Stephen Donnelly (Wicklow, Fianna Fail) | Oireachtas source

I wish to use the opportunity to raise the issue of accidental landlords. I appreciate it is tangential to the amendment, but deals with the taxation of landlords.

For several years I have tabled amendments to try to create an exemption for accidental landlords to stop them from being double taxed. This year I want to raise it and have a short conversation on it on Committee Stage in the hope that the Minister of State, Deputy D'Arcy, and the Minister will introduce a Government amendment on Report Stage. I am meeting the Minister, Deputy Donohoe on this matter later on this week.

Let me take a brief moment to explain what is involved here. Some people bought very small houses or apartments prior to 2008, when they did not have any children or perhaps one child. They are in negative equity and now, ten or 11 years on from that, they have growing families. They are in a trap. The apartment which they own is too small. I spoke to a family with young children living in an apartment not to long ago and they were wondering if their children would climb up and jump over the balcony. They were not at all comfortable with raising their children in the apartment in which they lived. People in this situation cannot sell the property because they are in negative equity. They have one of the following options. First, they can remain in the property and try to raise their children in a property that arguably was not designed for raising children and in which they are not comfortable for their children to be raised. Second, they can move out and rent out their apartment and try to find a two or three bed semidetached house somewhere further out. While their household finances have not changed at all, they are earning the same amount of money, and are paying out in rent the same as they receive for the rent of their apartment.

The problem with this scenario is that their rental income is taxed at the marginal rate. I have provided analysis to the previous Minister for Finance that showed that many people under very modest assumptions end up with tax bills of €5,000 to €6,000. They are trapped. They can do one of two things if they want to move, they can move and hope that the taxman never finds them because they do not have the money pay or they can move and pay the tax bill. I have dealt with a number of cases where the couple's ability to save and dig their way out of negative equity is wiped out because all their saving goes in paying the huge tax bill that materialises. They are trapped. I know people who have left the country and moved abroad in order to be non-domiciled in the hope that it will all work out. It is that serious.

People's lives have been destroyed by this trap that has continued for ten years. The tax system was never meant to do this. The notion of negative equity creating accidental landlords was not considered when the taxation of rental income of landlords was considered. I put it to the Minister of State that it is an unintended consequence of the tax system.

When I previously tabled amendments to address this issue before, the then Minister for Finance, Deputy Michael Noonan, came back and consistently refused to accept them on the basis that it could be a loophole for other people to avoid paying taxes. He said it was too easy to game the system. Last year when I had this conversation with him, he laid out specific issues he had in terms of people being able to abuse it. These people were not in fact accidental landlords at all. I have met nobody in Government or anywhere in the House who believes that in the specific kind of case to which I have referred, the genuine accidental landlords should be taxed an extra €5,000 or €6,000. Nobody thinks that is just or right, or good for the children and their parents.

We need to construct an amendment that stops people gaming the system. Last year I did that and I got expert input as to how we could deal with the issue of gaming the system for the Report Stage amendment I tabled. The conditions were as follows. First, the property had to have been bought between 2002 and 2008 and no more than 113 sq. m in size, which is the average size of a three bed semi detached house. Second, the property that the family were moving to had to have more bedrooms than the property from which they were moving, the logic being that they were moving to a larger premises to raise their children. The people in question could only own one property. Third, the property they were moving from had to have been purchased as their principal private residence, so it could not be an investment purchase and they had to have lived in the property for at least two years, they had to have been first time buyers when they bought the property and they had to be moving full-time into the new rented property and they could only deduct as much from the rental income as they were paying out in rent. This all amounted to a very restrictive provision, which basically said that if one was a first time buyer who bought a very modest apartment in 2005, lived in for several years and did not own anything else and were in good faith moving to a larger property in order to raise a family, then one will not be penalised for doing so. There is no way in which one can benefit and one could reduce one's tax liability from what one was paying when living in the apartment. I will provide this amendment to the Minister of State, Deputy D'Arcy, and the Minister, Deputy Donohoe.

People in this situation have been through hell for ten years. Their lives have been destroyed and they have been caught by something that was never intended to catch people. It is particularly galling when we look at the scale of the tax breaks that property developers, investors and land got, yet these people have been destroyed.

I thank the Chairman for allowing me to raise it. My hope is that between the Minister of State and the Minister, a Government amendment will be tabled on Report Stage so that finally this cohort of people can get some relief ten years on from the trap that they are in.