Property tax – your questions answered

In the Sunday Independent on 7 March 2021, Crowe tax partner, Lisa Kinsella, answers Irish Independent readers’ questions on property rental income tax and tax on a new build.

Tax bill on joint rental income

Q. My husband and I are approaching retirement and are considering buying an apartment outright as an investment. I should be over 65 by the time we buy. However, my husband is only 62 and is on illness benefit. Despite the age disparity, can we jointly earn €36,000 before paying tax? We’re jointly assessed but would consider individual assessment if it cut our tax bill. Geraldine, Dublin

A. If you rent out a jointly owned property, you will both be liable to tax on the rental profits earned annually. In calculating rental profits, you should be entitled to reduce the rental income earned by the rental expenses incurred in maintaining the property.

Assuming you remain jointly assessed, as you will be over the age of 65, you will jointly be entitled to an exemption from income tax where the total income earned annually is less than €36,000. This exemption only applies to income tax. The USC and PRSI may still payable — however, PRSI will not apply once you both reach the age of 66.

It is worth noting that social welfare payments are not subject to the USC or PRSI. Furthermore, the annual threshold for USC is €13,000. As such, rental profits would need to exceed €26,000 per annum before USC would apply in your circumstances under joint assessment.

Assuming that you will be in receipt of a State pension and your husband continues to receive illness benefit, the above limit will be reached where together with rental profits (after deducting expenses), your total combined income exceeds €36,000.

If your total income exceeds €36,000 but is less than €72,000, you may qualify for marginal relief. Marginal relief restricts your income tax payable to 40pc of the difference between your total income and your exemption limit. Where marginal relief is granted, you receive no further credits on your income. Marginal relief will only be given where it is more beneficial than using your tax credits to calculate your tax liability. Where this relief is appropriate, it will automatically be applied when calculating your income tax liability — therefore a request does not need to be made to Revenue.

If you opt for separate treatment, you will be taxed as if you are not married. For single people over 65, the exemption limit is €18,000. As you are over the age of 65, you will still be eligible for exemption where your total income does not exceed €18,000. Marginal relief may apply where your State pension and your portion of the rental profits exceed this limit.

USC will apply if your share of the rental profits exceeds €13,000 and PRSI where you are under 66. As your husband is currently under 65, he will not qualify for the exemption or marginal relief if you are treated separately. However, where his income is below €13,000, he will not be subject to the USC and his tax credits may be sufficient to shelter any income tax due on rental profits.

Please note that if you or your husband have any unused tax credit, reliefs, or rate bands, these cannot be transferred to the other spouse if each of you is individually assessed for tax.

Whilst your husband is under the age of 65, it is likely that joint assessment will be more favourable. Thereafter the results could be more or less than same — however under separate treatment, you would have the increased administration burden of filing two tax returns each year.

Also it may not be the best choice if either of you do not earn enough to use all your personal tax credits, reliefs or rate bands. Specific tax advice should be obtained in advance of any property acquisition to accurately calculate your tax liability and to determine which basis of assessment is more appropriate.

Property tax on new build

Q. I built a house three years ago. I’ll be in this house for the rest of my life, so it won’t be sold on. I have never paid property tax. If I start paying property tax now, will I be liable for the last few years too? Micheál, Co Kerry

A. Properties built after May 1, 2013 and before October 31, 2021 are outside the scope of LPT for the current LPT valuation period — which runs until December 31, 2021.

On the basis that you built your house three years ago, it falls outside the scope of LPT at present and is not liable to LPT until the next valuation period. The next valuation date is November 1, 2021 unless the existing valuation period is extended further. When the new valuation period commences, you must declare the valuation for your property in an LPT1 return

If you do not file an LPT1 return, Revenue will estimate your liability to LPT. When you file your LPT1 return declaring the value of your property, Revenue will remove the estimate.

For additional information on property, or any personal tax matters, please contact a member of our tax team.