Mortage Int relief on (foreign) investment property?

DonKing said:
Celticc1,

As I said in my previous post, I don't know anything about German taxation on rental property income. Does your accountant friend?
knows a bit and has given me a contact for a tax adviser to advise further.
It's similar to here as regards rental expenses, etc.

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.
Yes, see above.

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? No
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I will know more when i talk with the tax adviser but an irish agent for selling german property informed me today that the german revenue will recognise mortgage interest from a irish bank as an expense against a german property as long as a letter is forthcoming from the irish bank stating that the loan is for the property in question.
he also said that their german lending bank will now only lend 60% of the purchase price as opposed to 70% which used to be the case, also said that the mortgage options are less flexible when compared with the irish ones (may have been trying to avoid te hassle of arranging the mortgage with the german bank). I asked my bank today about the possibility of taking out a buy to let mortgage and they were not very enthusiastic. Anybody know of abank with a reputation for lending for buy to let property. Thanks
 
Don't expect comprehensive or authoritative financial or taxation advice from somebody with a vested interest in selling you something.
 
Don King. I am a bit confused?
Are you saying that if an investor earns €10K on rental income in a foreign country and has allowable expenses of >= €10K giving a tax liability of NIL in that country that the investor is then expected to pay tax in Ireland on the €10K.
Yet if €10K was earned in rental and only 2K in expenses, the investor pays tax in the foriegn country on €2K net earnings profit and the tax paid in gERMANY is used to offset most of the tax liability on the €2k profit in ireland.
 
celticcc1,

I don't understand your 2nd sentence. Have you made a mistake in your example?

With respect to your first point.

Just because you have paid all your tax in a foreign country on a foreign property it does not mean that you do not have a tax liability in Ireland. Your tax liability in Ireland may be greater than the liability you had in Germany and therefore you would have to pay additionally tax in Ireland.

In general terms this is the way it works ASAIK(but you would need to check the specific double taxation agreement with Germany)

1. You pay your Tax in the Foreign Country.
2. You calculate your tax liability in Ireland. Your tax liability would be very
similiar (if not the same) to a property in Ireland ie. Rent less
expense's/mortgage interest/capital allowances charged at whatever
Income tax bracket you are in (20% or 42% plus 2% health levy).
3. Generally you can then deduct the tax already paid in the foreign country
against your tax liability in Ireland.

In the case of the German property it may be the case in the early years that your Tax liability in Ireland could be low or nil as the interest on your mortgage could be high.

I hope the above helps. I'm not a tax expert, but this is the advice I have received. If I'm wrong I'd be glad to be corrected.
 
Cheers DonKing, I appreciate you're not a tax expert and I'll have to seek advice in Germany (and probably here!) on tax. However, I assume if I have 0 tax liability in Germany that I will be able to deduct the interest on my mortgage here and other expenses in germany on the apartment before calculating tax here?
 
yes, as far as I know.

You could try to ring revenue and ask them the question? It may be worthwhile ringing a couple of times to see if they are consistent.

Perhaps if anybody on the forum knows any better perhaps they can confirm or correct?
 
You have to calculate your tax liability in Ireland and Germany. Profit from Rental Income less allowable expenses (could be different is each country) is taxed at your marginal rate. You then pay any tax due in Germany to the German authorities. You then make a return to the Irish authorities paying tax due less any tax paid to the German authorities.

Thats my understanding of how it works.
 
Thanks guys. I'm still working through the mortgage approval steps. Tax implications wil be next I suppose. Does anyone have an opinion on whether or not I should find a tax accountant here who can deal with the german system as well as ours, or find a tax accountant over there and one here too?
 
Don King.
This is how i think the taxing works wrt foreign earnings (i stand to be corrected of course):
Say you gross €10k in German rental earnings and have €8k expenses, then your net foreign earnings are €2k. Therefore your net earnings of €2k is what you are taxed on in Germany. Agreed?
This net earnings of €2k is what you base your irish tax liability on, not the gross of €2k. Therefore seeing as most of the tax will already have been aid in France, you will have little or no tax liability in Ireland.
You seemed to be implying that the €10k gross is to be separately assessed here i.e. and that the tax paid in Germany will be used to offset the Irish tax liability on the foreign earnings.
 
Say you gross €10k in German rental earnings and have €8k expenses, then your net foreign earnings are €2k. Therefore your net earnings of €2k is what you are taxed on in Germany. Agreed?
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Agreed (and according to a previous post and assuming it is correct you will not pay any tax on this income in Germany). For the sake of this example we will assume you have a tax liability of €100 in Germany

You now have to calculate the tax due on the property according to Irish Law. Allowable expenses may be different in each country.
So lets say that under Irish Law you have a profit if €1,500. This is taxed at 20% or 42% plus 2% health levy (assuming you have other income in Ireland). Lets assume you pay tax at the higher level so your actual liability to the Irish Revenue is €660. At this point you deduct the tax paid in Germany €100 and submit the balance €560 to Irish Revenue.

Thats my understanding but stand corrected
 
celticcc1 said:
Don King.
This is how i think the taxing works wrt foreign earnings (i stand to be corrected of course):
Say you gross €10k in German rental earnings and have €8k expenses, then your net foreign earnings are €2k. Therefore your net earnings of €2k is what you are taxed on in Germany. Agreed?
This net earnings of €2k is what you base your irish tax liability on, not the gross of €2k. Therefore seeing as most of the tax will already have been aid in France, you will have little or no tax liability in Ireland.
You seemed to be implying that the €10k gross is to be separately assessed here i.e. and that the tax paid in Germany will be used to offset the Irish tax liability on the foreign earnings.
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As far as I know, yes the €10k would be separately assessed in Ireland and of course the allowable deductions may be different to the foreign country, and the tax rate chargeable would most likely be different. Generally(you would have to check the specific tax treaty between Irelend and the country in question) you can offset the tax already paid in the foreign country against your tax liability in Ireland.
 
As stated in previous posts you are taxed in Ireland on foreign income. You do however do get a credit for the foreign tax and I believe in Germany the tax is 45% but not sure whether this is a higher band or just across the board. The confusion is how do you get your tax credit for the foreign as it is not just as simple as offsetting the actual tax against your irish liability.

Relief is given by regrossing the foreign income at the lower of the Irish effective rate and the effective rate of the relevant foreign income. Irish tax is then charged on this regrossed figure and credit is given in respect respect of the regrossed foreign at the lower effective rate.

The actual calculation if done manually are a nightmare.
 
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