Jerry Buttimer (Cork South Central, Fine Gael)
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221. To ask the Minister for Finance if he will redress the imbalance of different tax treatment between commercial and residential property investments; and if he will make a statement on the matter. [25716/15]

Michael Noonan (Limerick City, Fine Gael)
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I assume the Deputy is referring to the different deductions available against rental income for commercial and residential property. In that regard, I am informed by the Revenue Commissioners that rental income for tax purposes is the gross rental income less allowable expenses incurred in earning that rent, as specified in section 97(2) of the Taxes Consolidation Act 1997. The main deductible expenses are:

- any rent payable by the landlord in the case of a sub-lease;

- the cost to the landlord of any goods provided or services rendered to a tenant;

- the cost of maintenance, repairs, insurance and management of the property;

- the interest on borrowed money used to purchase, improve or repair the property (which, in the case of residential property, is restricted to 75% of the interest and is subject to compliance with Private Residential Tenancies Board registration requirements for all tenancies that existed in relation to the property in the relevant year); and

- the payment of local authority rates.

In addition, wear and tear capital allowances are available in respect of the capital expenditure incurred on fixtures and fittings provided by a landlord for the purposes of furnishing rented residential accommodation. These allowances are granted at the rate of 12.5% per annum of the actual cost of the fixtures and fittings over a period of 8 years.

Section 5 of Finance Act 2009 imposed a cap of 75% on the amount of interest on loans used to purchase, improve or repair a rented residential premises that can be deducted in computing the amount of a person's taxable rental income. This restriction was introduced in the April 2009 supplementary budget in respect of all residential lettings as part of an urgent revenue-raising package aimed at stabilising the public finances. The restriction does not apply to loans taken out to finance non-residential property and the full amount of interest can continue to be deducted in such cases.

Local Property Tax

A deduction is not allowed in respect of LPT as it is not one of the specified deductions provided for in section 97(2) of the TCA.

Local Property Tax is an annual self-assessed tax on residential properties in the State and is administered by the Revenue Commissioners in accordance with the Finance (Local Property Tax) Act 2012 (as amended).

Stamp Duty

The rate of stamp duty applicable to Conveyances/Transfers of Non-Residential Property is 2%. The rates of stamp duty applicable to Conveyances/Transfers of Residential Property are: 1% for the first €1,000,000 and 2% on the excess over €1,000,000.

Commercial Rates

I am advised by the Minister for the Environment, Community and Local Government that properties used for commercial purposes are subject to rates levied by local authorities which are based on values entered on the valuation lists by the independent Commissioner of Valuation under the Valuation Acts 2001 (as amended). That Act determines the categories of properties that are liable for rates purposes.

As the Deputy will know, all tax reliefs and incentives are subject to regular review as part of the annual Budget and Finance Bill planning process. Any decisions taken by the Government in this regard are usually announced on Budget Day. If the Deputy would care to specify in more detail where he considers an imbalance exists then I will be pleased to ask my officials to investigate.

Jerry Buttimer (Cork South Central, Fine Gael)
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222. To ask the Minister for Finance if he will consider extending similar tax treatment, as applies to the real estate investment trust scheme, to residential property owners; and if he will make a statement on the matter. [25717/15]

Michael Noonan (Limerick City, Fine Gael)
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A REIT is a collective investment vehicle which provides the same after-tax returns to investors as direct investment in rental property, by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply.

The double layer of taxation applies where an individual invests in property through a company. The company must pay corporation tax on rental profits and gains and when the after-tax profits are paid out to the investors (as dividends), income tax is then payable on the dividends received (i.e. on the profits which have already been subject to corporation tax).

The double layer of taxation does not apply to residential property owners directly holding property.

The purpose of a REIT is to remove this double layer of taxation, which has tended to result in individual investors holding individual, highly-mortgaged properties. This has exposed investors to significant risk in times of falling equity and falling rental returns.

A REIT is exempt from corporation tax on qualifying income and gains from rental property, subject to a high profit distribution requirement to shareholders (the Irish distribution requirement is 85% of property profits). Under Irish REITs legislation, there is no distinction in tax treatment between residential and non-residential property.

Irish investors are subject to tax on receipt of REIT dividends in broadly the same way as if they had invested directly in rental property.

When individuals invest directly in property, they are subject to income tax on their rental profits and capital gains tax on sales proceeds.

Similarly, REIT dividends will be taxable income for individual shareholders, so their rate of tax will depend on what other income they have in the relevant tax year. Marginal rate Irish taxpayers will be liable to income tax at their marginal rate on REIT dividends, and taxpayers under the marginal rate threshold will pay the standard rate of tax on their dividends.

Foreign individual investors will receive REIT dividends net of Dividend Withholding Tax at 20%, which may be mitigated under the terms of a double tax agreement.  Foreign investors may also be subject to further tax in their country of residence.

Jerry Buttimer (Cork South Central, Fine Gael)
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223. To ask the Minister for Finance if he will consider increasing the proportion of mortgage interest on rented residential property that is tax deductible; if he considers that such a measure would help counteract the increase in rents for residential properties; and if he will make a statement on the matter. [25718/15]

Michael Noonan (Limerick City, Fine Gael)
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This question relates to the interest restriction applying to residential lettings, whereby the deductibility of interest in computing taxable rental income from residential property (insofar as it would otherwise be allowable) is limited to 75% of such interest. The restriction was introduced in the April 2009 Supplementary Budget in respect of all residential lettings as part of an urgent revenue-raising package aimed at stabilising the public finances.

I am informed by the Revenue Commissioners that for the year 2013, the latest year for which relevant information is available, and making certain assumptions about the data available to Revenue, it is estimated that the cost from increasing the level at which individuals can claim interest repayments against tax for residential rental properties from 75% to 100% could be in the order of €80 million. This is based on the assumption that tax relief was allowed at the top income tax rate of 41% and the figures provided could be regarded as the maximum Exchequer cost.

Rental income of companies is returned as net of interest on borrowings and the figures for interest are not separately distinguished in Corporation Tax returns. There is, therefore, no basis for an estimate of the cost of changing the tax relief for corporate landlords.

As with all proposals to change reliefs relating to property, there are a number of considerations which must be taken into account to correctly target the measure and ensure this success. As the Deputy will know, all tax reliefs and incentives are subject to regular review as part of the annual Budget and Finance Bill planning process. Any decisions taken by the Government in this regard are usually announced on Budget Day.