Budget 2019: Tax cut on the way for landlords

Landlords will give up less of their rental income in tax next year, following a decision in Tuesday’s budget to ramp up the amount of mortgage interest they can offset against their tax bill. However savings will be muted for those landlords on tracker mortgages, as their interest bills are likely to be moderate.

The measure is seen as a step by the Government to encourage landlords to stay in the market, amid claims that high tax burdens were forcing them to sell up to owner-occupiers. It is also probably hoped that a more favourable tax bill will mean that landlords may hold back on rent increases, given the sharp upward momentum in the rental market.

Offset mortgages

The move means that landlords will be able to offset 100 per cent of the interest they incur on mortgages or loans linked to rental properties, a significant increase on the current rate of 80 per cent. The increase applies to interest paid from January 1st, 2019, but landlords won’t actually benefit until they go to pay taxes for 2019 in October/November 2020. Sherry Fitzgerald estimate that the move will only increase the net yield of a private investor by less than 50 basis points.

The increase to 100 per cent, which hadn’t been expected to happen until 2021, will cost the Exchequer €18 million a year.

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John McCartney, Savills Ireland director of research, said that the move will increase investor demand for apartments.

“In turn this should underpin developer confidence and encourage further apartment building,” he said, but he warned that a potential negative impact of this could be increased competition from investors on bidding for properties. This could crowd-out owner-occupiers and contribute to higher house price inflation.

Reducing the tax burden on residential landlords is also likely part of an effort to level the playing field between commercial operators, such as investment funds and reits, and traditional landlords, with the former enjoying lighter tax burdens.

Rent relief

There was no relief for cash-strapped renters in Tuesday’s budget however, despite the possibility for re-introducing an old tax credit that used to exist. As rents continue to reach new highs, there had been hopes that rent relief could ease the burden of tenants. At its peak in 2010, rent relief was worth € 400 a year to a single person under 55, or double that to a married couple. Someone over the age of 55 could claim € 800, while widows, widowers and married couples in this age bracket were entitled to € 1,600 a year.

Minister for Finance Paschal Donohoe also signalled no change to the rent-a-room scheme, which allows homeowners earn €14,000 tax free from renting out a room in their home.