Tax rate cut to ease pressure on ‘crippled’ accidental landlords
THE GOVERNMENT is considering a range of tax breaks to ease the pressure on small and ‘accidental’ landlords.
Under the plan, landlords could write off property tax against rent and avail of a reduced tax rate on rental income.
The proposals are being considered by the Department of Finance’s Tax Strategy Group to alleviate the rent crisis and rebalance the ratio between small and large investors. It is hoped the breaks will encourage small investors to return to the fragile rental market.
Sources told the Irish Mail on Sunday that the proposals aim to ‘return us to the tradition where individuals such as the
‘Avail of reduced tax rate on rental income’
guard and the civil servant purchased and let property as a retirement nest egg’.
The plan comes amid growing concerns about property conglomerates becoming too dominant in the Irish market.
The private residential property market has traditionally been dominated by small landlords owning one or two rental properties. However, in recent years investment funds and real estate investment trust have entered the market, sparking fears of a ‘monopoly scenario’, said one source.
The strategy group’s report said rebalancing the ratio between small and large investors is key to stabilising the rental market and ‘incentivising increased investment’.
Possible short-term options include the accelerated restoration of ‘full mortgage interest deductibility’ for landlords of residential property and also property tax deductibility when calculating rental profits.
The group is considering tax measures to dissuade financially crippled accidental landlords from exiting the rental market as property prices rise. These include relief for rental losses against other income sources and ‘against other taxable income for a capital loss on the sale of a property’.
A further suggestion includes ‘relief from Capital Gains Tax if a property is sold with tenants in situ on condition that they remain in the property’. This would compensate the vendor for the lower sales price expected when a protected tenancy is in place.
Other proposals include ‘a new tax incentive for the construction of social and/or affordable housing in certain targeted urban areas – similar to the tradable low-income housing tax credit model used in the US’.
The group said this would involve ‘granting tax credits to developers that can be sold to investors to finance the development of residential property – some or all of which must be let at social and/or affordable rents to qualifying tenants for a specified time’.
The department is also examining proposals for longterm changes. These include allowing people ‘to structure a single-property investment via a pension fund’.
The group is also considering that rental income for smaller landlords get a ‘separate tax treatment’ to other forms of income.
This could include Vat ‘in place of income tax on rental profits’, similar to options available to landlords in France. Such a change would see rent taxed at 23.5%, compared to the current higher tax rate of 40%.
A department spokesman said: ‘The Tax Strategy Group papers are a set of revenue raising options, which are set out in advance of the budget.’ He said the report enhances ‘transparency and discussion’.
‘Granting tax credits to developers’