Real Estate Alliance

Investors Guide

Investing in residential property is a tax-efficient and low risk method of investing for the future.

Although, like all investments, there is no guarantee that the high house price growth of late will continue into the next 10 or 20 years, a carefully selected residential property is still likely to remain an investment which will provide an income with the possible added bonus of capital growth.

The benefits include regular rental income to cover some or all of the mortgage, the security of investing in a tangible asset as opposed to the more volatile stock market and relatively easy access to finance as the loan will be secured against the property. Also, many of the costs incurred in buying and fitting-out residential property are tax-deductible.

The downside is that, unlike shares, property is not a liquid asset and can’t be sold as easily or quickly. Also it involves more management of the investment – such as finding tenants, and maintenance costs and possible downtime (when the property is empty) that must be factored in as well as the possibility of a fall in rent or an increase in interest rates.

Prospective property buyers in residential property should be prepared to take a long-term view and make sure they are fully aware of the tax implications of their investment.
It pays to research the market well so check out house prices, rental income and potential capital appreciation in a number of areas. Make sure you are aware of any changes that will be happening in the area where you want to buy.

Deposit

Generally, lenders will lend up to 90% of the purchase price of your rental property, once a mortgage provider is satisfied that you can meet the financial commitment and any shortfall in rental income.

Capital Gains

A capital gains tax of 20% will be chargeable on the gains arising from the disposals of your investment property.
The taxable gain is the amount of the consideration as reduced by “deductible expenditure”, that is, the cost of acquisition and certain enhancement expenditure.

Making the most of your rent

Owners of rental properties are entitled to deduct certain expenses from their rental income each year - including repairs and maintenance, management and rent collection fees, rates, insurance, losses from other Irish rental properties, and mortgage interest payments - to arrive at the net amount on which they must pay income tax. However, expenses incurred prior to letting the property are not allowable for tax purposes so for example if you are doing up your house between tenants this is deductible but not before you rent it out for the first time.

From January 2006 if you are not registered with the PRTB (Private Registry of Tenancies Board) you'll have no entitlement to any tax deductions on rental income for that tax year, so if not registered you should do so straight away (deadline is 1st October 2006 for 2006 tax year  -cost €70 per tenancy registered)

Individuals who purchase a second property and rent out what was previously their main residence should inform the Revenue, as they will no longer be entitled to mortgage interest relief at source at the standard rate of tax. Instead they can claim a tax write-off for the full amount of mortgage interest against their rental income. Mortgage relief will be available on their new residence.

Capital Allowances

Capital allowances are available in respect of expenditure on capital items, such as furniture for the rental property.