Tenants paying rent to the Revenue

I wonder if I am misreading the line in your column today where you say her Irish tenants should be withholding basic income tax on their rent and forwarding it to Revenue unless she has an agent.

Since when did it become the duty of the tenant to carry out the landlord’s tax affairs? Unbelievable!!!

Ms MF, email

Strange, but true. I have to say I was a little discomfited when I first came across this issue. And I have yet actually to meet a tenant who actually withholds part of their rent and pays it over the Revenue but that is what the rules say they must do.

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And those rules have been in place for a long time now.

The key thing to note, of course, is that this applies only to landlords who are not resident in Ireland. You mention that you are a landlord yourself but I'm guessing you are Irish based. Assuming that is so, it is your responsibility to manage all your tax affairs in relation to your rental income and it is not an issue for your tenants.

The problem for Revenue if the landlord is not based here, and fails to file a return, is that it would be difficult for Revenue to recover the tax due. As with most countries, property within Ireland is subject to Irish taxes regardless of where the owner / landlord is located. That is the case both for taxes on any income arising – ie from rent – and also on any capital gain due on its eventual sale.

Essentially, if the landlord is resident outside the State and the rent is paid direct to their bank account – regardless of whether that account is in the State or abroad – the tenant is obliged to deduct the standard rate of income tax and pay it over to the Revenue. At current rates, that means the foreign landlord only gets 80 per cent of the rent directly – the other 20 per cent goes to the tax authorities, effectively as a withholding payment.

It’s a serious issue for the tenant. Failure to hold back the 20 per cent leaves the tenant liable for the money that should have been deducted.

Technically, the tenant should be forwarding this to Revenue as they hold it back – ie generally monthly – but, in practice, accountancy bodies suggest it is generally more practical to pay it over at year end with their own annual tax filing.

At the end of each year, the tenant fills up a Form R185, which essentially says how much money they paid overall and how much was retained together with their personal details and those of the landlord. The tenant sends this to the landlord and the landlord submits it with their own Irish tax return, which they are obliged to file. The sum withheld and paid to Revenue will then be deducted from the overall tax due from the landlord.

Answering a parliamentary question on the issue back in May 2008, then finance minister Michael Noonan said: "In the absence of a withholding tax, it would be relatively easy for non-resident landlords to evade tax as Revenue would have no mechanism to recover the tax due as there is no way to force such non-residents to make an Irish tax return and to declare their income."

That’s why it is there.

Of course, if the landlord is using an Irish agent to manage their properties, the tenant has nothing to worry about as it becomes the responsibility of the agent to withhold the basic rate of income tax from the rent and forward it themselves to Revenue.

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