Interest on monies borrowed to purchase, improve or repair rental properties, in general, is deductible in computing rental income for tax purposes. The deduction is restricted for residential properties to 75% of the accruing interest.
An amendment was introduced in Finance Act 2015. The amendment provides that the 75% interest restriction will not apply to residential property where it is let for a continuous period of 3 years to:
- An individual in receipt of rent supplement or housing assistance payments or,
- A local authority for social housing
Therefore, a 100% interest deduction can be claimed if certain conditions are met.
If the lease ends before the three year period has expired, certain periods of vacancy may also be allowed. If the property is let by qualifying and non-qualifying tenants, the interest deduction can be apportioned on a just and reasonable basis.
The landlord must submit a Declaration of Undertaking for Deduction of Interest on Borrowings to the Private Residential Tenancies Board (PRTB) stating that they will let the property for a 3 year continuous period commencing between 1 January 2016 and 31 December 2019. The deadline for submitting the Declaration in relation to leases entered into before 1 January 2016 was 31 March 2016.
For qualifying leases entered into after 1 January 2016, the Declaration must be submitted to the PRTB within one month of the commencement of the new tenancy.
The relief can be claimed after the end of the 3 year period in the landlord’s tax return. The 25% increased interest deduction is treated as accruing on the day immediately following the end of the 3 year period.
If you have any questions or require any assistance, please contact your usual contact at RSM Ireland.