THOUSANDS OF tenants may unwittingly be in breach of tax laws if their landlord lives overseas, a Labour TD has warned.
Cork South Central TD Ciarán Lynch said very few tenants were aware of the tax provisions relating to “absentee landlords”, and he described the current system as the “height of madness”.
With the collapse in residential property values, there has been a trend for homeowners who emigrate to lease rather than sell their homes when moving overseas. Under the existing law, it is the tenant of such a property who is obliged to deduct the tax on the rental income and forward it to Revenue, not the landlord.
Mr Lynch said this should be reformed urgently as one of a series of measures to strengthen tenants’ rights. “This system needs to be modernised. Although it is still in situ, we plan to address this as part of a series of reforms around tenant legislation.”
Mr Lynch said he intended to raise the issue in the Dáil, and would speak with Minister for Finance Michael Noonan in advance of the next budget to ask that the current system be amended. Under existing tax laws dating back to 1969, tenants renting a property from a landlord resident outside the State must withhold 20 per cent of the rent and remit this sum directly to the Revenue Commissioners on the landlord’s behalf. This includes tenants whose landlord is resident in Northern Ireland.
Revenue can impose penalties on tenants for their failure to deduct the tax owed on non-resident landlords’ rental income. But in many cases, tenants may be either unaware of this obligation or do not know the residency status of the landlord.
In response to a large number of tenants’ complaints on this issue, the Office of the Ombudsman’s 1998 report asked Revenue if it was “reasonable to expect ordinary residential tenants to act as tax collectors in the case of non-resident landlords”.
In the intervening 13 years, Revenue has not revised the rule.
A spokesman for Revenue said “the statutory provision imposing an obligation on tenants to withhold tax from payment of rent to non-resident landlords is designed to promote greater compliance in this area having regard to the obvious risk factors associated with non-resident taxpayers”.
If the obligation on tenants were removed, then tax evasion would be “relatively easy” for overseas landlords, as Revenue has no powers to force non-residents to make an Irish tax return, the spokesperson said.
An alternative arrangement for collecting tax on non-resident landlords’ rental incomes has not been discussed, although Revenue plans to keep its position “under review”, especially as the number of non-resident landlords rises.
Based on the last available figures, 5,118 non-resident landlords were known to Revenue in 2008.
The Dáil debated the issue in February 2008 when Mr Lynch, as Labour’s spokesman on housing and local government, put it to the then minister for finance Brian Cowen that the obligation placed an unfair onus on tenants to pay the landlord’s tax bill.