Landlords Tax Changes in 2023
We will look at Landlords tax changes in 2023. While the focus of this is to look at changes, we will also look at some planning tips. The main areas to focus on are
- Pre-letting expenditure
- Rent tax credit
- Planning Tips
The changes came in from the 1st of January 2023 so it will be good to know about them when making your plans for this year and next.
Let’s start by introducing you to Justin DeDoor. Known as JD sports to his friends as he’s always running, cycling, and swimming. You’d be tired looking at him! Justin has 2 properties and is looking to buy another one in 2023.
One of the golden rules when doing a rental comp was that you can’t get a deduction for pre-letting costs. Subject to minor exceptions, there was no tax write-off for repair work before you let the property. That all changed a few years back.
A new rule came in where you could get a tax write-off of up to €5000 for repair-type work before the first letting. In certain circumstances, the main ones being.
- The property had to be vacant for 12 months and
- You must let the property for 4 years as a residential property from the date of first letting
The purpose was a carrot and stick approach. The carrot was a lower tax bill for the landlord in the first year or two of letting. The stick was to ensure the property is available for 4 years. If you sell it within 4 years, there is a clawback of the relief.
The changes to this relief from 1 January 2023 are
- The property must be vacant for 6 months and
- The amount of relief increases from €5000 to €10000
How it works
It’s January 2023 and JD spots a property that is in a good area but needs some work done before letting. The auctioneer tells him it is vacant since the end of September 2022. He gets some quotes and will have to spend €8000 to get it ready. This will be for
|Painting and decoration||€5000|
|Repairs to plumbing and electrics||€1500|
|New couch and washing machine||€1500|
He has a tenant that’s ready to move in on the 1st of March and will rent it at €1000 per month. If he lets it on that date, he won’t qualify for the relief as the property won’t be vacant for 6 months. As a result, he lets it on the 1st of April. His 2023 computation will look like this
|Rental Income [8 months]||€8000|
|Less Pre-letting expenditure||€6500|
He won’t get a deduction for the new couch and washing machine as that doesn’t qualify for the relief. But, he will get Capital allowances at 12.5% on that, which comes to €188. That is a deduction from the rental profit
It is a new scheme to encourage retrofitting by landlords of rented residential premises. The government has set a target of 500000 home energy upgrades to a B2 building energy rating by 2030. It is making grants available for this purpose.
The relief applies where a landlord qualifies for an energy upgrade grant on a property. He/she can also get a rental tax deduction for the costs incurred. The maximum claim is €10000 per property with a max of two properties per annum. The odd one on this is that you can only claim it in the year after you incur the expenditure. A strange one! We will give it to you, but you’ll have to wait.
This scheme runs from 1 January 2023 to 31 December 2025. When claiming, you will need details of
- the grant received
- the contractor and
- tax clearance
My understanding is that this is a double relief in that you get a write-off for the cost plus the grant. The property that JD bought has a D1 energy rating and, per the tenant, it was Baltic in April. He gets onto the SEAI, and he will incur a cost of €12000 to get an energy upgrade. His grant will be 50% of the cost of the work. JD goes ahead with the upgrade, and it’s finished in the summer of 2023.
Rental Computation 2024
He can claim the relief in 2024 and his rental computation will look like this
|Rental Income [12 months]||€12000|
|Retrofitting costs [max]||€10000|
Assuming JD has a marginal tax rate of 52% then the cost to him is
|Cost of upgrade||€12000|
|Less Tax relief [€10000 X 52%]||€5200|
I would expect Revenue guidance to issue on the measure in the coming weeks.
Rent Tax Credit
The government reintroduced this to give some help to tenants enduring rising rents. It applies for 2022 and landlords who are doing things right have nothing to worry about. If not doing things right, you will need to get your tax affairs in order.
The max tax credit is €500 for a single person and €1000 for a married couple or civil partnership. It applies when you are renting your home but is also relevant to other situations
- renting a room in another home [rent a room situation]
- rental costs of child’s college accommodation [child under 23]
- rental costs while studying or working away from home
Irrespective of the number of claims you could have the max claim is €500 for a single person or €1000 for a married couple. Say you are single, and you rent your own home, and pay rent for a child going to college, you will get €500 and not €1000.
The credit is available for 4 years from 2022 to 2025.
What info does your tenant need in 2023?
I should change this to what don’t they need? Your granny’s first cousin’s maiden name and what you had for breakfast must be on the list! We looked at this recently when updating our Income Tax checklist for 2022. Included is
- Rent paid per month
- Property id for LPT
- RTB registration number
- Start and end date of the tenancy
- Name, address & PPS number of landlord or letting agent
If claiming for a child who is in third level, you will also need
- Child’s PPS number
- Date of birth
- Course details
Needless to say, this will be a focus area for Revenue later this year as they will be armed and dangerous. All this information flows into them and not only for 2022 and 2023 but for prior years too. You will see that one question is the start date of a tenancy. Say no more!
If you don’t get the planning right, it could cost you. Just ask a certain Meath politician.
Who owns the property?
If the property is in joint names, then the rent should be in joint names. This could save taxes due to lower tax rates and USC rates. Take a couple with a rental profit of €20000 and they return all the rent under one name and pay tax at 52%. That’s a tax liability of €10400.
If one spouse had no income then their rate could be as low as 24%, being 4% PRSI and 20% Income Tax. The tax liability would reduce to €7600 [€10000 X 52% and €10000 X 24%] An annual saving of €2800.
Thinking of selling
Per a recent report, 4 in every 10 properties sold in 2022 were by landlords exiting the rental market. If you are thinking of selling, make sure you minimise the Capital Gains Tax you pay. Things to consider are
- Cost of property or market value when you inherited it
- CGT Relief if you purchased it between December 2011 and 2014
- Deduct all incidental costs of purchase and sale like legal, auctioneering, and accountancy fees
- Have you or your spouse got losses forward or other assets with a negligible value
Have good paperwork
Apart from the obvious of having all your taxes up to date having good paperwork makes sense for you. Why?
- Support for all the expenses you claim if Revenue come calling
- Minimise CGT by having backups for all costs of purchase and sale
- Less worry and less intervention from Revenue
- Makes it easy to give tenants info to claim the rent credit
- Reduce interest and penalties for not filing your LPT return and payments and late filing of tax returns
- Register the tenancy with the RTB. You need this to get a deduction for mortgage interest and the cost is tax deductible.
- You will need tax clearance to access grants like the retrofitting one
- Don’t do your own tax return. Justin DeDoor uses us, and he has no worries in the world. His times are going from good to brilliant.
The general view in the Press is that it’s a disaster being a landlord. There is no doubt the burden of compliance with taxes and tenant legislation isn’t easy. Letting agents do a great job of managing the property for you by taking away a lot of the hassle. A rental property can generate a very good income, and this could be more important when you get older.
Need help getting your rental property taxes right and up to date? If so, Start here