On Illness Benefit, Income frm apt covering mortgage. Declare tax & lose MedCard?

R

Redwood1964

Guest
Hi there

My situation is complicated so please bear with me.

I worked as a graphic designer up until 2004. Since that time I basically haven't worked due to severe bipolar disorder which I have had since 1991.

One member of my family is very wealthy and provided me with free accommodation in 1999. In 2002 I bought this apartment from my sister and have rented it out since then.

While letting this property my sister provided me with a house to live in. She is very generous and I fully appreciate this.

Recently I discovered that I needed to pay rental income tax on the apartment. I thought only those who were receiving actual income from the rent paid this. I know this was misguided but it seemed to make sense at the time. The apartment with mortgage, life assurance and management fees was only just paying for itself.

I have been on Illness Benefit (€188) since 2004.

I have a great family who have supported me financially also.

My main worry is that if I declare for tax I will lose my medical card. I have been hospitalised for nearly two and a half years of my life. The medication would be extremely expensive as well, never mind dental and doctor's fees.

I am the poorest landlord in Ireland after all of this. It is time to sell my apartment. I can't afford to keep it. Mortgage owing is €140,000. I invested €70,000 of my parents' legacy in it. Since I need to pay the rental income tax, capital gains tax, pay back my family for their support I may end up with less than nothing.

I am very lucky as I still have a roof over my head. I want to cut costs by selling the apartment by myself. Can someone tell me the best way to go about this?

Can provide any more information that is lacking if asked.

Thank you

Redwood1964
 
You've rented out an apartment since 2002 and have never declared the rentall income. Is that correct? How did you find out now that you are liable for income tax.

Did you ever register with the PRTB.

I presume your social welfare payments were not means tested payments?

Where do you see capital gains tax?

Did you pay your sister the correct price for the property or was there an element of gift to it?
 
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Thanks for the reply Bronte. You must like a challenge because this is a bit of a mess
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Regarding the Rental Income tax I was woken up to it when my last tenant asked me for my PPS number in order to claim rent relief. I heard alarm bells but gave it to her because it was her right to claim. I then went on this site and found out that I should have been declaring all of the time.

Never heard of the PRTB until again, last week, when I saw it mentioned on this site.

Illness benefit is not means tested, It is based on PRSI payments. You are not allowed to work while claiming it. They are very touchy on this.

I will pay capital gains tax on sale of the apt won't I though I heard somewhere that since I live in my sister's house for gratis that my principal primary residence is actually the one I own, ie the apt. Is this correct?

I paid my solicitor the going rate.

I appreciate any input. Thanks
 
Your principal primary residence is where you live, not the apartment. You will be liable for the NPPR (non principal primary residence) tax and the household charge in respect of the apartment if you haven't paid them already.

Regarding the medical card, did you declare that you owned (but didn't live in) an apartment?
 
Thank you Equal.

I can't move back into apt yet as I've just got two lovely tenants last month. Can't turf them out. Could I bury my head in the sand until their tenancy has run its course and then move in? Problem there also is that I don't have the means to move in as I will not have sufficient funds to pay the mortgage.

I'm happy about the illness benefit being secure.

I've been doing research on the medical card and I would be hospitalised for free if referred by my psychiatrist. Doctor's fees are €60 for my GP. Dental fees would vary but I keep my teeth in fairly good nick. Medicines would max out at €132/month. Life without the medical card could be doable. I have minimum VHI for stays relating to medical hospital stays.

I wanted to just sell my apt and pay off the CGT and Rental Income Tax and be done with it. I need to pay my family back for their trojan support which might leave me, if I sell at the right price, with €20000 or so.

It is a good point re the Revenue attempting to keep me stress free but surely I can' get away with just €3 a week?

The likely sales price is what someone is willing to pay for it. I am researching/testing this on Daft and so far have received three seriously interested parties at a price of €295000. This would leave me, on the face of it, well off but as I say the taxes will murder it, as will the repayments to family.

I was thinking furtively of lying to the Revenue and saying that I lived in the apt up until last year and only moved to my sister's free house at the same time and thus would be liable to a restricted period of rental income tax. What do you think of this? Not a good idea?

I could also get it copperfastened in a sales deal that my present tenants would be looked after. Its a positive for a prospective investor to have good sitting tenants. If I did anything right I've always treated my tenants well and reacted quickly when they called. It's such a poor time to sell but then the situation might get worse in the coming budget.

Can I bury my head in the sand and try to think up better solutions?
 
Thank you Equal.

I can't move back into apt yet as I've just got two lovely tenants last month. Can't turf them out. Could I bury my head in the sand until their tenancy has run its course and then move in? Problem there also is that I don't have the means to move in as I will not have sufficient funds to pay the mortgage.

I'm happy about the illness benefit being secure.

I've been doing research on the medical card and I would be hospitalised for free if referred by my psychiatrist. Doctor's fees are €60 for my GP. Dental fees would vary but I keep my teeth in fairly good nick. Medicines would max out at €132/month. Life without the medical card could be doable. I have minimum VHI for stays relating to medical hospital stays.

I wanted to just sell my apt and pay off the CGT and Rental Income Tax and be done with it. I need to pay my family back for their trojan support which might leave me, if I sell at the right price, with €20000 or so.

It is a good point re the Revenue attempting to keep me stress free but surely I can' get away with just €3 a week?

The likely sales price is what someone is willing to pay for it. I am researching/testing this on Daft and so far have received three seriously interested parties at a price of €295000. This would leave me, on the face of it, well off but as I say the taxes will murder it, as will the repayments to family.

I was thinking furtively of lying to the Revenue and saying that I lived in the apt up until last year and only moved to my sister's free house at the same time and thus would be liable to a restricted period of rental income tax. What do you think of this? Not a good idea?

I could also get it copperfastened in a sales deal that my present tenants would be looked after. Its a positive for a prospective investor to have good sitting tenants. If I did anything right I've always treated my tenants well and reacted quickly when they called. It's such a poor time to sell but then the situation might get worse in the coming budget.

Can I bury my head in the sand and try to think up better solution
 
Firstly Redwood you've used apparently your real first name in the last two posts when you signed off so go back and delete those.

Your apartment is worth 295K with a mortgage of 140K, leaving you 155K to pay the estate agent, solicitor CGT and the tax on rental income.

CGT

The CGT is based on the gain you make since 2002. So you purchased for 140K (more than that - you need to supply figure) + 70K = 210K minimum. Also less the initial costs (solicitor) and any capital enhancement you made.

My guess is about 230/240. So from 295K leaves 55K 'profit' and still have selling costs to deduct before you calculate the tax.

Income tax on rental

You most certainly owe this since 2002. Plus penalties and interest. Revenue do have some discretion, and I would certainly expect it in circumstances where you were hospitalised for a couple of years.

Personally I find it hard to accept that you never knew you were liable for income tax, but as you're ill we'll leave it at that.

If you want to play dirty, well you can do what you suggested and pretend you lived there. People do get away with it. But all kinds of problems then can manifest themselves. Previous tenants having claimed rent relief etc. There are other ways they can catch you but as I'm not generally in the business of advising people on tax evasion I'll keep them to myself. And if you go down this road you also get away with the CGT too. There are many who would say go for it. No doubt you've discussed it with others before you came on AAM.

Or you can go clean and sleep easy. Looks to me like you can pay all tax out of the proceeds of the sale. It's also better for society and yourself in the long run. Because if you don't come clean you might get away with it this year and next year, but 10 years down the line when you're back on your feet, maybe wealthy from an inheritance, revenue could still come knocking. Right now is the time to go clean.


Revenue

You can try doing your own tax returns with Revenue's help, but I think you really need the services of an accountant. It won't cost you an awful lot, but at least you will find out how much you owe.

Don't forget TODAY to register with the PRTB. And household charge and NPPR - as you need to stop the clock ticking on those.

Family

Unless your family really need the money and if it was a loan and not a gift, I'm sure in your circumstances they do not expect anything back.
 
Thank you Bronte

CGT

I purchased apt for 254,000 Euro in 2002. I took out a mortgage of 200,000. The 70,000 legacy that I put in was the 54,000 plus furnishing and other costs I think. My memory is a slight bit hazy on this but my solicitor at the time, my sister-in law, can help me on that score. I like to keep everything in the family :)

I was calculating CGT at 30% on the 295,000 sales price minus 140,000 left on mortgage so you are giving me some hope! Is it 30% of 295,000 minus 254,000?

Rental Income Tax

Personally I find it hard to believe that I didn't cop on to this myself but I kept myself to myself most of those years and thought that since I wasn't gaining any income from the property that I wasn't in the zone yet where I needed to pay any rental income tax. I thought that came later on.

I don't want to play dirty but if no other tenant has sought my PPS number or VAT number does it pose a problem? Could they ask in future? No, I haven't talked about it until now but I don't know how beginner landlords survive all of the costs, taxes, headaches and heartaches associated with buy to let. I wasn't even breaking even and that was without paying my rental income tax!

Revenue

I've been to an accountant but I think I did the poor man's head in. He became overwhelmed with my situation/mess and I haven't heard from him since! There was no clarity for either of us but with your help and the other contributors I'm beginning to see where I stand.

Family

My family have been very supportive to me throughout and I want to repay them for that. It will also be good for me, a statement that I can manage to to do it. Self esteem is what you lose most with my condition. Plus it would empower me to leave the old nest and make my own way, however small.

Thanks Bronte for your great help and all of you out there.

I would be interested to hear your comments.
 
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If you sell now you should make about 130k. You would pay CGT as stated about 30% of 40k = 12k.

I would think your tax liability could be say 12k per annum rent less liabilties and assuming full rental of say 3k (not including interest relief) of about 8k @20% = 1.6k x 10 years = 16k.

How much do you think you owe your family ?

Even allowing for penalties and others I think you are still in very positive teritory.

You should try getting the services of an accountant who is also a tax adviser. Give them all the information and see what they say. Don't let them go away and do nothing. Keep asking them about how to reslove this.

You could bury your head with this but think about the satisfaction and the confidence you would get by facing up to it once and for all and getting it all sorted out.

One last point to be wary of, just because no tenant asked for your RSI number doesn't mean they have not put a claim in for the tax relief in the past. For all you know the revenue could be just trying to find an address for you or they may be just letting you stew. They have nno time limits when it comes to collecting tax.

btw - Don't put your name to the posts. I removed it above.
 
Thank you elcato

I owe my family in total about 60,000. That was for major projects like a gas heating system installation, furniture, etc as well as including generous stipends throughout the past 8 years when I became unemployed and unemployable.

I agree with you saying get it sorted. I think my landlording days are over. God I was good!

The name thing was just a joke for Bronte.

Can you give me an estimate of how much rental income tax I'll need to pay per month from here on given the present circumstances?
 
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