The attitude of the Irish Revenue Commissioner on pre-letting expenses to date has been that they were not willing to allow landlords to deduct pre-letting expenses when calculating their taxable income.
Unless these costs relate to advertising your letting and any fees that you may pay to an estate agent.
The Housing Crisis Has Caused the Government to change its tune
In the latest census, there were 166,000 vacant properties in Ireland, with over 48,000 vacant for at least six years. Ireland is in the grips of a long drawn-out housing crisis, that looks like it will take the best part of a decade to correct.
The increasing pressure on the government to resolve the housing crisis has led them to review the current tax policy, and now there are specific exemptions for properties that have been lying vacant for a certain length of time.
The Exception for Vacant Properties
2017 was the first time the government allowed for certain expenses, up to a limit of €5,000, to be claimed as tax deductions against Case V rental income for vacant properties, once the property had been vacant for a period of 12 months.
Budget 2023 revealed the government’s plan to further increase this limit and a reduction of the time limit the property needs to be vacant to help bring more properties back into circulation.
The below table summarises the changes to this tax deduction:
|Year tax deduction available||First year of letting||First year of letting|
|Maximum tax deduction per property||€5,000||€10,000|
|Time property needs to be vacant||12 months||6 months|
|Capital expenses||Non Allowable||Non Allowable|
|Post letting expenses||Non Allowable||Non Allowable|
|Mortgage Interest||Non Allowable||Non Allowable|
The expenses must have been incurred within the specified period be it 6 or 12 months depending on when you first let out your property.
If you are unsure if the expenses will qualify or not the best test is the following.
If the expense was incurred during the rental period, would it qualify normally as a Case V tax deductible? If the answer to this question is yes, then equally this cost will be allowable as a pre letting expense on qualifying vacant properties.
Deductions will be clawed back in certain circumstances
In the event you sell your property or change the use of that property from its current state as residential within 4 years of renting out the property, Revenue will claw back amounts previously deducted under this scheme.
The clawback will be in the year of sale or change of use, and previous amounts claimed as a deduction will be classified as rental income in that tax year.
Disclaimer: This blog post is for informational and educational purposes only and should not be construed as financial advice.