The gains from investing in property are obtained in two different ways. The first is from letting out the property and the second is through capital growth (i.e. the value of the property). The former is earned on an ongoing basis throughout the period of ownership and dealt with under special income tax rules. The latter is liable for capital gains tax whenever the property is disposed of.
The same rules apply for taxing the rental income from both residential and commercial property. Broadly speaking you pay Income Tax / USC / PRSI on the annual rental income profit calculated by deducting all allowable expenses of maintaining the property from the gross rental income. There are of course numerous rules and regulations covering how income and expenses are determined for tax purposes.
If you have taxable rental income it will be taxed at your highest tax rate by adding it to your other income e.g. PAYE income.
Many property investors whose primary income is dealt with through the PAYE system had not previously been obliged to submit tax returns under self-assessment tax rules.
These rules were changed to specifically include PAYE taxpayers who have other sources of non-PAYE income under the self-assessment rules. These rules can apply even where there is no taxable rental income.
If these rules apply to you, tax returns must be sent to the Revenue every year by 31 October following the end of the tax year and any tax payments due must be made each October. If you do not comply with these rules you may have to pay both interest and penalties in addition to your normal tax bill.
Everyone in receipt of rental income must declare details of that income to the Tax Office. This requires the production of a simple Rental Income Account for each property unit which is let out. Tax/PRSI may be due on your taxable rent if a profit arises. This account must be prepared for each tax year ending on the 31st December from the date when you commenced receiving rents. To calculate your tax position you need to identify your gross rents receivable from the property and also all associated tax allowable expenses incurred in earning that rental income.
Our online software allows you to complete your rental account and to ensure that you are claiming all allowable expenses – more details here