is 20% if your total earnings (Irish and UK), is below £41,450 and 40% on anything over.
If you are a 20% tax payer, your total tax liability will be the higher of that calculated in the UK or Ireland (with the majority of it paid to Irish Revenue and the balance, if any, to HMRC). The total liabilities calculated under each tax system are usually similar and, in my experience, the liability calculated under Irish rules is usually the total liability. This is primarily because the UK allow 100% of mortgage interest to be offset against rental income.
If you are a 40% UK tax payer, the majority of Income Tax will be paid to Irish Revenue but you are very likely to have additional tax to pay to the UK HMRC.
What about PRSI and USC?
As a non-resident, you have no liability to PRSI.
With regards to USC, you have no liability if your Irish income is less than €10,036. Most people with a single property will fall under this category. If your Irish income is between €10,036 and €16,016, you would be liable to 4% USC on the entire income. If your Irish income is over €16,016, you are liable to 7% on the entire income.
As you can see, if owning two properties pushes you slightly over the €10,036 limit before which you pay USC, the removal of your liability to 4% USC is an added bonus to be considered when determining whether or not to sell one of your properties.
Any other differences between the UK and Ireland I should be aware of?
As stated above, a 20% tax-payer in the UK will have very similar tax liabilities under both systems. The amounts can be different due to the following main factors:
- The UK tax year is different to that in Ireland;
- The UK allow 100% of mortgage interest to be offset against rental income;
- In Ireland, Wear & Tear is calculated at 12.5% of the value of fixtures and fittings annually whilst, in the UK, it’s usually calculated at 10% of the rent charged for a furnished property.
So, should I keep the property?
This is a complicated one and you’ll obviously need to do the figures for the property. An example of figures would be:
Property Cost|€100,000
Gain in Value|€100,000
Annual CGT Exemption|€1,270
Taxable Gain|€98,730
CGT Due|€32580.90
Proceeds from Sale|€167,419.10
Annual Rent|€8,000
Gross Yield|4.78%
In the above case, the property is probably worth selling because 4.78% is achievable elsewhere, without the trouble encountered by keeping the Irish property (and your net return (after expenses) on the Irish property will be significantly less than 4.78%).
If the gross yield were above 7%, you’d need to delve deeper into the figures, including expenses and whether or not you have a mortgage.
In the UK, you can open an ISA account and invest up to an annual allowance which, in 2014, is increasing to £15,000. This can be in cash savings (bad long-term due to inflation) and most other popular investments such as individual shares or funds.
In my opinion, a low yielding Irish property would be a mad idea when you could invest £15,000 annually into a UK ISA from the sale proceeds and this would be completely sheltered from the tax-man (you don’t even need to include the share/fund purchases and sales in your UK tax return). You could probably expect a return from such an investment of about 7-8% - which suggests that a gross yield of below 10% from Irish property isn’t worth the hassle.
The exception, of course, is where the Irish property is mortgaged - and, in particular, if it's a tracker mortgage. If an Irish property is mortgaged and securing a gross yield of 8%, selling it will not result in the ability to invest the entire proceeds in a UK ISA – so further analysis of the figures would be required.
Of course, in either case, investing in an ISA offers more diversification if you also own a UK property.