Rental Income Clarification

Interest deduction where private residence changes to rented residential premises

Where at any time on or after 23 April 1998 a person vacates his or her principal private residence the interest on borrowed money used in the purchase, improvement or repair of the property cannot be offset against rental income from the property from the date of the change (Section 97(2)(E) Taxes Consolidation Act 1997).

Where an individual has partially let his/her principal private residence before 23 April 1998 and has agreed an offset of part of the interest against rental income arising from the property before 23 April 1998, a deduction will continue to be allowed against rental income in respect of that agreed proportion of interest after the date the property ceases to be the principal private residence of the individual.

Fines on loans

A detailed article on replacement loans was contained in Tax Briefing - Issue 33.

Since that article we have received a number of queries in respect of the treatment of fines on loans. The treatment is as follows:

• In certain circumstances a financial institution may impose a fine of an additional amount of interest on the cancellation of a loan. The amount of the fine will be treated in the same manner as any other interest paid on the loan which gives rise to the fine.
• For a replacement loan to be a qualifying loan it can do no more than replace the outstanding balance on the existing loan. Therefore the amount of the fine should not be included in the replacement loan.

Furnished Lettings

Section 284(7) Taxes Consolidation Act 1997 provides for a wear and tear allowance for furnished residential property. The allowances are available over a period a seven year period with 15% of the expenditure being allowed in each of the first 6 years and 10% in year 7. These capital allowances can be set against Case V income only. Excess allowances are not available for offset against other income.