A recent High Court case has ruled that the Non Principal Primary Residence Charge (NPPR) is deductible in calculating a landlord’s income tax on rental income. In practice, however, refunds can only be claimed in respect of outstanding tax relief on NPPR Charges paid in 2013 due to a four year statutory limitation for claiming refunds. Landlords have until the 31st December 2017 to claim this refund.
History of the Charge
The annual Non Principal Primary Residence Charge was introduced in 2009 and applied for tax years 2009-2013. Whilst there were some exemptions to the charge, it generally applied to rented dwellings or to dwellings which were not occupied as a main residence.
The charge was €200 per annum on each property and generally collected by the local authorities. It ceased to be payable in 2014 onwards, replaced by the Local Property Tax. Significant penalties apply for non-payment. Presently, the overall charge for the five years it applied stands at €7,320 for complete non-payment.
For many years the Revenue Commissioners determined that the charge was not tax deductible for landlords in accordance with Section 97 of the Taxes Consolidation Act 1997. This section of the tax code sets out how CASE V (rental income) is computed and what deductions are permissible.
One landlord disagreed with the Revenue Commissioners on this approach and argued successfully before the Appeals Commissioner in 2013 who found that the charge was deductible and tax relief was available in respect of the charge.
The High Court Case
The Revenue Commissioners appealed this determination to the High Court and Judge Reynolds in November 2016 ruled in favour of the landlord in Revenue Commissioners -v- Thomas Collins. The Revenue Commissioners viewed this charge as not meeting the definition of “a rate levied by a local authority”. Local authority rates have always been held as tax deductible for rental income as they fall within the permissible deductions set out in Section 97.
The High Court held that the Revenue Commissioners generated proceeds from NPPR was steered towards local authorities and local authorities are entitled to prosecute for default. Therefore the court determined that the NPPR Charge is akin to local authority rates.
However, there is a four year statutory limitation period for claiming refunds. The High Court judgment was issued in November 2016 but it has only just been published.
Refunds can only be claimed in respect of outstanding tax relief on NPPR Charges paid in 2013. Landlords have until the 31st December 2017 to claim this refund, but sadly no refund may be claimed for 2009-2012. Had the judgment been published in November 2016, landlords would have had at least 1 month to claim refunds for NPPR charges paid in 2012.