Renting of Property (Non Primary Residence)

Hi,

First of all, a brief description of my current situation. I bought a house 2 years ago in Dublin which has been my primary residence, but I have also been renting out one of the rooms to cover half the mortgage. My rental income was less that €7,000 which falls under the rent-a-room scheme so I pay no tax on this.

In the last couple of weeks of have bought another house with my partner and this is now my primary residence.

My question is, what are the tax implications now on my first property as I am renting two rooms in it. Should I set up a second bank account solely for lodging the rent from my first property ? When I sell this property do I just pay capital gains on the profit I made when the house was rented accommodation or do I pay CG on the profit I made while the house was my primary residence?

Do I pay tax monthly/bimonthly or annually on the rent I am receiving on the first property ? The mortgage on the first property is not being fully covered by the rental income, I am still contributing towards the mortgage. Basically I would like to know, regarding tax, what I need to do with the first house?

Thanks a mill,

The should answer most of your questions.

Thanks a million for the reply rainyday, but I cant find exactly what I am looking for. I'm not really up to speed on tax issues and all that, basically I'm a bit of an idiot when it comes to things like this and I need it spelt out for me.

If I could get an answer in the form of "The complete idiots guide to CGT and rental Income", I would really appreciate it.

Do I pay tax on an annual renatal income of less than € 7000, if so how do I pay it ?

If I want to sell my property, do I have to pay CGT on the profits made ?

Thanks,

> Do I pay tax on an annual renatal income of less than € 7000, if so how do I pay it ?

Once you no longer qualify for the rent a room scheme (e.g. by virtue of the fact that the rented property is no longer your PPR or you collect more than €7,620 p.a. in rental income etc.) then any rental income is taxed as per the details set out in the topic linked by Rainyday above (and the Revenue guide to rental income linked in there etc.).



In brief, rental income less any allowable expenses will be assessable for income tax. However if you don't know what the full implications of renting your former PPR are then you need to obtain independent, professional advice from an accountant or a tax advisor.

> If I want to sell my property, do I have to pay CGT on the profits made ?

If you sell a former PPR that has been rented at any time (other than under the rent a room scheme or for a period of up to 12 months before being sold after ceasing to be your PPR) then any gain accruing is subject to CGT more or less in proportion to the amount of time that it was rented out.

Note that of you rent (other than under the rent a room scheme) a property originally bought as an owner occupier PPR within five years of purchase then a clawback of stamp duty will also apply. See here:

if the house has greatly appreciated in the 2 years , you can sell up now and owe no cgt on the gain. most people dont realise that for every year that you rent it out, a % of any gain (both present and future) becomes exposed to cgt.


i thought a lot about this issue myself and heres what i came up with.

VERY simple worst case scenario example

bought 1998 - 85000

current value (not budged in 2 years) 295000

sell now and pocket 210000 cgt free


just suppose market slows and the price or rental value didnt move for another 5 years and the house was let for this period.

this is the rough position


total years owned 11

cgt = 210000 / 11years *5 rented out *20% =

19,000

5 years rent @12,000 pa = 60,000
tax@42% (ignoring deductables interst/ins etc) = -25,200
rental "profit" = 34,800
subtract the cgt when you sell and you have 15,800 / 5 years = 3160 per year real profit


unless you were a millionaire, the 210000 would be borrowed to fund oyur new property
simple interest charged on this money @3.5% p/a = 7350


annual profit = minus 4190


if you think the value will go up significantly, it is another story
also , if you have little equity and a high mortgage, you should keep it as you have little to loose and any cgt/income tax liability will be based on future gains not whats already potentially there tax free.

Thank you everyone for you help on this, I think I have just about everything I need to know from all the replys posted.

Cheers