Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

Section 48 relates to CGT relief on properties. Yesterday, we spoke about landlords leaving the market and the CSO suggesting there has been an increase in tenancies. As policy makers, we face a challenge in figuring out the accurate data. I know another committee is looking at this and the CSO is trying to do a matching purpose with the RTB. That will be helpful for all of us because we need to set policy on the basis of accurate facts. We know there is probably an under-registration with the RTB and probably an overestimation on the part of the CSO. The truth will lie somewhere in the middle.

I also mentioned that there is a tax incentive for landlords to exit the market and this is it. Under a measure introduced by the Fine Gael Government at the time, properties acquired between 7 December 2011 and 2014 would be exempt from CGT if buyers held onto the properties for between four and seven years. This means that if a buyer holds the property for more than seven years, the outer limit of which would be 2021, the CGT they would pay on the disposal of the property increases every single year. This is a real incentive to sell. It is absolutely crazy that nobody is talking about it. Let me correct myself - loads of people are talking about it. The industry is talking about it. All tax advisers are telling landlords that now is the time to sell up because of the CGT exemption. I have a list of them taken from the Internet. A "Capital Gains Tax Relief Update" from OFX says:

... with the present increase in property prices it may be no harm to check if the Capital Gains Tax relief may be available to you now to avoid any unnecessary tax.

Hughes Tax and Advisory has a headline: "Capital gains tax: The perfect time to sell property?". According to Mullins and Treacy solicitors from December 2021:

We acted for a lot of investors who brought property under the scheme. If this is you, you need to sell by the end of this year. Otherwise you will face capital gains tax liability. This could impact your bottom line, diminishing your returns. At Mullins and Treacy LLP Solicitors we can help you dispose of your property by the required deadline.

CooneyCarey Chartered Accountants has the following:

A reminder of the seven year capital gains tax exemption. Did you purchase a property at any time between 7 December 2011 and 2014? If so, now may be a tax efficient time to consider selling.

According to McMahon & Co., "Capital gains tax relief introduced post 2008 downfall could benefit property owners". It goes on and on. All of these advisers are telling landlords who bought property within that window that now is the time to sell up because of this relief. I know that there are changes to this relief and I will deal with those in a moment. It is a serious problem that an incentive for landlords to sell up is hardwired into our tax code. It does not make any sense. For those landlords who bought during that period, when property prices were actually low, the gains that would apply are quite significant.

To give an example, if somebody bought a property in 2014 and sold it in 2021, with a gain of €200,000, they would have paid no CGT at all. If they held it until last year and sold it, their gain would have increased by about €6,000, on average, so the gain was now €206,000, they would have a chargeable gain of €25,750 and would pay CGT of €8,498. If they did not sell last year and instead decided to sell this year, their CGT would have gone from €8,500 up to €15,500. It goes on and on. Every single year that these landlords hold properties purchased between 2011 and 2014 means they will pay more CGT. That is an increase in tax for them of €7,000 from selling last year to this year. It will go up again next year because of the formula being used. Given that €600 means nothing to them in comparison to this, it is a tax incentive for landlords to sell. It is a serious problem because we know there are hundreds of landlords selling because of this. In 2021 for domestic residential premises, there were 568 sales that availed of this tax exemption.

The amendment the Minister is proposing is retrospective taxation. It changes the definition of "acquiring" to "purchasing". I will talk about this in a moment. The amendment is going back in time, which is something unique that does not happen. It is almost frowned upon in tax law to go back to legislation and change the definition. There is an argument that people have an expectation that they acquired a property and would be able to avail of the CGT. If we are doing that in relation to acquiring and purchasing, which is really only targeted at people who bought properties under market value or bought from parents, etc., at a very reduced cost - this is a small element in relation to the overall issue - is there not an argument that we need to deal with this tax exemption in the middle of a housing crisis? Everybody will talk about why landlords are leaving, but nobody will talk about the incentive in our tax code for them to sell up if they bought during that period. That has to be acknowledged. Collectively, we need to figure out how we can take away the incentive at this point in time. As I said, the incentive increases every single year. The CGT will increase every single year because of the formula being used. It is a major issue. It was a ridiculous idea that was brought in at the time. I know the motivation was to reach a floor in property prices and get people to buy property, but it was always going to trigger a reaction when the seven-year period ran out, given that it provided for a tax penalty if the person who bought the property held onto it beyond the seven-year period. This period ended in 2021 for some of the properties and for others it ended in 2018. If we look at the RTB data, we can see that a lot of the sales are happening during those periods. This is in our tax code now and is causing a problem. I do not want to score political points in this regard, but there is the issue of the incentive for people to sell. All the tax advisers are telling their landlords that if they are in this boat, now is the time to sell. The longer people hold onto these properties, the more tax they will end up paying. It is not a matter of a couple of hundred euros, but of thousands more.