Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

The rental in­come earned from a sec­ond prop­erty in re­tire­ment could repli­cate some (or all — if you’re earn­ing a lot of rent) of the in­come you pre­vi­ously made in work.

How­ever, you will have re­spon­si­bil­i­ties as a land­lord and main­tain­ing a rented prop­erty can be costly and time-con­sum­ing. There could also be times when you strug­gle to se­cure ten­ants or when the prop­erty must be va­cant to al­low for ren­o­va­tions — and so you will be with­out rental in­come on those oc­ca­sions. Should your prop­erty be lo­cated in an area where rental de­mand is poor, you could find it hard to se­cure ten­ants at all.

“Buy some­where where you will al­ways have a strong rental mar­ket,” said Mo­ri­arty. “Make sure it’s a solid in­vest­ment which will pro­vide you with a pen­sion.” Tax is an­other ma­jor is­sue as it could gob­ble up around half of your rental in­come. You typ­i­cally pay tax on any profit you earn from rental in­come and that tax con­sists of your higher rate of in­come tax (which could be 40pc, de­pend­ing on how much rental and other in­come you’re earn­ing in re­tire­ment) and the Uni­ver­sal So­cial Charge (USC). PRSI must typ­i­cally be paid on rental in­come too — though you do not have to pay PRSI once you are aged 66 or over.

There are in­come tax ex­emp­tions for peo­ple aged 65 who earn no more than €18,000 (for a sin­gle in­di­vid­ual) or €36,000 (for a mar­ried cou­ple). So if the amount of rent you earn (com­bined with other tax­able in­come you have) is be­low th­ese lim­its, you should not have to pay any in­come tax on your rent. Fur­ther­more, your rental in­come should be ex­empt from the USC if your to­tal in­come (that is, in­come typ­i­cally li­able to the USC) is be­low €13,000. (Cer­tain types of in­come, such as the State pen­sion, are ex­empt from the USC.) There are also re­duced USC rates for peo­ple aged 70 or over whose ag­gre­gate in­come for the year is €60,000 or less. (Ag­gre­gate in­come for USC pur­poses does not in­clude so­cial wel­fare pay­ments, such as the State pen­sion).

There is a big tax dis­ad­van­tage to buying a prop­erty outright for the pur­pose of a pen­sion. Un­like con­tri­bu­tions into a pen­sion scheme, you can­not claim pen­sions tax relief on the money. con­sid­er­ing hold­ing onto your ‘ac­ci­den­tal’ prop­erty so that you can have it as a pen­sion for your re­tire­ment, only do so if it is a good in­vest­ment. (In­deed, this rule of thumb ap­plies to any­one who owns a sec­ond prop­erty.)

“If the rental in­come pays the mort­gage and other ex­penses, in­clud­ing tax, then it makes sense to in­vest in the prop­erty,” said Peter Grif­fin, di­rec­tor with the Dublin pen­sion firm, Al­lied Pen­sion Trus­tees.

“But if the rental in­come doesn’t cover those costs, it’s a bad in­vest­ment.”

Many ac­ci­den­tal land­lords have re­cently emerged from neg­a­tive eq­uity and so could now be in a po­si­tion to clear their mort­gage by sell­ing their prop­erty.

“The ques­tion for th­ese peo­ple is: is it worth hold­ing onto the prop­erty — or do they want an al­ba­tross around their neck,” said Grif­fin.

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