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.