tax on rental income

P

pAnTs

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I have a query Im hoping someone can answer about owning a property and taxes I may be liable for. I'm interested in buying an apartment here in Dublin and I then intend to rent it out. I intend to get a loan from my parents for 95% of the purchase amount. My concern is that if my mortgage repayments are to my parents and not to a bank how then will my taxes be calculated? I have been looking online and in all instances they use mortgage repayments to a bank as a cost to be subtracted from the annual rental income. Will this still be the case for me? thanks
 
First thing's first - the only part of a mortgage repayment that is allowed as an expense from rental income, is the mortgage interest. The repayment of the capital is never allowed as an expense.

So the question is, what rate of interest applies to this loan from your parents? I'd say that in order for you to get a deduction from rental income for interest on such a loan, it would have to be formalised in writing, and legally binding; the amount & term of the loan, the rate of interest, the repayment schedule etc... would all have to be clearly laid out in order to allow for the calculation of the interest.
 
I see so if I pay my parents back €6,000 per year and earn €7,500 in rental income would I be taxed on the €1,500 or on the entire €7,500? also can anyone buy property in Ireland? I mean are there any restrictions on EU member etc? I have a stamp 4 visa for Ireland which allows me to live and work without restriction and also it says that I can conduct normal business in Ireland! many thanks for your reply
 
If the 6000 is a repayment of capital,then it is not allowable as an expense.In any case only 75% of the interest would be allowable.
Just as a possibility,could your parents put up the cash as security for the bank to lend you the money(risk free for them)
 
but then Id have to pay the interest to the bank so I would end up paying more in the long run.

.....sorry to be so basic about this but based on the figures above of €7,500 rental income and €6,000 to my parents how much tax would I be liable to pay? thanks
 
Assuming that you wouldn't be paying any interest, the tax would be based on the €7500 amount less any expenses such as wear and tear, letting costs, etc. Say expenses, etc amounted to €500 then the tax due (if at higher rate) would be €2870. This would also depend on any other income you may have from employment, etc.
 
pAnTs said:
but then Id have to pay the interest to the bank so I would end up paying more in the long run.

.....sorry to be so basic about this but based on the figures above of €7,500 rental income and €6,000 to my parents how much tax would I be liable to pay? thanks
Click to expand...

It depends entirely on what the €6,000 is. As I said already, you only get a deduction for the Interest element of the repayment (and even at that, only 75% of the interest is allowed as an expense). So, if the 6,000 doesn't include any interest then none of it is an expense.

If your parents loaned you 60,000 and you have to repay them 6,000 p.a. for 10 years (a total of 60,000), then there is no interest being paid, so none of the 6,000 is an allowable expense.

If your parents loaned you 60,000 and you have to repay them 6,000 p.a. for 15 years (a total of 90,000) then you would be paying interest. In order to know exactly how much interest is contained in any one payment / year, you would need an amortisation table http://en.wikipedia.org/wiki/Amortization_schedule. (In this example, to pay 90,000 back over 15 years on 60,000 borrowed, you would be paying roughly 5.8% interest. In year 1 the 6,000 repayment would be: Interest €3,413 , Capital €2,587. In year 15 the 6,000 repayment would be Interest €185 , Capital €5,815.)
 
And, of course, the interest paid to your parents would be included in the taxable income so they might have a tax liability depending on the other sources of income, if any
 
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