Foreign rental income
What expenses and deductions are allowed?
You can claim expenses and deductions that are allowed under Irish tax law and that are fully related to earning rental income. These include:
- managing the property
- local authority rates
- interest on loans used to purchase the property
- fitting out and furnishing the property.
You can claim capital allowances on the fitting out and furnishing of your foreign rental property. The fixtures and furniture must belong to you and be in use at the end of each year that you claim for. You can claim these allowances over eight years at 12.5% per year.
You may sell your fixtures and fittings during the year. If you do, you may be allowed an additional allowance. This is called a balancing allowance.
Your sale proceeds may exceed the depreciated value of these fixtures and fittings. If they do, there may be a clawback of allowances that you have already received. This is called a balancing charge.
See the example below:
Susan owns a house in Spain which she rents out to a tenant. In 2012 she bought a washing machine for the house which cost €250. She claimed capital allowances at a rate of 12.5% of the cost of the washing machine against her rental income from the house for the years 2012, 2013 and 2014. In 2015 she sold the washing machine for €100. Because she sold the washing machine for less than its written down value she is allowed a balancing allowance. The written down value of the washing machine is what it cost Susan, less the capital allowances she claimed.
Susan's balancing allowance calculations for 2015
| Description|| Amount|
|Washing machine cost
|Less 2012 Capital allowance €250 @ 12.5%
|Less 2013 Capital allowance €250 @ 12.5%
|Less 2014 Capital allowance €250 @ 12.5%
|Written down value at end 2014
|Less proceeds of washing machine sold in 2015
|Balancing allowance for 2015
Mortgage interest relief
You can claim mortgage interest relief against your rental income. The interest must be from a mortgage used directly to buy, improve or repair your rental property.
From 1 January 2017, you can claim 80% of the interest paid. For earlier years, it is 75%.
If you buy the property through a company you cannot claim a deduction for interest payments. This is because the mortgage has been used to purchase an interest in the company and not to purchase the property directly.
Can you claim interest relief from the time that you take out the loan?
You can only claim for interest that is paid during the time the property is let. This means you cannot claim for interest paid:
- between the time you purchased the property and the time you first let it
- between lettings where you or others stayed in the property rent free.
Next: What expenses and deductions are not allowed?