Emer Currie (Dublin West, Fine Gael)
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376. To ask the Minister for Finance the reason rental income arising from the letting of private residential accommodation is treated as class V income, as opposed to Class I income; and to outline any potential implications for landlords, the Revenue Commissioners, and the exchequer, from reclassifying rental income as Class I income. [17617/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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The charge to tax under what is known as Schedule D is provided for in section 18 Taxes Consolidation Act 1997 (TCA), which classifies certain income sources into five separate Cases. Rental income is taxable under what is known as Schedule D Case V (or simply Case V), while income from trades is taxed under Schedule D Case I (Case I).

Investment income, including rental income, is usually treated differently in the tax code to earned income, including trading income. In general, investment income has fewer deductions than earned income; losses are treated differently; and the tax paid on investment income is usually higher than on earned income, either because (for individual taxpayers) the tax credits are lower or (for corporate taxpayers) the tax rate is higher.

Section 81(2)(a) TCA provides that taxpayers who have trading income taxable under Case I can take a deduction for expenses which are incurred wholly and exclusively for the purposes of the trade. The section also outlines certain expenses which are not deductible for tax purposes. Taxpayers with rental income taxable under Case V can claim the deductions specifically provided for in section 97(2) TCA, which are rent (if any) payable by the landlord, local authority rates, the cost of maintenance, repairs, insurance and management of the rental premises and interest on loans used to purchase, improve or repair the rental premises. In recent years, deductions are also allowed for pre-letting expenses under section 97A TCA and for retrofitting expenses under section 97B TCA.

Case V losses can only be offset against rental income whereas, in certain circumstances, for both individuals and companies, Case I losses may be offset against other sources of income, as well as trading income.

Individual taxpayers with trading income can claim the earned income tax credit under section 472AB TCA, which is currently the lower of €2,000 or 20% of the taxpayers qualifying earned income. “Earned income” for the purposes of section 472AB TCA includes income taxed under Case I but does not include Case V rental income.

There was no specific personal tax credit against rental income until 2024, when the residential property rental income relief (RPRIR) was introduced. The RPRIR is a maximum of €600 in 2024, €800 in 2025 and €1,000 in 2026 and 2027. Individual taxpayers with qualifying rental income can claim the lowest of the RPRIR for the relevant year, 20% of the profit from qualifying residential properties, or 20% of their overall case V profit.

Companies are generally taxed at 12.5% on trading income (however, a higher rate of 25% can apply in respect of certain trading activities, referred to as ‘excepted trades’). Rental income is taxed at the higher rate of 25%.

Revenue has advised that it would be difficult to estimate the impact on the Exchequer of treating income from letting private residential accommodation in the same way as trading income, in particular because taxpayers are not currently required to indicate how much of their rental income is from residential lettings as opposed to commercial lettings. However, there would be a cost to the Exchequer from applying higher deductions, wider loss relief, larger tax credits and lower tax rates to residential rental income.

The current tax arrangements for Case V rental income are long-standing and well-established, and I have no plans to change these arrangements in the manner suggested by the Deputy.