Eoghan Murphy (Dublin South East, Fine Gael)
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Question 71: To ask the Minister for Finance if he will advise on a case (details supplied). [40584/11]

Michael Noonan (Limerick City, Fine Gael)
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The details supplied appear to relate to the restriction on the deductibility of interest in computing taxable rental income from residential property: in the case of interest accruing on or after 7 April 2009 (insofar as it would otherwise be allowable) the deduction available to the landlord is limited to 75% of such interest. The thrust of the matter raised in the question is that this restriction can result in a charge to tax and the income levy of rental profits in excess of the actual profits from the letting of such property. This position appears to be based on an assumption that in the case of income from investment assets (expected to produce income and capital gains) the taxable amount should inherently be computed after allowing a full deduction for the funding costs of the asset acquisition. However, there is no such general principle in the tax code and there are many examples of situations where interest deductibility is not allowed in the context of investment assets, for example, the funding costs of quoted shares are not generally deductible against dividend income from those shares.

The interest restriction on residential landlords was introduced in the April 2009 supplementary budget as part of an urgent revenue-raising package aimed at stabilising the public finances. The reduction in the level at which interest could be claimed for residential rental properties significantly reduced the cost of this relief to the Exchequer. Increasing the relief to 100% could result in a cost to the Exchequer of the order of €100 million per annum. In a context where tax expenditures are being significantly cut back in many areas to broaden the tax base, a 25% restriction on allowable interest available to residential landlords does not seem an unreasonable measure.