Written answers
Wednesday, 9 February 2022
Department of Finance
Tax Code
Cathal Crowe (Clare, Fianna Fail)
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57. To ask the Minister for Finance his views on whether the taxation treatment of second homes leased to renters is fair to middle income earners and a possible factor in the recent rent hikes. [6942/22]
Paschal Donohoe (Dublin Central, Fine Gael)
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It is assumed that the Deputy's question relates to the tax treatment of the lessor in a rental transaction involving a second home.
It is a general principle of taxation that, as far as possible, income from all sources should be subject to taxation. Ireland has a progressive income tax system which is structured such that the more income you have, the more tax you pay. As a person’s income increases, they move up through the various rates and bands and, as a result, while the levels of take home pay increase overall, the amount of tax they pay also increases.
However, if the issue behind the Deputy's question is whether the current tax treatment of private landlords is a factor that is driving rent price increases, I would note that tax changes in this space in recent years have been aimed at encouraging supply through a relatively modest reduction in the burden of taxation on such persons. Essentially, they involved the implementation of two of the short-term options presented in the Report of the Working Group on the Tax and Fiscal Treatment of Rental Accommodation Providers(2017). The first related to allowing deductibility for pre-letting expenditure for previously vacant properties (extended recently in Finance Act 2021). The second restored to 100% from January 2019 the amount of interest that can be deducted on mortgages for residential rental properties.
Owners of rental properties are entitled to claim deductions and reliefs from gross rents for various expenses relating to their rental property. These expenses include any rent payable in respect of the premises, general repairs & maintenance (capital expenditure excluded), insurance and management fees, rates, service charges, accountancy fees and certain mortgage protection policy premiums.
For the Deputy's information, the following table summarises the ten options set out in the report that I mention above:
| Short-term options |
|---|
| Accelerated restoration of full mortgage interest deductibility for landlords of residential property |
| Introducing Local Property Tax deductibility for landlords |
| Enhancing loss relief for landlords (or a sub-set of landlords), to allow relief for rental losses against other income sources in the same year |
| Introducing deductibility for pre-letting expenditure for previously vacant properties |
| Improvements in the collection and sharing of data on the rental accommodation sector |
| Medium-term options |
|---|
| Allowing a deduction against rental income for an element of the capital cost of the rental property in the initial years of ownership, with a corresponding reduction in the base cost of the property for Capital Gains Tax purposes on a future disposal |
| Capital Gains Tax relief for properties acquired and retained as rental accommodation |
| Incentive to attract investment capital into the construction of property, in areas of need, to be let at social / affordable rents. |
| Long-term options |
|---|
| Review of provisions for the holding of rental property via pension vehicles |
| Consideration of developing a separate method of taxing rental income, for example, a flat tax or a separate rate of tax, as a policy lever to support the sector as a whole or specific sub-sectors (for example, affordable housing/urban housing) |
A copy of the full report is available at: www.gov.ie/en/collection/51d1c-budget-2018/.
Under the Housing for All strategy, my Department is committed to review the recommendations of the Working Group by Q3 2022. This work will be undertaken in the coming months.
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