Matt Shanahan (Waterford, Independent)
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59. To ask the Minister for Finance the plans of his Department with regard to new taxation policies to stem the exodus of private landlords from the private rental sector; and if he will make a statement on the matter. [11590/23]

Matt Shanahan (Waterford, Independent)
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My question asks the Minister if his Department is considering any new taxation policies to stem the exodus of private landlords from the private rental sector.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Deputy. The Government is acutely aware of the difficulties in the housing market. As I have said on many occasions, the key problem is a lack of supply. This is why the Government is committed to increasing the supply of all types of homes, including social, affordable, rental and owner-occupier.

The Minister for Housing, Local Government and Heritage has primary responsibility for housing policy. As part of the Housing for All action plan update published last November, I understand that his Department will undertake a review of the private rental sector. I expect the review will take into account the significant regulatory changes over recent years and will ensure that our housing system provides an efficient, affordable, safe and secure framework for both landlords and tenants.

The exiting of small landlords from the private rental sector is a consequence of multiple factors. A changing regulatory environment which has been necessary to ensure a fair and effective residential rental sector that balances tenants' rights and landlords' responsibilities has resulted in a challenging compliance framework for some. The recent rise in house prices has also prompted some landlords to sell their rental properties. Fears of legitimate access to their properties without encumbrance arising from future policy decisions have been cited by others.

The changing interest rate environment also has a direct impact on many landlords and the decisions they are making. In the cases of landlords subject to income tax, rental income is part of the total taxable income of the landlord. Individual landlords may be subject to income tax at their marginal rate of tax, in addition to which USC and PRSI will also apply.

A range of tax-based measures is already in place to support private landlords. These measures include 100% mortgage interest relief, the new retrofitting allowance introduced in Finance Act 2022 and a number of other deductible expenses. For example, owners of rental properties are entitled to claim deductions of up to €10,000 against rental income from that premises for various expenses incurred prior to it being first let after a six-month period of non-occupancy.

Matt Shanahan (Waterford, Independent)
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I want to declare an interest in this issue, which is that I own a very modest rental property in Waterford. As the Minister knows, the private rental sector is in a state of chassis. Small private landlords are leaving the sector in droves. The fact is that every investment decision that is made is based on a range of push and pull factors. In the private rental market at present, there are many push factors to encourage people to get out and none to pull people back into the sector.

We must compare the treatment of private landlords with that of institutional investors. Closed companies, for instance, pay almost 70% taxation on their rental income whereas, as the Minister knows well, foreign parent companies with subsidiaries here can reduce their tax liability to almost zero. That is a major problem. It means we are only getting institutional investment partners in when most tenants would be better off with private landlords, who are far easier to deal with than any institutional investors. One of the reasons there are still properties in Dublin that have not been let by institutional investors is the benign taxation policy they enjoy. They can afford to keep apartments unrented to keep a floor under their value.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Deputy. The truth is there are many reasons individual landlords decide to leave the market. The numbers are clear and the trend and pattern is unequivocal. Many are making the choice to get out of the market at this time. The Deputy raised the question of tax, which is one element of the issue but there are also other elements. Property values have increased significantly so many landlords who were in negative equity are now out of it and are taking the opportunity to exit. The buy-to-let interest rates have also increased. For many, that makes it more difficult for becoming a landlord to be a viable proposition.

The issues around taxation in the rental sector, as has always been the case, will be examined in the context of the budget. That work is getting under way and will conclude in the autumn, when the budget is presented.

Matt Shanahan (Waterford, Independent)
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I thank the Minister. He has signalled the matter will be considered in the budget but he needs to do some kind of novel review of taxation strategies. This is a significant problem. The people getting out of the sector are older and younger people do not have the ability to replace them. They certainly do not have the ability to come in with 30% or 40% of equity to buy a buy-to-let property. Young people do not have the ability to save that type of money. The market is now favouring institutional investors. As I said, closed companies in this country can end up paying up to 70% in taxation on their rental income. That is not sustainable. Those companies have money and could be invited into the sector. Perhaps personal retirement savings accounts, PRSAs, need to have an ability to bring capital assets into the pension funds. They are not allowed to do that at the moment. They are precluded from doing so and are only able to buy investment properties and equities. Perhaps it is time to look again at some of the sectional reliefs that were in place many years ago to try to give a substantial tax write-off for investment in rental properties.

Michael McGrath (Cork South Central, Fianna Fail)
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I have previously made the point in the House that we need to be careful in using taxation policy in the context of the property market. There is a time and place for such interventions and there are measures that are appropriate if they are designed properly. However, it is worth making the point that taxation is paid on the profit. A significant number of reliefs are already available. I have mentioned the 100% mortgage interest relief. A range of deductible expenses are allowed for landlords, including the cost of maintenance; repairs; insurance; management of the property; property management fees; the cost of registering a tenancy with the Residential Tenancies Board, RTB; the cost of letting, such as letting agency fees; and the cost to the landlord of any goods provided or services rendered to a tenant. In addition, there are a range of wear-and-tear allowances in respect of furniture, fixtures, fittings and so on at a rate of 12.5% per annum over a period of eight years. I am committing to a review of all of this in the context of the budget with a view to bringing forward some measures for the rental sector.