Minimizing tax on rental income. A question?

We are buying a house and intend to borrow €300k to complete the funding.

We are borrowing because we want to keep our apartment and let it.

We have been presented two options by AIB.

1. Borrow against our new PPR @ 2.75% in year one (new business rate) and thereafter at the existing tracker rate.

2. Borrow against the apartment @ 3.1% from day one. i.e. a tracker of 1.1% over the current 2% prime.

Assuming a rental income of €8500 per annum (10 months @ €850 allowing two months rent for occasional vacancy and redecoration in between tenants) what is my best option from a tax point of view?

Many thanks.

D.

Hi Dinarius,


IMHO one thing to consider here is the current outstanding loan on the apartment you're planning to rent out. You appear to have a substantial amount of equity in this property (you've stated that you have the option of borrowing 300k against it) and therefore possibly a small mortgage or no mortgage at all?

If this is the case, no or very little mortgage interest deduction will be allowable against the rental income. Even if you borrow against the apartment to finance the new PPR, the interest on this new loan is not an allowable deduction. Only interest on borrowings used to extend / renovate the rental property are allowable.

Assuming 'we' means youself and your spouse: if one of you is not earning, the apartment can be registered in the 'unemployed' spouse's name - if the rental income is their only source of income, it will be taxed at 20%.

There are also no tax complications as asset transfers between spouses are exempt from tax.

You should really seek professional advice - this is just my understanding of the issue as a property investor.

There are some threads discussing this here, here and here, which I hope will be helpful to you.

Also the Revenue's guide to Rental Income IT70 is [broken link removed].