# 32 married, young family - haven't declared rental  income from former home



## RonanOS (24 Aug 2017)

Age: 32
Spouse’s/Partner's age: 33

Annual gross income from employment or profession: 65k

Annual gross income of spouse:30k

Monthly take-home pay:
Me: 3,050 after pension and health insurance 
Wife: 1,800e

Type of employment: both private

In general are you:
Saving, although recently married so left with 10k savings between us.

Before the wedding we were saving approx 2k per month.

Rough estimate of value of home: we are currently renting the house we live in at 650€ per month. To be honest we are happy enough living in this house, nice neighbours, location etc.

However I have a mortgage on a house that is currently rented out (location not suitable for us now). This house is valued approx 180k. It is rented out by the same couple the past few years and they are great tenants so no rush to sell the house either as rent is pretty much covering the mortgage although I am Currently not paying tax on the rental income.

Amount outstanding on your mortgage: approx 145k.

*What interest rate are you paying? 3.19%*

Other borrowings – nothing

Do you pay off your full credit card balance each month? 
Yes - don't use it too often. Just for flights etc.

Savings and investments: 10k savings in credit union between us both.

Do you have a pension scheme? I do, she doesn't. I am unsure of the scheme I am on in work. 

Do you own any investment or other property? Yes the previous mentioned property.

Ages of children: 7 and 2

Life insurance: I have but not sure of the policy details.


*What specific question do you have or what issues are of concern to you?*

We currently use my wife's income for shopping, kids needs and savings for holidays etc and my income is used for rent, bills and savings.

At the end of the month we have approx 1500 that we can save toward the 20% deposit that will be needed to buy A home for us and the kids. I expect we will be looking at spending approx 250k on this home kdand so will be saving for another 3 or 4 years.

Are we better off saving this entire 1500 or perhaps just save 1000 and use the other 500 to over pay the existing mortgage? Or any other ideas? As I mentioned above we are in no real rush to move either but it is something we want to do in the future to have a family home.

Thanks


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## gnf_ireland (25 Aug 2017)

RonanOS said:


> although I am Currently not paying tax on the rental income.


i think this is something you need to address before anything else - you could end up with a serious tax bill here

Can I ask why not sell the current house, release the 35k equity and kick start the saving for the new place...  Would you get a mortgage for a second property if you are not declaring the income on the first one - unlikely !!

If it was me, I would sell the first one, focus on buying the family home and going from there ...


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## RonanOS (25 Aug 2017)

Hi gnf_ireland,

Regarding declaring the rental income, I thought this was something I could do a few months prior to applying for a new mortgage or before selling the property - whichever came first. 

Why not sell the current property - currently it is rented out by a couple for the past 4 years and it is giving no problems. As long as this is the case I thought it would be best to keep paying off the mortgage so when it is eventually sold it would provide a bigger lump sum which could then be used for example to reduce the mortgage on family home or savings for kids college etc.


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## Cervelo (25 Aug 2017)

So just to clear, You thought you could evade paying tax on your rental income for the last 4 years because you wanted to clear your mortgage quicker, What a great idea 

My advice is sell the the house and hope the proceeds from the sale cover your tax bill because if you dont sort out your tax affairs the revenue will and it wont be cheap

Then you can start thinking about buying another house


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## RedOnion (25 Aug 2017)

As other posters advised, your first thing to sort out is the tax position in your rental property, at the very least understand what you should be doing, and what the penalties are for under-declaration of income. 

If the rent is just covering the mortgage, on an after tax basis you'd have to put your own money into it. Similarly, since it's not your family home there could be a capital gains tax due when you sell it in the future. The calculation will depend on how long it was your family home.

What price bracket would you be looking to buy a house? And how much rental income are you receiving?

The best advice might be to sell the house when you start looking to release the equity. You should also have a better chance of getting a mortgage - I can't see a bank looking favourably on an investment property that isn't washing it's face after tax.


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## emeralds (25 Aug 2017)

Do you know how much tax will be due on the rental property? When you decide to pay it? It may wipe out your €10k savings...
Have you been paying the LPT for it?  And was NPPR tax applicable to it?


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## Brendan Burgess (25 Aug 2017)

Hi Ronan

A lot of people make the same mistake. They just rent out their former home and don't think about or forget about the tax consequences.

This is your first priority to sort out. Do it yourself, rather than have Revenue come after you.

Rental income: €7,800
Less 75% of mortgage interest : €3,000
Less expenses - €1,000
Taxable income: €4,000 
Tax, USC and PRSI: €2,000 per year 

Revenue is fairly easy on this. If you approach them and sort it out and pay it, they may not impose interest and penalties. If they find it and come after you, then you will pay a lot more. 

The Non Principal Private Resident Charge of €200 was payable if you rented out the property in 2013. It has not applied since 2014.
Unfortunately, there are extortionate penalties for not paying it on time. Whatever else you do, sort this one out immediately. 

Have you claimed the TRS (Tax Relief at Source) on your mortgage payment? You will have to refund that as well. 

Brendan


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## RonanOS (25 Aug 2017)

Hi Cervelo,

Not exactly, I was living in the house from 2010 to 2011 with an ex girlfriend and then rented out a couple of rooms from 2011 to 2013 while still living there when we broke up. Then I moved out altogether in 2013/14 and the current couple moved in. I found out about the need to pay tax on rental income quite recently. Although no excuses for ignorance it's my responsibility to do it correctly.


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## RonanOS (25 Aug 2017)

Hi red onion,

We would be looking to spend in the region of 250k on a family home.

Currently the rent from the other house is 650€ and the mortgage is 750€ so I top it up with 100€ per month plus the approx 50€ for insurance.


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## RonanOS (25 Aug 2017)

Hi Brendan,

Looks like I will need to pay out quite a bit. 

Yes there was mortgage interest relief being paid into the account also.

Do you recommend calling up the revenue and explaining the situation to them inorder to get it all above board including back dating to when I first rented out the house?

And then look to sell the house?

Thanks


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## Brendan Burgess (25 Aug 2017)

Yes, you should probably try to call in to see them. This might get a more sympathetic response. 

Brendan


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## cremeegg (25 Aug 2017)

I suggest that before you contact Revenue, you actually do the tax calculations and know how much you owe them. And be ready to pay maybe 20% of the amount due immediately, and commit to paying the balance over say 10 months.

If you approach them with "I didn't declare the income, what should I do now" you are less likely to get a sympathetic hearing than if you have definite numbers and a plan.

I also think the phone is better than a face to face meeting.


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## Brendan Burgess (25 Aug 2017)

The key thing is that you contact them and start resolving it.  Don't let a difference of opinion on how best to do it, delay you from addressing this issue.

Brendan


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## gnf_ireland (25 Aug 2017)

RonanOS said:


> Currently the rent from the other house is 650€ and the mortgage is 750€ so I top it up with 100€ per month plus the approx 50€ for insurance.



This is not really a good investment for you currently
based on Brendan's numbers above, you are making very little a year on the house
- Rent = 7800
- Mortgage Interest = 4625 (145k * 3.19%)
- Other costs (PRTB, Insurance etc) = 1000
- Tax bill = 2000 (Brendan's calculation)
RETURN => 175 euro a year

obviously cash flow wise its a different story - 9000 a year mortgage payments, 1000 extra cost and 2000 tax leaves you down 4200 a year cashflow

I think once you have your tax situation sorted, I would be selling it more or less immediately. If you are planning to spend some money on it before selling it (painting or whatever) do this while the tenants are in situ, otherwise its not tax deductable


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## Brendan Burgess (25 Aug 2017)

If you look at it simply as an investment, then GNF's analysis is right, you would sell the house.

But you need to look at it as a step on the housing ladder.  As such, if you get off the ladder, you may not be able to afford to get on it again. So, in my view, you should keep the house. 

House value now: €180k 
Mortgage: €145k 
Equity: €35k
Target house: €250k 

*Scenario 1 - house prices fall by 20% *
If you keep your house, the house will be worth €144k - the same as the amount outstanding on the mortgage.   But the house you plan to buy, will be €200k.  So that will be cheaper.  You may still be able to buy a house as you might get a Negative Equity mortgage.  Or even if you can't buy a house, you will still retain a stake in the housing market, and eventually you should be able to trade up.

Of course if house prices fall, your rent should fall as well, which would benefit you on balance. 

If you sell your house, then you will be in a much better position. The house you want to buy will drop to €200k and you will have about €35k cash

*Scenario 2 - house prices rise by 20% *
If you keep your house, it will be worth €216k so your equity will have risen to about €70k. The house you want to buy will have increased from €250k to €300k, but you will still be able to buy it as you will have more than the 20% deposit.

If you sell your house now, the house you want to buy will still cost €300k but you will have only €35k and so won't get an 80% mortgage.  You might never be able to get back on the housing ladder. 

If you could predict house price movements over the next 4 years, you would know exactly what to do. But given that no one can make such a prediction, it seems to me that the safest option is to retain a stake in the housing market. 

Brendan


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## elcato (25 Aug 2017)

I would strongly recommend you approach an accountant before revenue so you are pretty clear on the figures you owe.


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## Cervelo (25 Aug 2017)

But he won't have 35K in cash after he pays his CGT and I would second elcato's advise about an accountant


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## Brendan Burgess (25 Aug 2017)

Cervelo said:


> But he won't have 35K in cash after he pays his CGT



He has a tax bill of probably around €10k to €12k - Income Tax, NPPR and refund of TRS.

He might have a CGT bill, but it's unlikely. He has not told us the purchase price. It will probably be quite small if he does have one.

Brendan


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## Brendan Burgess (25 Aug 2017)

elcato said:


> I would strongly recommend you approach an accountant before revenue so you are pretty clear on the figures you owe.



That was my  initial thought as well, but I am not so sure.  It's a fairly routine matter and I think he should try to resolve it himself and personally.  If Revenue imposes interest and fines, he should then consult an accountant. 

Brendan


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## RonanOS (25 Aug 2017)

Hi all,

Thanks for all of the replies. I will take a look at how much is owed and then contact the revenue with a plan to bring it up to date.

Going back to the decision to sell the property or not. My thoughts were that even if I had to put a few thousand per year into it on top of rental earnings, it would act like a long term method of savings that could be cashed in at a later date when the house was eventually sold.....is that completely not the right thing to do?


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## Gordon Gekko (25 Aug 2017)

I wouldn't think the tax bill should be that high. Rent a Room should apply for the period when some of the house was let whilst the OP lived there. It's really only since 13/14 that there's an issue, at €2k a year per Brendan's calculations.

I would submit tax returns for each year and just see what happens.


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## RentingD (25 Aug 2017)

I was in a similar situation with rental house, moved out, got married and was totally overwhelmed about sorting out the tax situation. 
I got an accountant who acted as agent with Revenue, gave him all the information and tax wasn't all that bad. Can't remember exactly but it was offset by medical expenses and other things i hadn't claimed for. A while later i got a letter from Revenue for 2 years of Mortgage interest relief. I rang them and they let me repay in chunks over a few months. I wasnt fined anything thankfully.
It was a total weight off to get it all sorted.


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## Klopp to it (30 Aug 2017)

*Is it not a requirement that any tenancy must be registered with the PRTB to be able to claim mortgage interest relief...?
*
_From the PRTB website;
Why is the PRTB registration so important? 
Landlords must comply with the PRTB registration before they can claim mortgage interest relief on rental properties._


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