Revenue Tax Briefing Issue 42 (part 2), 2000
This article deals with the procedures when rents are payable to a person whose usual place of abode is outside the State. There is often confusion between the treatment where rent is paid direct to the non-resident landlord and where rent is paid direct to an Irish collection agent.
Where rents are paid directly to a person whose usual place of abode is outside the State, the tenant is obliged to deduct income tax at the standard rate from the payment (Section 1041 TCA 1997). The tenant gives the landlord a certificate of the tax deducted on form R185. The tenant should account to Revenue for this tax. Payment into a bank account in the name of the landlord is regarded as payment directly to the landlord.
Strictly, the tenant should make a return immediately after the tax was deducted and pay over the tax deducted. In practice, an annual return made with the tenant’s return of income for the tax year together with a remittance for the tax deducted will suffice. Where payment is not received, the tenant will be asked to remit the tax deducted and in the absence of receipt of a remittance a notice of assessment will issue. In PAYE cases, recovery of the tax deducted can be dealt with by adjustment of the tenant’s tax-free allowances i.e. by coding in an underpayment of the amount of tax deducted.
Payments of this nature are not charges on income i.e. taxed or other income cannot be regarded as covering these payments.
The landlord is a chargeable person and is chargeable to Income Tax, PRSI and Health Contribution Levy. The landlord is chargeable on the gross rents less any expenses which are usually allowed in arriving at the rental profit. The landlord may also be entitled to a proportion of personal reliefs and to aggregation relief. Credit for the actual tax deducted from rents by the tenant will be granted.
Where the landlord is a non-resident company, it will be chargeable to income tax, rather than Corporation Tax, unless it carries on a trade in the State through a branch or agency. If it carries on such a trade, it will be chargeable to Corporation Tax in respect of all of the profits attributable to the branch or agency.
Where rent is paid to an Irish agent of a non-resident landlord the tenant is entitled to pay the rent without deduction of income tax. Where the tenant wishes to claim rent relief in respect of the rent paid, he or she must include the name and address of the landlord in the claim on Form Rent1/Rent2.
Where rents payable to a non-resident landlord are paid to a person whose usual place of abode is in the State, for example to an Irish based estate agent, acting on behalf of a non-resident landlord, the tenant is not obliged or entitled to deduct income tax. The non-resident landlord is chargeable in the name of the Irish agent. The Irish agent is not entitled to deduct tax from the rent on payment to the landlord but would normally retain sufficient of the rents to satisfy the tax payable on the rents. The agent should not issue an R185 to the landlord.
The landlord is assessable in the name of the Irish agent (Section 1034 TCA 1997). While the assessment is in the name of the Irish agent, the tax to be charged is the amount which would be charged if the non-resident landlord was assessed in his or her own right. Accordingly, relief will be given for any personal allowances to which the non-resident landlord is entitled and tax will be charged at the marginal rate of income tax.