What if tenant doesnt deduct tax for Non Resident Landlord?

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Caili

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Hi All,

As a non resident landlord your tenant is supposed to deduct 20% tax from rents paid every month. What if the tenant doesnt deduct this tax??
 
Re: What if tenant doesnt deduct tax for Non Resident Landlord??

Nothing happens. The landlord is still tax-liable.
 
Re: What if tenant doesnt deduct tax for Non Resident Landlord??

So the landlord will have to pay it?
 
Re: What if tenant doesnt deduct tax for Non Resident Landlord??

Yes, the landlord will still have to prepare their tax return & pay their liability regardless.
 
Re: What if tenant doesnt deduct tax for Non Resident Landlord??

Caili said:
So the landlord will have to pay it?
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The 20% is a withholding tax.

It's a mechanism used by the government to make it less likely that the exchequer will be defrauded of tax revenue which it is entitled to.

The law requires the tenant to pay 80% to you and 20% to the tax people.

When you submit your tax return, you will work out how much tax you owe from renting out you property.
If you owe 2000 tax, and the tenant has already paid 500 tax on your behalf, then you pay 1500.

The tenant is effectively paying tax in advance on your behalf. If the tenant pays too much, you get the money back from the tax people.

i.e if the tenant pays 2000 tax and your tax liability ends up at 500, then you will get a cheque or credit for the 1500 overpayment.

There are other great posts about this witholding tax on AAM if you do a search
 
Re: What if tenant doesnt deduct tax for Non Resident Landlord??

Thanks Whiskey

To be honest the rent that will be charged will just about cover the mortgage so the tenant taking 20% off it just isnt an option but i am fully prepared to pay it at the end of the year, is this acceptable do you know?

Thanks
 
Re: What if tenant doesnt deduct tax for Non Resident Landlord??

Caili said:
To be honest the rent that will be charged will just about cover the mortgage
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Other than being able to write off mortgage interest against rental income when doing your rental income tax return (and this is why an interest only mortgage on a rental property may be a good idea - see the Property Investment key posts) the fact that your rental income does not cover or only barely covers your mortgage repayments is irrelevant to the issue of rental income taxation. If this is the case then you are presumably banking on capital appreciation to make money on this investment. Maybe this is just a bad investment and you should consider cutting your losses?
 
Re: What if tenant doesnt deduct tax for Non Resident Landlord??

We are paying interest only on the mortgage and as i said the rent we will receive is just about covering that!? We're only renting for a year while we go on a working holiday to Australia! I will be registering with the PTRB so i can claim interest as an expense!
 
If the rental income is less than or equal to the interest payments on the loan then you will have no rental income tax liability. You will still have to make a return with the relevant details. If you don't know how to do this then get professional advice.
 
I have the Form 12 ready to be filled in but it asks about the 20% tax paid by the tenant which will be nil so will we be liable just for the 20% that the tenant hasnt paid??
 
Caili said:
I have the Form 12 ready to be filled in but it asks about the 20% tax paid by the tenant which will be nil so will we be liable just for the 20% that the tenant hasnt paid??
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ClubMan said:
If the rental income is less than or equal to the interest payments on the loan then you will have no rental income tax liability.
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As ClubMan said, If income < interest then net income is nil so no tax.
 
Caili said:
I have the Form 12 ready to be filled in but it asks about the 20% tax paid by the tenant which will be nil so will we be liable just for the 20% that the tenant hasnt paid??
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No - you have to work out your rental profit/loss and you are normally liable for 20% tax on the profit.
You also need to appoint an Irish-resident person collection agent who will be responsible for ensuring that you pay your taxes and look after your tax obligations in this regard.

As Clubman said above, if you don't know how to do this then get professional advice.
 
Caili said:
I have the Form 12 ready to be filled in
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I thought that if you had non PAYE income over c. €3K (€3,175 or something like that?) then you became self assessed and had to use a Form 11 rather than a Form 12? Once again I would suggest that you get professional advice due to the risk of making an incorrect return.
 
If in doubt contact revenue directly with the home address of the non-resident landlord and their PPSN.

As a tenant you are liable to withhold 20% as revenue have no powers to chase the non-resident Landlord for the 20% ( that is what revenue told me when 'Tax paid to non-resident landlords' appeared on my balancing statement 2500 euro!

I paid through an Irish Agent so the they were responsible for stopping the tax at their end before sending on the remainder to the Landlord.

Either way revenue removed that debit from my balancing statement - you live and learn.. how it got there in the first place I still do not know.
 
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Captin Sobel said:
( that is what revenue told me when 'Tax paid to non-resident landlords' appeared on my balancing statement 2500 euro!
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Was this within the past ten years? If so, its quite likely that Revenue were acting outside their powers in doing so.

[broken link removed]

Revenue Commissioners
Non-Resident Landlords - Tax Deductions

Dealing fairly with people involves accepting that rules and regulations should not be applied so inflexibly or rigidly as to create inequity. The Revenue Commissioners recognised this in its final response in the case of a tenant who was unaware that she should have been withholding tax from rent paid to a non-resident landlord.

Since 1969 it has been a requirement of Irish tax law that a person paying rent to a non-resident landlord should deduct income tax at the standard rate from the gross rental income and pass on the deduction to the Revenue Commissioners. This form of withholding tax applies both in the case of residential and commercial property rental. My complainant, probably like the vast majority of people, was quite unaware of this provision. In early 1998 she became aware of her possible entitlement to income tax relief on rent paid and she applied to the Inspector of Taxes for this relief. The Inspector notified her that she was due a tax refund in respect of rent paid totalling �265 for the years 1996/7 and 1997/8. However, the Inspector also informed her that, as her landlord resided outside the state, she (the tenant) should have been withholding income tax from the rent being paid. Where such tax is not withheld, the tenant is liable for payment of the tax instead. Accordingly, the Inspector told my complainant that she owed an amount of �801 for the years 1996/7 and 1997/8 which, after deduction of the tax relief otherwise due to her, meant that she owed a net amount of �536.

The woman subsequently complained to my Office on the grounds that the Inspector’s decision was inequitable and also on the grounds that the Inspector had failed to explain fully the basis for the decision. On the former point, she felt it unreasonable that she should be penalised for her ignorance of a fine point of tax law; and on the latter point, she claimed the information leaflet on the matter - which she did not see until after the event - did not make clear that the tenant becomes liable where he or she fails to withhold tax from the rent payments. My complainant’s sense of grievance was added to by the fact that her sister, with whom she co-rented the house, and who applied at the same time and giving the same information, was given the full tax relief on rent paid. In responding to the complaint, the Revenue Commissioners decided to waive the outstanding amount of �536 on the grounds that my complainant clearly was not aware of the requirement to deduct tax from the rent payments and also because payment of the tax would be a financial burden on her. All of this was contingent on my complainant complying with the tax requirement in the future - in fact, she found alternative accommodation before the case was resolved.

Whereas I was pleased with the ultimate outcome in this case, it does raise the general issue of whether it is reasonable to expect ordinary residential tenants to act as tax collectors in the case of non-resident landlords. I appreciate that the provision may have validity in the case of lettings to commercial or business organisations. But is it reasonable to expect a residential tenant, who may be elderly or have little experience of tax affairs, to be either aware of, or have the capacity to manage, this type of requirement? Indeed, tenants may not even be aware that the landlord’s “usual place of abode is outside the State” (which is the technical term used in the law). These are questions which might be considered in any review of the current legislation.
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ubiquitous said:
Was this within the past ten years? If so, its quite likely that Revenue were acting outside their powers in doing so.
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the quoted material does not state that revenue were acting outside their powers just that the particular instance was inequitable (as the sister was not treated the same way) and the law has not been changed since.

getting back to the OPs point my understanding is that even though the rent is not covering the mortgage and there is likely to be no tax liable at the end of the year the tenants will still have to withhold 20% of the rent and return it to the revenue.
 
dereko1969 said:
the law has not been changed since.
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Indeed, but Revenue practice in this area has changed drastically. They now insist that each non-resident landlord appoints a "collection agent" to assume responsibility for their tax affairs. This need not be the person who collects or receives the rent payment. Despite dealing with many, many cases of this type during the past decade, I have never seen the Revenue attempt to enforce responsibility upon tenants for tax deduction and remittance, following the Ombudsman's damning report as linked above.

dereko1969 said:
the tenants will still have to withhold 20% of the rent and return it to the revenue.
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see above.
 
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