Landlords in line for extra tax relief in budget

Cap on tax-deductible mortgage interest expected to be abolished over five years

Property tax is not allowed as a tax-deductible expense for landlords. Photograph: Bryan O’Brien

Property tax is not allowed as a tax-deductible expense for landlords. Photograph: Bryan O’Brien


Landlords across the country could be in line for some tax relief in this year’s budget, amid expectations that the controversial cap on tax-deductible mortgage interest may be reversed.

It’s understood that the Government may be planning to increase the amount of mortgage interest eligible for a tax deduction from 75 per cent to 80 per cent next year, and back to 100 per cent over the coming five years.

The cap, which was introduced in 2009, restricted the amount of interest paid on a mortgage on a rental property that could be offset against a landlord’s tax bill from 100 per cent to 75 per cent. Given that mortgage interest is typically the largest expense item when it comes to filing a tax return, the measure hit landlords hard at the time, particularly newer landlords, who pay a greater interest burden early on in a mortgage.

For example, prior to the cut in the cap, a landlord with mortgage interest paid of €7,000 in one year could offset the full €7,000 against their tax bill. Since then however, the amount that can be offset has fallen to €5,250 (75 per cent). It’s estimated that about 50 per cent of rental properties do not have mortgages on them, which means the mooted measure will not be of benefit to them, while given the fall in interest rates since, increasing the cap may not have a significant monetary impact on landlords.

“Five per cent is very little but anything is helpful,” said Pat Davitt, chief executive of the Institute of Professional Auctioneers and Valuers of the proposed measure, noting that the sentiment of such a move might be more meaningful.

“It’s the recognition that they [the Government] are prepared to do something for landlords ,” he says.

If the cap is increased, landlords should remember that to benefit from the reduction in mortgage interest relief, they need to be registered with the Private Residential Tenancies Board (PRTB)

Property tax

The tax burden for landlords has increased in recent years, thanks in part to the cut in eligible mortgage interest. Other measures, such as the imposition of PRSI at a rate of 4 per cent on all rental income, plus the universal social charge, and the introduction of property tax, which is not allowed as a deductible expense, have all conspired to hike up tax liabilities for landlords.

Some landlords have argued that the tax situation means that many landlords are leaving the business, thus exacerbating the rental crisis as previously rented properties return to private ownership. Research from the PRTB last year found that as many as 30 per cent of landlords are considering exiting from the business.

The Government has already taken some steps already to row back on the controversial cut of late. In 2015 for example, a new relief was introduced, allowing landlords to claim the full mortgage interest deductibility at a rate of 100 per cent if they provided accommodation to tenants in receipt of social housing supports for at least three years.