Stephen Donnelly (Wicklow, Fianna Fail) | Oireachtas source

I move amendment No. 22:

In page 19, between lines 21 and 22, to insert the following:

"Amendment of section 97 of Principal Act

12. The Principal Act is amended by inserting the following section after section 97:"Accidental landlords

97A. (1) In this section—

'qualifying let property' means a residential property which was acquired, between 1 January 2002 and 1 December 2008 the floor area of which is less than 113 square meters;

'qualifying rented property’ means a residential property, which has more bedrooms than a qualifying let property, where the rent paid is no more than the market rate;

'qualifying landlord' means an individual who—

(a) owns only one premises and—

(i) that premises is a qualifying let property,

(ii) that premises was acquired by that individual as a principal private residence, within the meaning of section 604, and was occupied as such for a period of at least 2 years prior to its first letting, and

(iii) at the time that premises was acquired, the individual was a first time buyer,

and

(b) resides, on a full time basis, in the qualifying rented property.

(2) Notwithstanding section 97(2), in calculating the surplus or deficiency in respect of the qualifying let property, a qualifying landlord shall be entitled to take a deduction for the amount of any rent payable in respect of a qualifying rented property.".".

The purpose of the amendment is to end double taxation of accidental landlords. Families all over Ireland who bought small properties during the boom are in negative equity to this day. Their families are growing and the properties they bought between 2002 and 2008 are not suitable to raise growing families. As a result, they are left with an unenviable set of choices. They can stay in the apartment or small house in which they are living and raise their children in unsuitable accommodation, try to sell their property which is impossible in most cases because they are in negative equity or rent out the apartment in which they are living and try to find a suitable, slightly larger home in which to raise their children. The problem is that if they choose to rent out their apartment and rent an apartment in which to raise their children, they are hit with a substantial tax bill at the end of the year.

Let us say that a couple decides to rent out their apartment for which they take in €1,000 a month in rent and they go and rent a two or three-bedroom semi-detached house to raise the children in on which they also pay €1,000. Obviously, in Dublin they would pay a lot more. Let us assume they take in €1,000 in a month and they pay out €1,000 a month, and their household finances are exactly the same. They have no additional income. They are taking rent in and they themselves are paying rent out, and they are no better off financially. The tax code taxes the rental income they take in. There are some amounts one can write off for interest payments but, in most cases, most of the rent they take in is taxed at the marginal rate of approximately 50%. If a couple is taking in rent of €1,000 a month, they will take in €12,000 by the end of the year. Let us say approximately €10,000 of that is taxable, after deductions, at the marginal rate. Therefore, a couple in a modest situation, taking in €1,000 and paying out €1,000, gets hit with a €5,000 tax bill. What is happening is some such couples are moving and hoping to God the taxman never finds them because they cannot pay it - they do not have €5,000 at the end of the year. Others are moving for the sake of their children but they are caught in a trap because now they cannot save any money because they are getting hit with this extra €5,000 a year in tax. I know people in this situation. No doubt the Minister, Deputy Donohoe, knows people in this situation. We are of a similar age and it is mainly a particular age group who got caught in this who have been trapped.

This is my fourth year trying to get some relief for those who are stuck in this situation. Last year, on Committee Stage, I raised it with the then Minister, Deputy Noonan, who essentially said that he was not willing to accept it on Committee Stage because he believed it could be gamed. He stated there are too many ways around this and it is not restrictive enough and he gave specific instances where he felt it could be gamed. I went and took solid legal advice and I drafted an amendment that was very restrictive and on Committee Stage I went through the various restrictions. I tabled it on Report Stage and the Minister never engaged in the detail. He merely dismissed it using the same logic he had used on Committee Stage, stating this could be gamed.

On Committee Stage this year, I tabled it again, but the Minister of State, Deputy D'Arcy, was substituting for the Minister at the time. I stated that I understood this amendment will be technically flawed. We have just passed an amendment on tax deductibles for gyms and crèches consisting of three pages of technical legal text and I am aware that what I have tabled will contain flaws. That is why I asked that, if the Government agreed that these people have to be taken out of this trap, the Minister would come forward on Report Stage with his own amendment because none of us has access to the civil servants and technical support needed to get the amendment right. I was very disappointed to see the Minister did not submit his own amendment that would free these people from it.

Ultimately, this comes down to political will. It is not a technical issue. I have taken solid legal advice stating there are probably some tweaks and changes that would need to be made to my amendment but the basic idea, what I am trying to achieve here, is well within the wit of legislators to incorporate into the tax code. That is not the issue.

Last year, I engaged at great length with the then Minister, Deputy Noonan, on section 110 entities and closing vulture funds. There was advice to the Minister stating that one could not do this and one could not do that but, ultimately, the then Minister decided it was going to happen. It happened, and an entire section of Ireland's tax code was rewritten. The Government then decided that it was bringing in a new section of tax code, the real estate investment funds, and an entire new chapter of tax law was written for that. I went through that at length with the Minister, Deputy Eoghan Murphy, then Minister of State at the Department of Finance, who went out of his way to explain that businesses could not be double-taxed and there was all sorts being done to ensure that under no circumstances would these be double-taxed. For professional property investors in this country, there are significant tax breaks in place. The vulture funds still use significant tax breaks. Any of the vulture funds that various Members in this House have gone through over the past few years might declare €500 million in assets and €50 million in profit, and will pay €250 in tax. By comparison, one family trying to raise their children, that has rented out their apartment that they wished to God they had never bought and that is sitting in a house, gets hit not with a €250 tax bill like the vulture funds but with a €5,000 tax bill. One family is paying 20 times more tax under the current situation than a vulture fund with €0.5 billion in assets.

I implore the Minister. It is all I can do at this stage because the merits of the argument do not seem to have worked over the past four years. These people are trapped and they need help and we can help them. I ask the Minister to look at the amendment, take it seriously and tell us whether or not he agrees with what it is trying to achieve and then we can work together to see if an amendment from the Minister could be brought forward by the end of the year.

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