TBH I’m a bit bamboozled by the whole thing.
Following submission of my tax returns last year, I received 4 balancing statements 2008 -2011 stating an amount of underpaid tax for each of these years. The reason stated was that Irish Rental income cannot be offset against Foreign rental income. I was given the right to appeal to the Appeal Commissioners within 30 days.
I have owned this foreign property since 2004 displayed all my properties on the same spreadsheet. I didn’t break out the relevant top ups and offset them against the foreign property. I offset them against the Irish properties that were topped up. I didn’t realise that I had to do this. However, at the end of each tax return I put and asterisk and wrote “Property A and Property B both topped up to finance Foreign property C”. I flagged this from day one and at no time was I told that this was not in order. I got the benefit of this for the first few years, but it did not amount to very much. During these years Revenue were able to advise me of certain other issues i.e that I couldn’t claim mileage and postage, but never mentioned the apportionment of top ups for the foreign rental income.
Within 30 days I lodged my appeal. I obtained a breakdown from the bank and re-did my accounts from 2008 – 2011 apportioning the top ups correctly and displaying irish and foreign properties on different sheets.
I received a reply from an Inspector of Taxes stating that I was entitled to a deduction on my rental income in respect of the interest paid on both of the top up mortgages, I took out on my irish investment properties. The letter said that unfortunately, the additional interest paid is only an allowable deduction against the income received from each of the properties in question.
At this stage I was confused, I wasn’t sure if it was the case that I was not being allowed “to change horses in mid- stream” or if it was not allowable to offset top ups against foreign property that they were used to finance.
I logged a call to Revenue and an official phoned me back. I asked him the exact reason for my not being allowed to re-submit my accounts – was it that irish top ups are not allowed to be offset against foreign property or was is that I was not being allowed to change horses in mid-stream? He said he didn’t know. He reckoned that I should be allowed to claim against the foreign property and seemed to think that it was a matter of serious concern that the mistake was not picked up by Revenue until now. He advised me to write to the same Inspector of Taxes again.
I did this and quoted the relevant paragraphs from the Tax manual which state that “it is not necessary that the security offered should be the premises that is let for the interest to be deductible”. I also referred to the fact that I did not apportion the mortgage interest correctly in my previous tax returns but that I had flagged the top ups. I said that if this had been pointed out to me I would have corrected it.
The Inspector of Taxes replied. Suddenly, all mention of the benefit I received for the first few years was no longer mentioned and the issue became that “Interest is not deductible where the loan is obtained on the security of the premises, but is used for purposes other than the purchase, improvement or repair of that premises (as mentioned in my previous post).