Are you a Non-Resident Landlord? Do you know any Non-Resident Landlords or are you part of a partnership with one, then the following update will be incredibly important on how that rental income is declared. A non-resident landlord is someone who is not resident in Ireland but receives rental income from the letting of an Irish property.

The requirements that are previously in place regarding the collection of rent payable to non-resident landlords have changed from a should to a must. What this means for the non-resident landlord is that rather than receiving 100% of the rent themselves and then returning to Revenue, which although technically incorrect, was in previous years accepted by Revenue or at least not challenged by Revenue. Non-resident landlords must now either engage the services of a collection agent or request that the tenant withholds 20% of the tax on the rent and pay that over to Revenue via an R185 Form.

Using a Collection Agent

As non-resident landlords must now use one of the approved methods for tax collection, we will look at the compliance requirements of a collection agent and how it works operationally.

A collection agent is a nominated Irish resident who collects the rent on the behalf of the non-resident landlord and is assessable to tax on the income of the non-resident landlord. While the assessment is in the name of the Irish collection agent the tax charged is the amount which would be charged if the non-resident landlord was assessed in their own right.

The collection agent will need to register as a collection agent, obtain a unique tax reference number for the service and pay over the tax due on the rent. A collection agent can be an estate agent, a management company, a solicitor or someone you have nominated to act on your behalf such as a family member or a friend. Operationally, it may make sense, especially if in a partnership for one of the resident landlords to become a collection agent on behalf of the non-resident landlord.

There are proposed changes coming from Finance Act 2022 which would see the collection agent no longer be subject to income tax on the landlord’s behalf where certain criteria are met. The collection agent would not be subject to income tax on the landlord’s behalf where they deduct withholding tax from payments made to the landlord and pay the tax over to Revenue. They must also provide certain information to Revenue relating to the non-resident landlord and the property such as the Eircode, local property tax reference number, the gross rent payment and taxes withheld etc. This change however is subject to a ministerial commencement order and so we don’t know when this amendment will come into force but will likely be effective from 2024.

Withholding 20% of the Tax

The alternative method is for the non-resident landlord to request that the tenant withhold 20% of the tax payable and pay that over to Revenue together with a completed R185 form. The non-resident landlord will then receive a tax credit for the rent withheld and can claim this when they complete their Income Tax return. The issue with this method is that it places compliance strain on the tenant.

As you can see from the above, the existing collection requirements create compliance burdens for landlords, collection agents and tenants depending on what method is opted for. We may however see an increase in estate agents implementing a new service in which they would bill to become collection agents especially if the new proposed amendment is introduced removing the requirement for the collection agent to file a return.

Regardless, it is clear to see that the collection & reporting obligations are yet another barrier for non-resident landlords and perhaps will be seen as another reason for them to exit the property rental market at a time when the state is so short on landlords and affordable rents.

If you have any questions on the above, please get in touch with your Quintas contact.

Regards

Kyle Baxter

Tax Trainee Quintas