With booming tech and tourism sectors in Ireland, not to mention increasing numbers of students attending Irish universities, colleges and institutes, demand for rental properties has never been greater. In fact, the average monthly rent in Ireland is the highest it’s been in over a decade.
So, is purchasing a property to rent still a smart investment? Let’s take a look at the pros and cons:
It’s a terrific investment opportunity
With a strong investment yield and impressive capital growth over the last few years, buy-to-let property in Ireland offers a terrific investment opportunity. The level of income generated from the capital invested is, in most cases, much better than deposit interest rates and dividend income.
Property also offers a smart option to diversify your investment portfolio. If you’ve invested in shares, cash, or other assets, property is a reliable addition. And the associated costs, such as legal fees and stamp duty on residential property purchases, remain quite reasonable.
The rise of Airbnb + short-term lets
2017 broke all sorts of records where Irish tourism was concerned, with over 9 million visitors touching down on the Emerald Isle - up 3.2% from the previous year.
With such a strong tourism sector, Airbnb-style short-term rentals offer a rich and steady revenue stream for buy-to-let investors. Plus, these types of lettings can be incredibly tax advantageous (in terms of reliefs available on sale or transfer) if you’re in the business of renting out properties.
Offers security for the future
Buying property to rent in Ireland can generate a healthy income for retirement. Many buy-to-let investors view their property portfolio as an extension of their pension.
Meanwhile, owning a property in the right location could also save on future accommodation costs for children going on to higher education - especially in light of the fact that so many young people are struggling to get a foothold on the property ladder.
Positive tax implications and opportunities
The Income Tax implications for non-residents can be very favourable (more so than for residents) with:
● lower tax rates on income (20%);
● no Universal Social Charge (USC) once the rental profit is below €13K;
● and no Pay Related Social Insurance (PRSI).
And if you don’t fancy the stress and hassle of managing a rental property, you can hire a competent letting agent to find a tenant and manage the property on your behalf. Bonus: their fees are tax deductible!
Negative tax implications
The Income Tax rates for Irish residents can be very, very high. Sometimes, up to 52% Income Tax can be levied on rental profit. Add to this a Capital Gains Tax rate of 33% on gains made on the disposal of the property and things start to look a bit ominous.
Unfortunately, buy-to-let property is not suitable to purchase through a limited company. With a 25% corporate rate tax, which can increase to about 40% with a close company surcharge, things can get very pricey very quickly.
Meanwhile, stamp duty rates for the purchase of non-residential property can be expensive at 6%, and VAT rules around commercial property purchases can be complicated.
Complicated rental rules
Rules surrounding rent in Ireland can be very confusing. For example, rental losses cannot be offset against other income, but can be offset against rental profits from another property in the same year, or carried forward to offset against rental profits in future years.
And rents can’t be increased above a certain percentage if the property sits within a Rent Pressure Zone.
Requires expert advice
Purchasing a buy-to-let property in Ireland is a great investment opportunity, but unless you’re experienced in the property market, you will need some expert support.
Here are a few scenarios where an expert in the Irish property scene is worth their weight in gold:
● You need to file an Irish Tax Return to report your income and pay your tax. This applies to both residents and non-residents. Our recommendation is to hire a tax advisor to handle this on your behalf, as their fees are tax deductible. Unless you’re a qualified tax advisor, don’t do your own tax return. You could miss out on key deductions and credits.
● You’re not allowed a deduction for the mortgage repayments. This means you could be making a loss on the property, but still end up paying tax, as you can only take a deduction for the interest on the mortgage from the date of first letting. Again, a qualified tax advisor can help.
● Finally, if you have a mortgage on the property, each tenancy you have must be registered with the Residential Tenancies Board [RTB] to ensure you get a deduction for mortgage interest. Not doing this could be costly.
There’s no denying, it can be very stressful to operate a buy-to-let business in Ireland. You need to find tenants, manage properties, resolve issues in a timely manner, get insurance, register with the RTB, handle all the various tax filings and keep documentation up-to-date - the list is endless.
But don’t let that put you off. Build a relationship with a letting agent and a tax advisor to take the strain off your shoulders.
Want to build a buy-to-let business? We can help!
In our minds, the pros far outweigh the cons when it comes to renting out property in Ireland - but only if you have the support of tax and property experts.
If you’d like to arrange a call with one of our tax advisors and discuss any of the points raised above, please contact Deirdre on 00353 51 396703 or send us a message.