UK foreign rental income, foreign tax credit carryover

Hi,

I have income from a UK rental property.

Currently this is not currently making a profit due to high interest rates and other costs.

The property will go into profit in the UK before Ireland because of how interest charges are treated in the UK.

This means I will have to pay tax on the rental income in the UK before Ireland given current high interest rates.

Given there is a double tax agreement between the UK and Ireland so UK tax paid on the rental income is deductible against Irish tax on the rental income.

My question is: Can I carry over taxes paid in the UK on the rental income to subsequent years in Ireland as a foreign rental income tax credit if not currently considered profitable under Irish Tax rules.

E.g.

Year 1:
UK Tax Due and Paid 5000
Ireland Tax Due 0

Year 2:
UK Tax Due and Paid 6000
Ireland Tax Due 7000

1. Do I have to pay Irish Tax on 1000 in Year 2 (7000 – 6000) or

2. Is there no tax due in Year 2 in Ireland as the 5000 tax paid in year 1 in the UK carries over. So I then carry over 4000 UK tax paid into year 3 writeable off against Irish Foreign Rental Income Tax
So (6000 UK tax paid year 2 + 5000 UK tax paid carryover from year 1) - 7000 (Irish tax due year 2) = 4000 foreign tax paid credit carrying over into year 3

Thank you

Fairly unusual question and interesting set of facts. First point, and I think, you have it covered. The Irish tax computaiton for rental income is done under Irish rules and this, most likely, why you are showing a profit in the U.K. and a loss in Ireland. Foreign tax credits against Irish tax are typically only deductible when Irish tax arises on the same income. There are potentially two answers here - the first is that the unused tax credit (i.e. the U.K. tax) is allowable as a deduction and this can be used in your loss forward. This obvioulsy is not as beneficial as a tax credit but is something. The second potential answer is that the UK tax credit may be capable of being carried forward until you have Irish tax. This latter point is not something I am sure about and it may not even be available. Using general double tax princicples it may not be available as it is not the same income. The UK and Irish rental incomes will be from different years.