Domestic rental properties have been a source of undeclared income for decades in this country. But as regulation began tightening and pressure was brought to bear by tenants on landlords to issue rental books, the thought of an investment property far from the prying eyes of the Irish tax authorities must have been tempting. Especially when the income could be left in a nice non-resident account in a Spanish or Portuguese bank.
How successful the Revenue will be in tracking down Irish tax-cheating landlords abroad — finding undeclared income that was used to purchase property and any undeclared tax that might be due on rental income — will depend on how quickly banks and tax authorities in the eurozone co-operate on the introduction of systems needed to access this kind of information in each other’s jurisdictions.
It isn’t just the sun-seeking Irish or British who have exploited low interest rates, cheap real estate and the desire to hide hot money. There are plenty of other (and higher taxed) Europeans who have shifted money into such property abroad.
The need to cheat on a property investment escapes me. Not only has capital gains tax been reduced to 20% but income tax due on the rental income (even on properties abroad) can be offset against the cost of borrowing and other expenses.
Perhaps up to now the risk of getting caught was so remote that people were willing to take it. One villa owner I know in Spain, who rents his property out for about six months of the year and then moves in himself for a month in the late summer and at Christmas, says he never bothered to declare the income he earned because he was unlikely to have to pay any tax once all the expenses involved, including Spanish property tax and service charges, were taken into account.
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That may well be the case, but the tax return has to be filled out regardless, and the Revenue may not take such a relaxed attitude towards non-compliance, especially if there are question marks about the source of the money used to buy the property in the first place.
Prize bonds not worth the paper
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Regular readers might be aware that I am not a fan of prize bonds or the Prize Bond company that continues to promote this game of chance as an “investment”. As not a single cent of interest is ever paid on one’s holdings, prize bonds are clearly not an investment and I really do think the financial regulator, if not the Advertising Standards Authority, should tell the the company to desist from describing its products in this manner.
It seems doubly absurd that, as of this month, anybody buying prize bonds to the minimum value of €25 must now produce specific proof of identification and their address, as they would if they were opening a bank account, or indeed, buying a real investment.
This rule, which will surely put off spontaneous purchases for a child’s birthday or first communion, has been imposed to conform to rules designed to combat money laundering. But we are talking about prize bonds, for goodness sake. Yes, I know some people persist in holding thousands of euros worth of bonds but surely a purchase ceiling of €100 would be more realistic? I’ll save the indignant Prize Bond people the phone call by reporting that, yes, there were 105,000 winners of €10.8m last year. I’m sure anybody with a winning bond was thrilled by the windfall, but when you work out the real return from these bond holdings given the effect of inflation over the years then many prize bonds, literally, are not worth the amount written on them.
With the money laundering rules neither are they worth the time and trouble that must now be spent buying them.
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Take advantage of UK rates
With the way interest rates are going in the UK, there is certainly some merit in — legitimately — socking away money in a British building society and taking your chances on exchange rate fluctuations. Even the common or garden UK building society deposit account is offering in excess of 4.25% interest — non-residents don’t pay deposit interest retention tax (Dirt), of course, and with the UK economy booming, and concerns about how overheated the property market still is, base rates are predicted to rise to 5% or even 5.25% by the end of the year.
Meanwhile, there is also some merit in UK property buyers trying to secure their mortgage here in the republic (a mere hop, skip away if you happen to live across the border). Instead of 6.5% variable rates, Irish banks are still offering tracker mortgages of 2.85% and a three-year fixed rate can still be had for as little as 3.5%. Arranging a “foreign” mortgage isn’t as easy as opening an offshore deposit account but is manageable if you can find a co-operative enough lender, and you have enough faith in eurozone rates continuing to flag well behind sterling.