Rental Income Tax

Understand the Income Tax measures of Budget 2025 at a glance.

Today, the Minister for Finance, Jack Chambers T.D., and the Minister for Public Expenditure, NDP Delivery and Reform, Paschal Donohoe T.D., announced the details Budget 2025.

As anticipated, Budget 2025 introduced several tax measures affecting individuals, families and households.

This article will focus on the tax measure introduced by Budget 2025, specifically under the Income Tax or Personal Tax heading.

Standard rate band increased by €2,000

• The income tax standard rate band has been increased by €2,000 for all earners, resulting in the band for single individuals increasing from €42,000 to €44,000

• The band for Single, Widowed or Surviving civil partners, qualifying for the Single Person Child Carer Credit was raised from €46,000 to €48,000,

• The band for married couples/civil partners with one earner will be increased from €51,000 to €53,000 for the 2025 tax year onwards.

Increase in Tax Credits

• The Personal Tax Credit, Employee Tax Credit and Earned Income Credit will all be increased from €1,875 to €2,000.

• The Home Carer Tax Credit has increased from €1,800 to €1,950.

• The incapacitated child tax credit has been increased by €300 from €3,500 to €3,800.

• The Single Person Child Carer Tax Credit will be increased from €1,750 to €1,900.

• The Blind Tax Credit will be increased from €1,650 to €1,950.

• The Dependant Relative Tax Credit will rise from €245 to €305.

• The Rent Tax Credit has been increased for the tax years 2024 and 2025. It will be €1,000 per year for individuals and €2,000 per annum for a jointly assessed couple (married or civil partners).

• The Sea-going Naval Personnel Tax Credit has been extended for five years to 31^st December 2029.

Other Personal Tax Reliefs

• Mortgage Interest Relief has been extended. There has been no change to the qualifying criteria.  Homeowners must have an outstanding mortgage balance on their principal private residence of between €80,000 and €500,000 as of 31st December 2022. Qualifying homeowners will be eligible for this tax relief in respect of the increased interest paid on their mortgage in 2024 as compared with 2022. Tax Relief is at the standard Income Tax rate of 20%.  The Tax Credit is capped at €1,250 per property.  To claim Mortgage Interest Relief, the taxpayer must file a Tax Return and the taxpayer must be compliant with Local Property Tax (LPT) requirements.

• The Help to Buy Scheme has been extended for a further four years at the current rates until the end of 2029.

• Pre-Letting Expenses Relief. The current tax relief, capped at €10,000 per premises, for certain pre-letting expenditure will be extended for a further three years to 31^st December 2027.  Section 97A TCA ‘97, which deals with rental expenses, provides that certain expenses incurred on a vacant residential property before its first letting following a period of non-occupancy are allowable as a deduction against rental income from that specific premises.

• Various farming related Tax Reliefs have been extended until 31^st December 2027 including (a) Enhanced Stock Relief for Registered Farm Partnerships, (b) Stock Relief for Young Trained Farmers as well as (c) General Stock Relief.

• Budget 2025 introduced a BIK exemption for home car chargers provided by employers. It provides for an exemption from Benefit-in-Kind where it is the employer who incurs the cost of providing a facility for electric charging of vehicles at the home of an employee or director.

• The proposed tapering of Benefit-in-Kind Relief for electric vehicles has been deferred. The universal relief of €10,000 which applied to the Original Market Value of a vehicle in Category A – D is being extended to 31^st December 2025.  The amendment to the lower limit of the highest mileage band has also been extended until 31^st December 2025.   Therefore, the highest mileage band is entered into at 48,001km.

Small benefit exemption

• There will be an increase in the annual limit of the small benefit exemption from €1,000 to €1,500.

• It has also been amended to allow five non-cash benefits, up from two, to be granted by an employer in a single year. The cumulative total of the first five benefits in a calendar year cannot exceed €1,500.

• From 1^st January 2024 an employer is required to return details of all qualifying incentives provided to employees where the small benefit exemption applies.

• This benefit can be given to any employee of the company, including directors and shareholders, providing they are on the payroll.

Universal Social Charge

Various amendments to the USC system were introduced in Budget 2025.

• The 4% rate of USC will be reduced to 3%.

• The 2% USC rate band will increase by €1,622, from €25,760 to €27,382.

From 1^st January 2025, the USC Rates and Bands will be:

• €0 – €12,012 – 0.5%

• €12,013 – €27,382 – 2%

• €27,383 – €70,044 – 3%

• Balance – 8%

Self-employed income over €100,000 will be liable to a 3% surcharge i.e. 11%

PRSI

• All classes of PRSI will increase by 0.1% percentage point from 1^st October 2024.

• From 1^st October 2024 the minimum annual PRSI contribution is €650.

• There will be a further 0.1 percentage point in October 2025. From 1^st October 2025, (i) the employee PRSI rate will increase from 4.1% to 4.2%, (ii) the employer PRSI rate will increase from 11.15% to 11.25% and (iii) the rate will rise from 8.9% to 9% in situations where the weekly income is €496 or less.

• From 1st October 2025, the self employed PRSI rate will increase from 4.1% to 4.2%.

For full information on Budget 2025, please click https://www.gov.ie/en/publication/e8315-budget-2025/

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Rental Income

Rental income is calculated on the gross amount of rents receivable. A profit or a loss is calculated separately for each rental source. The rental income which is liable to Income Tax is the aggregate of the profits as reduced by the aggregate of the losses.

When completing an Income Tax Return, rental income from property situated in the Republic of Ireland is chargeable to tax under the provisions of Case V Schedule D while rental income from property situated outside the State is chargeable to tax under the provisions of Case III Schedule D.

It is important to remember that losses from one source cannot be written off against profits from the other. In particular, Irish rental losses cannot be written off against profits from foreign rental properties and vice versa.

Rental Income liable to Income Tax

The types of rental income liable to Income Tax can be more diverse than you might imagine. The following income is considered to be rental income, taxable under Case V, Schedule D:

• The letting or rental of residential, commercial and/or agricultural property.
• Easements.
• The granting of sporting rights and permits.
• Insurance payments received to compensate for non payment of rent.
• Certain Premiums.
• Improvements carried out by the tenant which is not required by the lease and for which he/she is not reimbursed, etc.

Deductible Rental Expenses

For rental expenses to be deductible there are three main rules:

1. It must be incurred by the landlord.
2. It cannot be of a capital nature.
3. It must be incurred during the period in which the landlord is entitled to receive rental income. In other words, it cannot be considered pre or post trading expenses.

Specific Expenses include:

• Rent, rates and insurance paid by the landlord.
• Repairs & Maintenance costs paid by the landlord including water charges, electricity, satellite/cable television, cleaning and maintenance services, painting and decorating, replacing tiles and slates, damp treatment, fixing broken showers, windows, doors, etc.
• Management Charges.
• Letting Expenses
• Advertising
• Legal Fees including the drawing up of leases or debt collection.
• Accountancy charges in relation to preparing rental income accounts and tax returns.
• Interest on money borrowed to purchase, improve or repair the rental property.
• Allowances for capital expenditure – These are known as Capital Allowances.

Please be aware you can never claim a deduction for your own labour. If you carry out repairs or gardening yourself, you cannot include this as a deductible expense against rental income.

The NPPR and Household charges are not allowable expenses against rental income.

Mortgage Interest

Broadly speaking, interest on money borrowed to purchase, improve or repair a rental property is deductible in calculating your rental income for tax purposes, subject to certain conditions.

The allowable deduction for interest accruing on loans used to purchase, improve or repair rented residential property is restricted to 75% of the total interest accruing.

This 75% restriction does not apply to non-residential property. In the case of offices, warehouses, etc. 100% of the interest is allowable against rents receivable.

A further restriction was introduced in 2006. Unless the landlord has complied with the registration and payment requirements of the PRTB (Private Residential Tenancies Board) in relation to each and all tenancies in the rented property then the interest on monies borrowed for the purchase, improvement or repair or rented residential properties will not be an allowable deduction against rents receivable.

If the loan to purchase the rental property includes stamp duty, legal fees, auctioneers’ fees, etc. then the interest on the loan must be apportioned. Only the interest relating to the actual cost of purchase, repair or renovation of the property is allowable.

Interest incurred prior to the first letting is not allowable (pre-letting expense) neither is the interest incurred after the final letting (post letting expense). Interest incurred during a period in which the landlord occupies the property is not allowable.

Capital Expenditure – Wear & Tear Allowance

Wear and tear allowances are available in respect of capital expenditure incurred on fixtures and fittings provided by the landlord for the rented residential property. This includes furniture, showers, kitchen appliances, etc.

The rate is 12½% over eight years.

What Expenditure is not allowable?

• Pre-letting expenses – expenses incurred prior to the date on which the premises was first let. There are exceptions to this rule and they include auctioneer’s letting fees, advertising fees and legal expenses incurred on first lettings.
• Interest on money borrowed incurred in the period following the purchase of the property up to the time the first tenant enters into a lease and after the final letting.
• Post-letting expenses – expenses incurred after the final letting,
• Capital expenditure incurred on additions, alterations or improvements to the premises unless allowable under an incentive scheme or incurred on fixtures and fittings.
• Expenses incurred on lettings that are exempt under the Rent-a-Room provisions.
• NPPR
• Household Charge
• The landlord’s own labour

Rent-a-Room Relief

If an individual rents out a room in his/her sole or main residence as residential accommodation and receives up to €10,000 per annum this amount will be exempt from Income Tax, PRSI and the Universal Social Charge providing conditions are met.

The €10,000 limit includes rent, utility bills, laundry, food, etc.

If the individual receives in excess of €10,000, the Rent-a-Room exemption will NOT apply and the entire rent receivable will be liable to income tax, PRSI and the Universal Social Charge

An individual cannot avail of rent-a-room relief in respect of payments for accommodation in the family home by a child of the landlord under any circumstances. There is no restriction where rent is paid by other family members, for example, nieces and nephews.

The relief does not affect an individual’s entitlement to mortgage interest relief i.e. Tax Relief at Source.

The relief does not affect the individual’s entitlement to Principal Private Residence Relief from capital gains tax on the sale or disposal of the property.

You can opt out of the relief for a year of assessment by making an election on or before the return filing date for the year of assessment concerned.

Non Resident Landlords

If your landlord resides outside theRepublicofIrelandand you pay rent directly to them or electronically transfer the money into their bank account either inIrelandor abroad, you must deduct income tax at the standard rate of tax (currently 20%) from the gross rents payable.

Failure to deduct tax may leave the tenant liable for the tax that should have been deducted.

At the end of the year you are obliged to complete a Form R185 showing the tax deducted from the gross rents which you should then give to your landlord. The landlord can then submit this form to the Revenue Commissioners and claim this amount as a credit.

If, on the other hand the non-resident landlord has an agent who is resident in the state, then there is no obligation for the tenant to deduct tax from the rent. Instead the tenant should pay the gross rent to the agent.

The agent is then liable to pay income tax on the rents received from the tenant in the capacity of Collection Agent for the landlord. The agent is then required to register as self employed and submit an annual tax return and account for the tax due.

Foreign Rental Income

In general, rental income from property located outsideIrelandis calculated on the full amount of rents receivable, irrespective of whether or not it has or will be remitted intoIreland.

Broadly speaking, the same deductions are available in calculating the taxable rental income as if the rents had been received inIreland.

Income tax on these rental profits is chargeable under Case III of Schedule D.

In the case of an individual who is not domiciled inIreland, the taxable rental income is computed on the full amount of the actual sums received in the State without any deductions or reliefs for expenditure incurred.

Rental losses from the letting of property outside the State cannot be offset against rental income from the letting of property in the State and vice versa. Such losses can only be offset against future rental income from property outside the State.