Taxing time as I rent own home to rent elsewhere

I've rented out my home "outside the pale" and moved the family to south county Dublin as I now have two college-going children and another to follow.

The rationale? I'd prefer they were living and studying in Dublin than spending their degree years commuting and, frankly, I cannot afford Dublin accommodation for them.

So, I have income from my home and now I have an equivalent outgoing for a smaller place in Dublin. Am I liable for the 20 per cent rental income tax despite the fact I am also paying out the same in rent?

Mr M.K., email

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Accommodation costs are a major headache, especially in Dublin, where rent levels are at record levels and prices are back close to their bubble-era peaks. And that's even more of an issue for people who have college-going children who need to find accommodation in the city for the duration of their studies.

Your approach is fairly radical, if understandable. Renting out your own home to defray the cost of renting a property in Dublin makes the whole exercise affordable. Continuing to live in your home and find the wherewithal to fund a Dublin property for several children over a number of years would be, for many, a tall order.

But it does put you in a strange position. You are no longer, in effect, an owner-occupier. You are earning income from your one property, which makes it an investment property in the eyes of Revenue. Meanwhile you are paying out even more in rent for your temporary home in Dublin.

Liable

The bad news is that you are liable for income taxes on your rental income – having netted out allowable costs and expenses incurred in finding a tenant and maintaining the property. This tax is levied at your marginal rate. If you pay 40 per cent income tax on some of your income, then this rental income will also be taxed at that higher rate.

You will also pay PRSI, if it applies to you, and the Universal Social Charge (USC) on that net rental income.

One significant relief available is in regards to mortgage interest that you may be paying on your home down the country. For 2017, you were allowed to claim three-quarters of your mortgage interest against rental income and, this year, that figure has risen to 85 per cent. However, to avail of it, you must have registered your “investment property” – which is what it now is in Revenue terms, given that you are renting it out, even if, in your own minds, it is still your home – with the Residential Tenancies Board.

And no, there is no respite in terms of offsetting that tax bill against the rent you are paying in Dublin. There was some relief available but only to people who were renting before December 2010 – and I think that was finally phased out last year. In any case, it would not have applied in your circumstances.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice