Mortage Int relief on (foreign) investment property?

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Audrey

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I have taken equity out of my Dublin home (worth 500k, I borrowed 65k) towards an investment property in the UK. I am advised that I can NOT claim mortgage interest relief because the property is not in Ireland - is that correct?

When calculating my income tax (self employed), and assuming I declare the rental income on the UK property, can I deduct (amongst other expenses) the interest paid to the lending institution on the 65k during the period?
 
You cannot claim relief because you borrowed the money on your PPR.

If the 65k mortgage was on the UK investment property then you could deduct the interest paid before paying income tax on the rent.
 
Andrewa said:
When calculating my income tax (self employed), and assuming I declare the rental income on the UK property, can I deduct (amongst other expenses) the interest paid to the lending institution on the 65k during the period?
Click to expand...

Yes against foreign rental income

stuart@buyingtolet.ie
 
Michael, I'm confused now too. Homelet and Stuart - maybe you could clarify? I think it may be that one of you is talking in terms of mortgage interest relief, and the other is talking in terms of expenses deductible before calculating tax on rental income? Is that right? Thanks.
 
its the purpose of the loan that dictates whether its interest can be dducted or not, not which property it was borrowed against so in this case the interest is allowable against irish tax. you would also have to submit returns to the uk inland revenue and will need to find out if its ok with them as the money was borrowed outside of the uk i.e. here
 
Mortgage interest relief is only available to owner occupiers. Investors can offset 100% of mortgage interest on a loan used to purchase or renovate the investment property against rental income as an allowable expense. This is the general case in relation to the Irish Revenue rules as they apply to PPRs and investment properties. I'm not sure how the rules apply to foreign properties though.
 
"Its the purpose of the loan that dictates whether its interest can be dducted or not, not which property it was borrowed against "
Click to expand...

This is good news. I have had read before on this forum that some people had remortgaged their PPR to buy an investment property and that they later realised it was a mistake and that they should taken out a mortage on the new property instead.
The reason, I understood, was that they could now not offset the interest paid against the income before tax (because the loan was not on the rented property).

For clarity, does this mean that if I remortgage my existing Investment Property (which has been paid off) and put the raised equity into a new investment property, then the interest paid is deductable againt tax on the new properties rental income ?

I presume that the interest paid is not deductable against rental income on the first investment property as the original loan has been paid off ?




 
So we are satisfied that you can release equity from your PPR to buy an investment property in the UK and offset the rent against the interest. Are you also entitled to Mortgage Interest relief as the Loan it was taken out on your PPR (i.e. if PPR fully paid off previously) ?
 
Michael,
No you can't do that. If the mortgage is for an investment property then you can only offset the mortgage interest against your rent received from the investment property.

Mortgage interest relief is only available on mortgages used to purchase (or improve, I think) your PPR.

If you still have a mortgage on your PPR from the PPR purchase and you decide to release equity for an investment property purchase then (I think) you claim mortgage interest relief on the portion of the mortgage for your PPR and you can offset the interest of the mortgage portion used for the investment against your rental income.

I don't think I explained the above very well, but hopefully you get my drift!
 
Just to revive this thread............

If I release equity from my PPR to buy to let in Germany, I can deduct 100% of the interest paid before calculating tax due on the retal income. So, who will I pay this tax to if I'm tax resident here in Ireland? Do I pay it to the germans at their rates, or to Revenue at ours? (Germany & Ireland have a tax treaty, right? so I won't have to pay twice or anything?)
 
Murphaph,

You would have to check the tax treaty with Germany, however generally you have to pay all your taxes due in the foreign country first. (I don't know anything about taxes due in germany). You then have to pay your tax in Ireland. You can deduct the mortgage interest and the other normal expenses form your rental tax liability in Ireland. Taxes already paid in the foreign country are generally allowed to be deducted from your tax liability in Ireland


I would doubt that you can offset the mortgage interest aganst the rental income when calculating your German tax liability...but then again I don't know
 
Cheers DonKing! I'm obviously going to have to get a tax advisor in Germany to advise me on my german tax liabilities. Be nice if anyone has an idea though ;-)
 
Forgive if i am wrong but the advice i got on buying property in Germany was as follows based on the presumption that a German bank will loan up to 70% of the property purchase price:

Option 1 (recommended)
1. Raise the 30% plus fees (roughly 5-6%) in Ireland. For example release equity on own dwelling.
2. Take out 70% mortgage with German bank (around 4% APR).
The advantage of this option is that German bank mortgage interest can be offset against rental income (circa 5%) which together with other expenses (mgt fees, 4% depreciation per year, etc) would result in a tax bill of close to zero in germany (and Ireland).
Also the property could be declared in Ireland and everything looks above board if an auditor were to check up i.e. 30% raised by releasing equity and balance from German bank.

Option 2 (not recommended)
1. 100% purchase price is raised In Ireland by releasing equity on own home in Ireland,
the disadvantage of this option is that the remortgage interest cannot be offset against German rental income. Therefore all rental income (minus other non-mortage interest) will be subjected to tax in Germany. The tax liability in Ireland probably be zero or close top zero as all tax will ahve been paid in Germany.

Option 3: (needs further investigation)
1. Take out a buy to let mortage in Ireland for 100% of the purchase price
The German revenue do not see this an expense at first but if this issue is purused (and i would think could be messy) then the Irish mortgage interest could be used to offset the rental income to give a German (and Irish) tax liability close to zero.

By the way, this is merely advice i got from an accountant friend but i am planning to talk to a taxation expert before i decide which option suits best.
 
Celticc1,

As I said in my previous post, I don't know anything about German taxation on rental property income. Does your accountant friend?

In your option 1 you seem to be implying that the rental taxation in Germany is similiar (in fact the same)to that in Ireland which may not of course be the case.

I'm not sure what you (or your accountant friend) mean by "everything looks above board". Does this mean it that you and your friend don't think it is above board but you can get away with it?
 
Why would interest paid on a mortgage taken out in germany be ok for tax deduction purposes but not an irish mortgage or equity release? I know banks are not keen to loan money based on a mortgage on a foreign (even EU) property, but you'd imagine the tax code couldn't effectively 'go against' EU principles. If the mortgage has to be obtained in the country the property is in to claim tax reliefs etc. then that's another EU 'benefit' we don't benefit from. I will have to get specialist advice on this in germany and report back whatever I'm told!
 
Ok, well from digging about the German Embassy to the US website it seems I might be ok on the tax front, simply by charging the going rate for the apartment I have in mind and factoring in deductables independent of mortgage interest (depreciation mainly).

From the website:
Income Tax (Einkommenssteuer)

Individuals are subject to personal income tax. Residents are taxed on their global income; nonresidents are taxed on income earned in Germany only. An individual is considered a resident of Germany if his domicile or habitual abode is located there.

Personal Income Tax Rates:
The tax is calculated on the basis of a mathematical formula which, as of the year 2004, is structured as follows:

· a zero rate on taxable income up to I 7,664
· a marginal tax rate rising from 16% to 45% on taxable income between I 7,664 and I 52.152
· a marginal tax rate of 45% on taxable income I 52.152

So it's 0% up to €7,664, now I was looking at rents and I don't think any apartment I buy will take over €600 p/m, or €7,200 p/y. Factor in other allowable deductions like depreciation (the fabric of the building is depreciable AFAIK) and that should be a nice buffer for future rent increases pushing the income over the taxable threshold.

Also from that site:
Taxation of Nonresidents

Nonresident individuals are subject to income tax only on income whose source is in Germany, as specified in Sec. 49 of the income tax code. Such types of income include:
# income from German real estate;
# gains from the sale of German real estate owned for less than ten years.

Assuming my tax liability in Germany is 0 because it will fall under the €7,664 threshold even before factoring in deductables, I assume I'd have to pay tax here on that income, thoughts?
 
Murphagh,

If I were you I would double check that the German tax free allowance is applicible to rental income received by non-residients. Your extracts suggest it does.

Yes you most definitely would have to pay tax in Ireland on rental Income received from a German property. If you check IT70 on revenue.ie they mention foreign property rental tax briefly.
 
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