# Rent apt or keep trying to sell



## Thrifty1 (3 Jul 2008)

Hi, not sure if i have this in the correct forum so please move if i dont.
My query is whether or not myself and husband should rent out an apartment we are currently unsuccessfully trying to sell.
Details are as follows.

Mortgage on 2 bed apt - €150,000 outstanding, 26 years left @ 5.79% with Ulster Bank, monthly payments €860

We also have a mortgage on 3 bed house we are living in
€296,000 outstanding, 24 years left @ 4.99 (discounted tracker for another year) with PTSB, monthly payments €1,780.

We have had apt for sale almost 2 years, there are 4 other apts in complex for sale ranging in price from €199k to €248k and none selling.

Personally i would sell for less than the €199k but as there seems to be no interest at the moment im not sure if we reduced the price more would it sell anyway.

Husband bought property 4 years ago as FTB and house ceased to be his PPR a year ago.

Rental in area for similar properties is about €800- €875 a month about 10 properties in area currently for rent.
I was considering renting property out at around €700 -€750 a month in the hope of attracting tenants quickly.

Questions are

1) If interest on mortgage repayments is around €600 and rental income is €700, profit of €1200 a year.Can i offset management fees of €1,800 per annum against this and therefore pay no income tax?

2)If i switch mortgage to a different bank will it be an investment mortgage?

3)Plan was originally to use profit on sale of appt to pay off principle of mortgage on house, would you advise trying to sell apt for about €180,000 and putting €30,000 (less fees) against it and just be done with it.

4)As my husband has owned the apt 4 years before renting will he be liable to stamp duty clawback (i find the new rules confusing)

Thanks very much i know its difficult to advise but any additional info or guiding would be much appreciated, especially any liabilities i may have overlooked.
Please let me know if further info required.


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## Camry (3 Jul 2008)

WRT #1

As this apartment was a PPR I am not so sure than interest income would be an allowable charge against taxable income (the rent). The Revenue position being that you didn't borrow to purchase a property for investment purposes, you owned the property already.


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## NicolaM (3 Jul 2008)

Is this correct Camry?
I did not think that this was the case (I am open to correction, of course).
Nicola


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## Camry (3 Jul 2008)

Check out number 4.

[broken link removed]



> 4.1 The restriction [on the deduction of interest on borrowing against gross rental] also applies where at any time on or after 23 April, 1998, a person vacates his or her principal private residence and turns it into rented accommodation.


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## NicolaM (3 Jul 2008)

So does that mean that anyone who bought, for example, an apartment as their PPR, then after several years bought and moved into a house, can not subsequently rent out the apartment and claim the interest against their rental income for tax purposes?


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## Camry (3 Jul 2008)

NicolaM said:


> So does that mean that anyone who bought, for example, an apartment as their PPR, then after several years bought and moved into a house, can not subsequently rent out the apartment and claim the interest against their rental income for tax purposes?


 
The way I read the Revenue FAQ, that is true, since 23 April 1998.

I think the reason this was brought in was to close a tax loophole. You could load up your PPR with debt before you moved, then take the capital you raised to by a new PPR.


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## NicolaM (3 Jul 2008)

Wow. I'm really surprised.
Thanks for that information 
I had actually considered doing something like that at some stage in the (now far-away) future.
However, that rule makes it completely tax in-efficient to consider at all.
Nicola


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## Thrifty1 (3 Jul 2008)

Does that mean we are liable to income tax on all the rent received ?


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## Camry (3 Jul 2008)

Thrifty1 said:


> Does that mean we are liable to income tax on all the rent received ?


 
Given the information you supplied I would say yes.

Although, maintenance, repairs, wear and tear etc. should be allowable.


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## NicolaM (3 Jul 2008)

I'm sure lots of people have done that, rented out their PPR after moving on to a bigger place. 
I feel completely ill informed, never ever realised that the rental income wasn't allowed against the mortgage interest.
That makes a huge difference, as the whole income (bar expenses) therefore is assessed for tax. Which makes renting a PPR out a bit untenable really for lots of people I'd imagine.
Am I the only person who hadn't copped on to that?
Nicola


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## Camry (3 Jul 2008)

NicolaM said:


> I'm sure lots of people have done that, rented out their PPR after moving on to a bigger place.
> I feel completely ill informed, never ever realised that the rental income wasn't allowed against the mortgage interest.
> That makes a huge difference, as the whole income (bar expenses) therefore is assessed for tax. Which makes renting a PPR out a bit untenable really for lots of people I'd imagine.
> Am I the only person who hadn't copped on to that?
> Nicola


 
Somehow I doubt you are alone.


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## WaterSprite (3 Jul 2008)

You're certainly not alone!  Jeez, this info has just changed my entire outlook, and not in a good way:-(

Revenue website says:

*Conversion of principal private residence into rented residential premises*  Q. I intend to let the house which is currently my main residence and purchase another house as my main residence. If I let my current residence, can I claim the mortgage interest as a rental deduction?
  A. No. 




From [broken link removed]

I just called the PAYE section and they confirmed it, albeit the lady simply said "yes that's correct" and more or less hung up on me before I could ask her for more details.  The second person I got through to didn't have the answer and pointed me to the Income Tax section but they are closed for the day by the look of things.

eek!
Sprite


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## Thrifty1 (3 Jul 2008)

I didnt realise that either. I has been putting it off as i knew i would have a stamp duty claw back and would also have to pay CGT on any profit when we do sell but always thought the rental income could be offset against the interest on repayments.
That then makes this completely unaffordable. 

Is there anyway around this like if i (just in theory) purchased the apt as an investment property from my husband for €150k ?


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## Camry (3 Jul 2008)

Thrifty1 said:


> Is there anyway around this like if i (just in theory) purchased the apt as an investment property from my husband for €150k ?


 
I would seriousl doubt that. I think the only way interest would be deductable against rent would be if you sold the apartment, then took out a mortgage to buy another apartment for investment purposes.


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## Thrifty1 (3 Jul 2008)

Camry said:


> I would seriousl doubt that. I think the only way interest would be deductable against rent would be if you sold the apartment, then took out a mortgage to buy another apartment for investment purposes.


 
I thought not. Id say very few people know this cos i have spoken to a lot of people about it and not one person mentioned it.
Glad i posted on here now.

Thanks for the info.


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## murphaph (3 Jul 2008)

i was totally unaware of this also and it ill affect me soon! damn and blast but it seems unfair to me. why should an 'accidental landlord' receive lower allowances than a btl'er?!

Edit: Just read the whole page and reaslise they are treating btl'ers just the same but is it just me or are loads of people claiming interest relief when they shouldn't?

2nd edit: It seems unfair that of you remain in the PPR and rent out a room or two you can claim relief, yet if you move out completely you can't :-(

Also, it seems unfair that you 'lose twice'-ie, you lose the ability to claim relief on interest and yet you also lose PPR status so pay CAT on disposal. Down with this sort of thing!


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## Camry (3 Jul 2008)

I think deductabiity of interest costs was restored for BTL from 2002. The test is borrowing used in the purchase etc. of the property.

The technacility is that if renting out your PPR you didn't actually borrow for the purchase, it was already there.

Another point about "accidental" landlords. Nobody is an accidental landlord. You might not like the price at which the market presently values your property, but that is not a impedement to sale.

In addition, such "accidental" landlords get 12 months grace in the determination of capital gains ( technicallythe last 12 months prior to sale is deemed as owner occupied, even if it is rented out).


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## NicolaM (3 Jul 2008)

What does this mean?
I'm afraid I am no wiser with this. (Thanks for link though)
Nicola


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## WaterSprite (3 Jul 2008)

I don't think that the reference in IT70 is dispositive of the issue.  You can deduct interest against rental relief in respect of *certain properties* (emphasis in IT70) so the line "...the relief for interest on borrowed money was restored for such interest accruing on or after 1 January 2002..." I believe applies only to those certain properties (i.e. investment properties) and not to properties which were previously PPRs.  

I will call the Income Tax unit tomorrow morning and try to get a definitive answer on this and get back but my initial call to the Revenue today gave a fairly clear answer too. Any accountants out there have a view?

Sprite


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## NicolaM (3 Jul 2008)

This is not great Sprite is it? Thanks for phoning Revenue, by the way.
Not nice to have this confirmed though!

Nicola


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## WaterSprite (3 Jul 2008)

It certainly is not great!  Let's not despair just yet - I'll call the other Revenue number and refer to that line in IT70 and get specific info and report back tomorrow.

Sprite


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## minion (4 Jul 2008)

I spoke to revenue on this years ago.
They told me the following.

If you buy a PPR and then, after a time, rent it out you can claim any relief on the interest paid on the mortgage.

What you cannot claim for is interest on any further loans on the property, just the original mortgage.

In other words, you cannot remortgage and expect revenue to pick up the interest on your new debt


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## NicolaM (4 Jul 2008)

Thank you Minion.
Sprite is also going to check this out.
Fingers crossed!
Nicola


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## ClubMan (4 Jul 2008)

minion said:


> I spoke to revenue on this years ago.
> They told me the following.
> 
> If you buy a PPR and then, after a time, rent it out you can claim any relief on the interest paid on the mortgage.
> ...


Correct - unless the topups are use to renovate the property.


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## ClubMan (4 Jul 2008)

WaterSprite said:


> You're certainly not alone!  Jeez, this info has just changed my entire outlook, and not in a good way:-(
> 
> Revenue website says:
> 
> ...


Surely that is referring to *owner occupier mortgage interest relief*. If you convert a _PPR _to a rental property then the interest on the amount of any loan(s) remaining outstanding that was (were) used to purchase or renovate the property can be offset against rental income. You must be registered with the _PRTB_ first in order to be able to do this.

If you don't believe me then get professional advice and they will tell you the same thing. Unless the rules have changed recently.


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## NicolaM (4 Jul 2008)

Thanks for clarifying. (phew!)
Nicola


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## ClubMan (4 Jul 2008)

Oh - the extract above dates from 1998 and I'm sure that the rules changed in more recent years.


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## NicolaM (4 Jul 2008)

But what you have said is correct, re interest being allowable?
Nicola


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## ClubMan (4 Jul 2008)

I am pretty sure unless the rules have changed again recently. But investors need to get their own professional advice if in doubt.


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## WaterSprite (4 Jul 2008)

Ok - I called North City Income Tax and have to email in my query.  Will do that now and report back again.

clubman, yes, the link I posted dates from 1998 but there's no new information on revenue.ie to say that the rules have changed.  The 1998 link deals squarely with the issue and applies to where you've moved house but then rent out the property that was once your PPR.  The most recent information is at: [broken link removed] which merely says:

*"Allowable Deductions* A person may claim a deduction from gross rent for legitimate property related expenses as follows:...


*Interest* - Relief is due for interest paid on loans to purchase, improve 	or repair a residential premises (some exceptions)."

So my question to them will be "what exceptions"?

Will report back again - unfort it may take a couple of days for them to get back to me.  I'm also thinking that the rules *must* have changed, but really want Revenue confirmation that this is the case.  

Sprite


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## NicolaM (4 Jul 2008)

Thanks Sprite.
Hopefully revenue will confirm
Nicola


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## ClubMan (4 Jul 2008)

Don't depend on the *summary *information on the website or from _Revenue _officials as necessarily being up to date and authoritative. If in doubt get professional advice.


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## Luternau (4 Jul 2008)

minion said:


> exerpt..
> ...What you cannot claim for is interest on any further loans on the property, just the original mortgage.In other words, you cannot remortgage and expect revenue to pick up the interest on your new debt



If you re-mortgage any propery to fund or part fund the purchase of an investment property, the interest would be allowable as an expense in purchasing the new property-provided you register with PRTB of course.  If a loan is taken out for another purpose, -e.g. a car, boat, holiday ,debt consolidation, or whatever, it is not a qualifying expense.


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## Thrifty1 (8 Jul 2008)

Hey Sprite, any further info?

In a quandry over this now, hopefully the interest is an allowable deduction.
Thanks


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## WaterSprite (8 Jul 2008)

No word back yet from Revenue I'm afraid - I'll post as soon as they get back to me.

Sprite


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## Shakespeare (8 Jul 2008)

Hi all
I'm pretty sure that as you lose PPR status and your property becomes an investment property, thus you're liable for CGT, stamp duty clawbacks etc because suddenly it is deemed to be an investment property, then you are entitled NOT to mortgage interest relief (which some people still tend to continue to call it) but to claim the interest on the original mortgage, against your rental income.

In fairness, it's either an investment property or not, even the Revenue don't try to have it both ways!!

What you cannot do is raise further finance on that investment property, use it to extend, renovate, your new PPR and then claim the interest on the new borrowings against the rental income.

BTW, for what it's worth, I wouldn't go to court on the basis of what you're told by anyone on the phone working for the Revenue. They are not necessarily all well informed and up to date. 
2 cases in point - 

1. A few years ago when lots of tax reliefs were standard rated, I submitted a MED 1 form and was only refunded 20%, when I phoned up, I was told over and over that "all reliefs are now standard rated" - FALSE, Medical expenses are still claimed at the marginal rate of tax (it even says so on the form)

2. I recently submitted a 2007 tax return and received *5 *incorrect assessments.
Given that I was claiming reliefs, you can imagine my surprise when the first assessment suggested I owed them Eur22k!! 
It took me 3 months of revised assessments to get one approximating what I knew to be correct (still a few hundred euro off but that's for another day)

Shakespeare


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## Thrifty1 (8 Jul 2008)

I know im liable for CGT when i sell (but would be regardless of whether i rent or not as it ceased to be my PPR last month anyway).

Re stamp duty clawback can anyone confirm that as we own the apt almost 4 years we are not liable for this (website is very unclear i thought it was after 5 years but i know the law changed to 2 years 

_A clawback arises if rent is obtained from the letting of the house or apartment for a period of 5 years (2 years where the property is rented out on or after 5th December 2007) from the date of the conveyance or transfer, other than under the rent-a-room scheme (It should be noted that the stamp duty legislation does* not* contain any limit as to the amount of rent which can be recieved by a person in respect of furnished accomodation in part of the house). The clawback amounts to the difference between the higher stamp duty rates and the duty paid and it becomes payable on the date of that rent is first received from the property._
_The *claw-back period* for instruments dated on or after 5th December 2007 in relation to the condition prohibiting the letting of the entire property, is being reduced for all three reliefs from *5 to 2 years* for instruments executed on or after 5 December 2007. _
_For instruments executed *before* 5 December 2007, to the extent that a dwelling house or apartment is rented out on or after 5 December 2007, it will not involve a clawback of the relief where this occurs in the third, fourth or fifth year of ownership._

Apt purchased Sept 2004 so we are in the 4th year of ownership.


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## ClubMan (8 Jul 2008)

Thrifty1 said:


> Re stamp duty clawback can anyone confirm that as we own the apt almost 4 years we are not liable for this (website is very unclear i thought it was after 5 years but i know the law changed to 2 years
> 
> ...
> 
> Apt purchased Sept 2004 so we are in the 4th year of ownership.


If you rented it out before 5th December 2007 then you are liable. Otherwise you are not.


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## Thrifty1 (8 Jul 2008)

Not rented yet so not liable then.

Thanks Clubman.


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## WaterSprite (8 Jul 2008)

Alrightly then - Revenue got back to me.  With allowances for the usual caveats that others have mentioned (not relying on Revenue and all that). Here's what they said:

Dear [Watersprite], 

I  refer to your query below. The Mortgage Interest paid can be offset against  the rental income received. Exeptions would be interest paid on loans acquired  for the purchase of fixtures & fittings. 


Yours  Sincerely 
North  City PAYE


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## Thrifty1 (8 Jul 2008)

Thats great Watersprite thanks, panic over.


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## NicolaM (8 Jul 2008)

Thanks Sprite

Nicola


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## WaterSprite (8 Jul 2008)

No worries at all - just fyi and for completeness, here's the question I mailed them:

"Hello,

I called with this query this morning and was asked to    email it in.  I'm thinking of moving and renting out my current property    (currently my PPR but it would no longer be after I move out).  My    question is whether I can offset my rental income that I get for this property    against the mortgage interest I pay in respect of my outstanding    mortgage.  I'm not referring to TRS.

At this link:    [broken link removed] it says:
*"Allowable Deductions*

   A person may claim a deduction from gross rent for legitimate property    related expenses as follows:...

*Interest* - Relief is due for interest paid on loans to    purchase, improve or repair a residential premises (some exceptions).*.."*


   My question is what are the "exceptions" referred to above?  Under the    Finance Act 1998 (per IT70) it appears that one could not offset mortgage    interest against rental income if a property was once your PPR but I believe    that these rules have changed.  I cannot find any newer information on    the topic other than the Rental Income Guide I refer to above, which does not    clarify the question....."


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## ClubMan (8 Jul 2008)

WaterSprite said:


> Alrightly then - Revenue got back to me.  With allowances for the usual caveats that others have mentioned (not relying on Revenue and all that). Here's what they said:
> 
> Dear [Watersprite],
> 
> ...


As I said above. And bear in mind when converting a _PPR _to an investment property only interest on the amount originally used it purchase or renovate the property outstanding at that point can be set against rental income. Lots of people think that you can raise a load more cash from the rental property and then write off the interest. This is *NOT *the case.


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## Thrifty1 (9 Jul 2008)

Do you mean Clubman if we remortgaged to raise more cash ?
All original mortgage was used to purchase property and no additional monies raised.


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## ClubMan (9 Jul 2008)

Thrifty1 said:


> Do you mean Clubman if we remortgaged to raise more cash ?


Yes - unless the extra money raised was used to purchase or renovate the investment property.


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