Does Section 23 relief stop after 10 years?
Q I am a landlord of a Section 23 property which I bought in 2005 with an interest-only mortgage and no capital has been paid to date. With decreasing rental income and increasing costs, the rent is only covering the interest. I understand Section 23 has to operate for 10 years from purchase otherwise a clawback operates. My question is: does the Section 23 stop after 10 years or continue after that until the full mortgage, both capital and interest, is repaid? Also, if I decide to sell my Section 23 at a loss, does the original Section 23 allowance figure pass on to the purchaser or does a new Section 23 allowance/figure apply based on the reduced price?
ATax matters on investment properties can be complex and we asked Caroline Rochford at Deloitte for her opinion on your Section 23 problem. She advises that you are correct that a clawback will occur on the sale of a Section 23 property if sold within 10 years of the first qualifying letting. The clawback means that the amount of the relief claimed on the property is treated as taxable rent in the year of sale. But, it is possible to sell a Section 23 property after 10 years of qualifying lettings and suffer no clawback, even where the loan related to the property has not been fully repaid. A new purchaser may be in a position to claim Section 23 relief depending on the circumstances. Where the property is sold at a loss, the amount of the potential Section 23 relief available to the new purchaser is also reduced as a portion of the sales price.
Can tenant deduct 20% of rent if I live abroad?
Q I moved to Germany and am renting out my Dublin apartment for €1,200 per month. I was too busy to check that the first month’s rent was paid and only checked after the second month. The tenant paid 20 per cent less than we agreed: he said he was legally obliged to do this as I live outside Ireland and that it is a tax issue. I have never heard of this and, if it goes on, it’ll cause a problem with my direct debit to my mortgage?
AYour tenant is correct. As you live abroad he must deduct the tax for you – at the standard rate which is 20 per cent. At the end of the year he must complete – and file with the Revenue – Form R185. Once that is done he will give you the completed form and you can claim this amount as credit on your annual tax return. As to your mortgage payments, that really is a separate issue – you cannot automatically expect your rent to cover your mortgage repayments. If it is that tight, you may need to top up the rent out of your own funds if only to provide a cushion and to prevent you from going into arrears. No matter how accidental or temporary, this could have implications for your credit rating. You sound like a first-time landlord, so it is vital you understand the overall tax implication of having an investment property. The Revenue's website – revenue.ie – has good, clear advice.
Your questions
Send your queries to Property questions, The Irish Times, The Irish Times Building, 24-28 Tara Street, Dublin 2 or e-mail propertyquestions@irishtimes.com. This column is a readers’ service and is not intended to replace professional advice.
