You might have additional tax liabilities! Why?
If your landlord lives abroad and you pay rent directly to the landlord (not through an Irish based agent), you must withhold 20% of the gross rent due to your landlord and give it to Revenue.
Your monthly rent is €1,200.
You must withhold 20% of this which is calculated as 20% x €1,200. So, €240 must be with held back from the landlord and paid to Revenue.
This leaves a remainder of €960 (i.e. €1,200 – €240) to be paid to your landlord.
Why should I have to do that?
This rule exists to try and ensure increased tax compliance among non-resident landlords. Putting the responsibility onto the tenants means that the people responsible for making payments are located in Ireland rather than overseas.
The 20% you deduct is available to be refunded to the landlord (or used towards their tax bill) when they declare their rental income by filing their tax return.
What happens if I don’t withhold the 20%?
Definitely don’t overlook this! As unfair as it sounds, the tenant is responsible for withholding the 20%. If you don’t – even if it’s because you didn’t know or genuinely forgot – Revenue will still hold you liable for the amount which should have been deducted.
If you pay your landlord the full €1,200, you are still liable for an amount of €240 to Revenue.
How do I pay the 20% to the Revenue?
If you are a PAYE employee, you can contact your local tax office and arrange to reduce your tax credits and Standard Rate Cut Off Point. This allows Revenue to collect the tax due through your payroll tax deductions.
If you file an income tax return, you should include the details on your tax return.
At the end of the year, you must give your landlord a completed Certificate of Income Tax Deducted (Form R185). Your landlord will need this to be able to reclaim the amounts you have deducted from Revenue when they file their own income tax return declaring their rental income.
And if I pay rent to an Irish based agent, and not directly to the landlord?
Then, you don’t have to worry about this! It is the agent’s responsible to manage the withholding tax.
If you are paying rent directly to the landlord and don’t want the hassle of managing the 20% deductions, you might like to ask your landlord if they would be willing to appoint an Irish based collection agent.
Fenero are Personal Tax Experts. If you need tax advice get in touch!