Budget 2018: will landlords get tax incentives they are looking for?

Landlords are seeking the return of 100 per cent mortgage interest relief and that local property tax be tax deductible as part of a package of measures to support the sector in the upcoming budget.

Earlier this year the Department of Finance ran a public consultation on the tax treatment of landlords. Some 70 submissions were received for the consultation from landlords, representative bodies and individuals, and a summary of the responses was disclosed as part of the publication of pre-budget documents from the Tax Strategy Group.

A departmental working group is currently examining the potential options for change outlined in the responses, and is due to finish its work shortly.

As noted in the majority of responses, there is widespread support for tax incentives to support the sector, with those responding seeing it as appropriate for the State to incentivise concentrated investment risk.

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Level of taxes

This is despite rents continuing to soar to new highs, with figures from Daft.ie showing that the average rent nationwide has risen 52 per cent since bottoming out in late 2011, and is now 9.9 per cent above the previous high, having exceeded its 2008 peak in 2016.

However, landlords argue that despite the high rents, the level of taxes and other charges levied on landlords can make the activity unviable.

One of the potential measures identified in the report aimed at enhancing the sector include the accelerated restoration of full mortgage interest deductibility.

Last year then minister for finance Michael Noonan signalled an increase in the amount of relief landlords can deduct from 75 per cent to 80 per cent, and indicated a full restoration to 100 per cent by 2021. However, accelerating it 100 per cent next year would be welcomed by landlords but would also cost an extra €56 million.

Local property tax

Another bug-bear of landlords is the fact that the local property tax is not deemed to be tax deductible. According to respondents, costs such as these can mean that it is sometimes cheaper to leave properties empty. As outlined in the report, allowing the local property tax to be tax deductible would cost the Exchequer some €28 million a year.

A number of suggestions with regards to capital gains tax (CGT) were also put forward, including a relief from CGT if a property is sold with tenants in situ.

In the longer-term, other options include assessing whether or not a new pension structure could be developed which would allow investment in a single property via a fund.

A new tax regime for landlords, with a flat turnover tax instead of income tax, similar to options which are available to certain categories of landlord in France was also suggested.