# Yield after Tax?



## dinglee (19 Jan 2013)

Hi,

I don't understand the 42% tax of rental income.

There are some website provide examples, such as this:

Gross rent          			9,000

Less Allowable Expenses  			
Letting Agent Fees  	1,200		
Allowable Interest (4,000*75%)	 3,000		
Repairs       	1,100		
Electricity/Heating 	500		
Accountancy Fees 	300		
Cleaning costs 	400		
PRTB fees 	
90

Total			3,590
Rental Income     			5,410

Capital Allowance   			
Furniture & Fittings			
Cost 6,000 x 12.5%      	750		750
Net rental income          			4,660




If I'm a buy-to-let investor and I can full pay a property (no mortgage / interest as expenses). The next rental income will increase 3,000 , €7660.

Does that mean the tax for the year will be 7660 * 42% ?
If so, that means the income after tax is 3677. For a property Gross Rent at 9,000 . The price is about 100k. 

The actual yield is 3677/100k = 3.67% which is lower than many interests rates.

If so, what is the point of doing a buy-to-let, with all these troubles?


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## mandelbrot (19 Jan 2013)

Take that question and turn it on its head; why should rental income be taxed at a lower rate than other types of income?

If your hypothesis is correct, and the yield from rental property was less than deposit interest rates, you'd find capital moving from property to deposit accounts, which should exert downward pressure on property prices and result in higher yields.


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## dinglee (19 Jan 2013)

Hi Mandelbrot,

Sorry, I'm not making a hypothesis. The real question is, is it really 42% tax? I'm not an Irish, I'm not sure how the income tax calculated, however, 42% income tax on a 9k income doesn't seem to be reasonable. Or, does it?


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## mandelbrot (19 Jan 2013)

dinglee said:


> Hi Mandelbrot,
> 
> Sorry, I'm not making a hypothesis. The real question is, is it really 42% tax? I'm not an Irish, I'm not sure how the income tax calculated, however, 42% income tax on a 9k income doesn't seem to be reasonable. Or, does it?



It's 41% tax (plus 4% PRSI and 7% Universal Social Charge), if your taxable income is above 32,400.


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## SPUDZ (19 Jan 2013)

what if you are a non-resident landlord?can you not claim the 75% of the mortgage interest if not a PAYE worker then?...that would mean huge losses if for example receiving 10000 in rent, and say 2000 in expenses...you would pay 41% + 4% + 7% = 52% on 8000.So effectively 4160 to the taxman, leaving only 3840 to pay the mortgage for the year.Are these figures really correct?.If so how are there any buy to let landlords out there.Just doesn't add up....


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## dinglee (19 Jan 2013)

Thats what I've been wondering in the last 2 days. I can afford to full pay a 200k property in Ireland, however, I'm looking for a return, not to only pay tax for it.

Are you (or anyone) sure it's 41% tax for the gross income as low as 10k? I found a website stating that its 20% up to €68,000, and 41% over it.

Even so, the yield after tax and expenses is still very low compare globally - which makes it no point in taking the risk to buy properties in Ireland.


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## SPUDZ (19 Jan 2013)

I'm really not sure...If this is the case then the smart thing to do is to put as little capital as you can into the purchase of the property and pay an interest only mortgage for as long as the banks will allow you. Save the capital repayment on the side line and pay the mortgage off when the interest only ends and quit being a landlord and live in it yourself!!With taxes this high....the only benefit to becoming a landlord is for the long haul, 15-20 years and hope that capital appreciation is worth it.


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## dinglee (19 Jan 2013)

SPUDZ said:


> I'm really not sure...If this is the case then the smart thing to do is to put as little capital as you can into the purchase of the property and pay an interest only mortgage for as long as the banks will allow you. Save the capital repayment on the side line and pay the mortgage off when the interest only ends and quit being a landlord and live in it yourself!!With taxes this high....the only benefit to becoming a landlord is for the long haul, 15-20 years and hope that capital appreciation is worth it.



This sounds ridiculous to me. Why would Irish Government prefer it's people to borrow money from the bank than asking for a higher deposit to make properties more solid? As the higher capital required to go to the market, the less risk will be there.

If there is no (or low) incentive to own a property in Ireland, why the market was high and everyone wants to own a property before the bubble burst?


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## Luternau (19 Jan 2013)

Rental income is not subject to the higher rate of tax if your total earnings from all employment plus rental income does not exceed the threshold for tax at the standard rate. Once you reach the cutoff, all income above this is taxed at the higher rate.  There is no special lower rate for rent. (answered on the basis that you are resident and paying tax in Ireland)
If you are not resident in Ireland there are different rules for how you receive rent from your tenant.
It seems a bit premature to post here about rental yield on property and at the same time seem to be unaware of the treatment of rent payable to non-resident landlords. Go to revenue.ie and all this information is there. Finally, if you are resident somewhere else, you will have to declare the income in your own country. You may get a tax credit for any tax paid here (if there is a tax treaty  between Ireland and your own country)


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## SPUDZ (19 Jan 2013)

of course banks want you to borrow...thats how they make their money.Property ownership is built into the hearts and minds of the Irish...at any cost.Most Irish who buy property as an"investment" do so with the thought process of someone else (tenants) paying the 20 year mortgage for them.The real return on their investment is when they own the property at the end, having put as little of their own capital into it.


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## Joe_90 (19 Jan 2013)

SPUDZ said:


> what if you are a non-resident landlord?can you not claim the 75% of the mortgage interest if not a PAYE worker then?...that would mean huge losses if for example receiving 10000 in rent, and say 2000 in expenses...you would pay 41% + 4% + 7% = 52% on 8000.So effectively 4160 to the taxman, leaving only 3840 to pay the mortgage for the year.Are these figures really correct?.If so how are there any buy to let landlords out there.Just doesn't add up....



Where did that come from?  Rent from property is taxed under Schedule D Case V.  There are specific deductions that are allowed.  PAYE worker, self-employed, unemployed or non resident makes no difference the expense is allowed.

The rate of tax payable is based on the normal rates that are allowed to all people.  First 32,800 at 20% and the balance at 41%.  PRSI and USC as per the rates applicable.

Remember that a non resident may be taxable in their home country as well with relief under a double tax treaty.

To address the point made the yield is low after tax but a 9% yield is reasonable. 

Look at other options Govt savings 2.28% return, no tax.
Bank deposit interest 2.5% subject to DIRT 33%.
Yields are low in most areas at the moment.


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## Luternau (19 Jan 2013)

dinglee said:


> I found a website stating that its 20% up to €68,000, and 41% over it.
> 
> Even so, the yield after tax and expenses is still very low compare globally - which makes it no point in taking the risk to buy properties in Ireland.



Was that website revenue.ie?-nothing else matters only that!

The rules and environment of residential rental/buy to lets have changed a lot since the crash. Restrictions of reliefs, higher taxes, lower rents!

Sadly you cant just pick a rate of tax to pay or argue that the rate makes no sense. Thats the rate that applies. If you are not happy with the projected gross/net yield (plus possible capital appreciation) v's any percieved capital risk, then the bank is the place for your money.


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## dinglee (20 Jan 2013)

The gross yield is high, but the yield after tax is very low. I don't think this is any good for an investment point of view. The property price may not go further down but it's not easy to go up in the next 5 years. Even if it goes up, the Capital Gain is 30%. 

The risk investing in Ireland is far too high compare to other investment options. Such as RMB (Chinese Currency) produce 3.5% and it's more likely to rise in value than the property in Ireland.


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## dub_nerd (20 Jan 2013)

dinglee said:


> If there is no (or low) incentive to own a property in Ireland, why the market was high and everyone wants to own a property before the bubble burst?


 
National hysteria.

Rental yields are only now beginning to make the slightest bit of sense, assuming you want all the heartache potentially associated with being a landlord, and even then only because returns elsewhere are so low or so risky.


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## dinglee (20 Jan 2013)

Just out of curiosity, I suspect that the yield after tax few years ago is even worse than current market. 

It is very like to be a negative yield for a buy-to-let as the house price was like double few years ago. Right?


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## mandelbrot (20 Jan 2013)

dinglee said:


> Just out of curiosity, I suspect that the yield after tax few years ago is even worse than current market.
> 
> It is very like to be a negative yield for a buy-to-let as the house price was like double few years ago. Right?



Yup.

But bear in mind that many people were primarily buying for the capital appreciation.


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## dinglee (20 Jan 2013)

That's a lethal mistake, buying something that is losing money. It's not only buying but buying with leverage (mortgage).

Good luck Ireland.


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