There are many types of rental income, including payments received for the right to display advertising signs or communication transmitters on your property, but the most common type of rental income is from letting a house, flat, apartment, office, building or land.

If you are in receipt of rental income it is important for you to understand how your rental profit is calculated, what are the allowable expenses and how you can effectively reduce your tax bill. I hope that this guide will help you to achieve the above.

What expenses can be claimed?

As with most income from trade, business or capital disposals , in order for you to arrive at the profit or loss figure you have to deduct all allowable costs and expenses from the gross income. It’s no diferent when you’re calculating your rental profit/loss. In general, you can deduct expenses as long as they-
• are incurred wholly and exclusively for business purposes, and
• are not of a capital nature.

The following are examples of the type of expenses that may be claimed for:
• Rents payable by the landlord in respect of the property, i.e., ground rent
• Rates or levies payable on the property, i.e., water rates, refuse collection etc.
• Cost of any service or goods provided by the landlord, i.e., gas, electricity, central heating, telephone rental, cable television etc. for which they do not receive a separate payment
• Maintenance, i.e., cleaning and general servicing of the premises
• Insurance of the premises against fire, public liability insurance, etc.
• Management, i.e., actual cost of collection of rents, advertising, etc.
• Legal fees to cover the drawing up of leases or the issue of solicitors letters to tenants who default on payment of rent.
• Accountancy fees incurred for the purposes of preparing a rental income account.
• Wear and Tear on furniture and fittings, i.e., carpets, cookers, central heating etc.
• Interest paid on monies borrowed for the purchase, improvement or repair of certain properties.
• Repairs, i.e., decorating and general upkeep of the property. A ‘repair’ means the restoration of an asset by replacing subsidiary parts of the whole asset. Examples of common repairs which are normally deductible in computing rental profits include:
o exterior and interior painting and decorating
o damp and rot treatment
o mending broken windows, doors, furniture and machines
o replacing roof slates.
(However, landlords may not claim a deduction for their own labour)
• Certain mortgage protection policy premiums
• Capital Expenditure on certain properties under the various Incentive schemes.

Interest paid on borrowings

The deduction for interest accruing on loans used to purchase, improve or repair rented residential property is restricted to 85% of the interest accruing on or after 1st January 2018.

You can claim Mortgage Interest Relief:

• while your property is rented out
• in between renting out the property as long as you do not live in it during that time
• if you are registered with the Residential Tenancies Board (RTB).

You cannot claim Mortgage Interest between the time you buy the property and the time you first rent out the property.

From 1 January 2016, a 100% interest deduction is allowable in respect of residential property which is let for a period of 3 years to a tenant or tenants in receipt of certain social housing supports. Relief for the additional deductions in respect of the 3 year period in question is by way of a claim to Revenue after the end of the period.

In terms of non-residential property – full amount (100%) of interest paid can be deducted.
Please note that interest can only be deducted during the period in which the property is let. This means that interest is not deductible for the period following the purchase of the property up to the time a tenant enters into a lease or after the period of the final letting

What expenses can be claimed for Wear and Tear?

If your premises are let for residential purposes, furnished, a claim can be made for a wear and tear allowance based on the cost of the fixtures and fittings (for example, furniture, kitchen appliances, etc.). The allowances are available only where the expenditure is incurred wholly and exclusively in respect of a house used solely as a dwelling which is, or is to be, let as a furnished house on the open market. The current rate for these allowances is 12.5% of the cost per year, for a maximum of eight years.

What expenses cannot be claimed for?

• Pre-letting expenses, i.e., expenses incurred prior to the date on which the premises was first let apart from auctioneer’s letting fees, advertising fees and legal expenses incurred on first lettings.
• Post letting expenses i.e., expenses incurred after the period of the last letting are not allowable.
• Capital expenditure incurred on additions, alterations or improvements to the premises unless allowable under an Incentive scheme
• A deduction can be made only once. If a deduction has already been made in a person’s tax computation, the amount will not be allowed as a deduction in arriving at the person’s net profit/loss rent, i.e., you cannot obtain relief more than once for the same expense.
• Expenses incurred in the letting of premises on an uneconomic basis are not deductible.


Please note that expenses incurred in the period between lettings are deductible provided the landlord was not in occupation of the premises during the period and a new lease is granted.

Rent a Room Relief

If you rent out a room (or rooms) in your home to private tenants, the rental income you earn will be exempt from income tax, provided this income does not exceed €14,000 in a tax year. If you qualify for rent-a-room relief, the income you get from renting out the room is not liable to PRSI, the Universal Social Charge or income tax. However, it must be included on your annual income tax return. The relief is available to individuals only. It does not apply to companies or partnerships. Individuals who rent as well as individuals who own their own home may avail of the relief. You can read more about Rent a Room Relief in our previous article.

What if a premises is only partly let?

If, part of a premises is let, only expenses incurred on that part of the premises are available for set off against rental income.

For example, if rooms are let in a private house and the income received exceeds the limits of the “Rent a Room” relief, the expenses for gas, electricity, etc., are shared by all the occupants of the house, expenses applicable to that part of the house which is let are only available for set off against rental profit. Expenses should be apportioned based on the occupancy of the house, i.e., the number of rooms occupied by tenants.

How is profit/loss calculated?

The rental profit or loss is calculated by reference to the rent or total receipts to which the person becomes entitled to in any tax year (as opposed to the period to which the income relates). You pay tax on your net rental income. This is the gross rental income less your total rental expenses and is at your highest rate of tax.

A separate rental computation is prepared for each property whereby the rental expenses for each property are deducted from the related rental income for the same property in order to arrive at a surplus (i.e. income greater than expenses) or a deficiency (i.e. expenses greater than income) for each property. The total of surpluses and deficiencies are then aggregated to arrive at profits or gains arising in the year, i.e. taxable rent.

What if a loss is made?

A loss will arise if total allowable expenses are more than the rents received. This loss can be set against any other rental profit made by the landlord or carried forward against future rental profits. Such losses cannot be carried back or used to shelter non-rental income.

How is the tax due on rental income collected?

Rental profit is taxed on an actual tax year basis. For individuals taxed under the PAYE system with rental profits that are relatively small it can be arranged to have the tax collected by reduction of their tax credits and standard rate cut-off point. Otherwise, the tax due will be collected under the Self Assessment system.

Keeping Records

You must keep full and accurate records of your lettings from the start. You need to do this whether you send in a simple summary of your profit/loss, prepare the accounts yourself, or, have an accountant do it. All supporting records such as invoices, bank and building society statements, cheque stubs, receipts etc., should also be retained. You must keep your records for six years unless your Revenue office advises you otherwise.

How are foreign rents taxed?

In general, income from foreign property is computed on the full amount of the income arising, irrespective of whether the income has or will be received in the State. In the case of foreign rental income this income is charged under Case III of Schedule D and the same deductions and allowances are available as if the income had been received in the State. Deductions are also normally available in respect of such income for sums in respect of foreign tax paid. This income should be included in an individual’s tax return on the Foreign Income panel.

These rules ,however, do not apply to a person who is not domiciled in the State or who is an Irish citizen not ordinarily resident in the State. In such cases, income tax is computed on the full amount of the actual sums received in the State from such remittances, etc. without any deduction or relief given.

If you need help in calculating your net rental income and tax due, preparing your rental income schedule and filing your income tax return, please get in touch and we’ll be happy to help.