Budget 2018: Where’s the tax relief for tenants?

In 2010 a couple could claim relief of €1,600 – today it’s €160. Should the scheme be revamped?

Could the Government look to reinstate the rent relief scheme, which once offered tax credit of as much as €1,600 to tenants?

Could the Government look to reinstate the rent relief scheme, which once offered tax credit of as much as €1,600 to tenants?

 

The housing market is in crisis, with house prices soaring and rents now higher Celtic Tiger highs. But while new Minister for Finance Paschal Donohoe is likely to look to defuse the crisis by offering tax incentives to landlords and builders alike come budget day, there has been scant talk of what he could do to help beleaguered tenants, at least in the short term.

Landlords look set to benefit in some form this October, with the amount of mortgage interest they can offset against their tax bill expected to climb by at least 5 per cent, while there is also an expectation that property tax may also be allowable as an expense.

Builders may also be in line for a dig-out, with Fianna Fáil looking for tax relief for developers, calling for a reduction in the rate of VAT from 13.5 per cent to 9 per cent, as well as a reduction in development levies.

But what about hard-pressed tenants, who are bearing the brunt of both a shortage in supply and a rapid rise in rents? Could the Government look to reinstate the rent-relief scheme, which once offered tax credits to tenants?

Rent relief

Many people who rented in Ireland in years gone by may recall claiming rent relief. This relief allowed tenants to offset a certain amount of their tax bill via a tax credit on the standard rate of tax.

It rose in the years preceding the crash, with then minister for finance Brian Cowen asserting in 2006 that the increase at that time was “more than the rate of inflation to assist those facing increased rental costs”.

And it was worth something. In 2010 the relief was worth €400 a year to a single person under the age of 55, or double that, €800, to someone over the age of 55. Widows, widowers and married couples over the age of 55 were entitled to relief of on up to €8,000 of rent, which came to a tax credit of a significant €1,600 a year.

Since then, however, due to a measure signalled in the 2011 budget by then minister for finance Brian Lenihan, the relief available has been in decline and is due to be phased out altogether at the end of the year. At the time, the phasing-out of rent relief was part of an overall strategy aimed at restricting reliefs, particularly property-based legacy reliefs, with mortgage interest relief also .

It means that a single person can now avail of just €40 off their tax bill for the 2017 tax year, or the couple over 55 just €160. Given the decline in relief available, the cost to the Government of the scheme has also fallen sharply, down 77 per cent, from €96.5 million in 2008 to €21.4 million in 2015.

Eligibility rule

While the relief can still be claimed up until the end of this year (and then on a look-back basis for 2017 up to 2021), the number of people eligible for it has fallen significantly, down almost 40 per cent since 2008. This is because the Government established an eligibility rule in 2011 requiring those to be in rental accommodation on December 7th, 2010, in order to benefit.

In principle this means new entrants to the rental market after this date cannot claim it, and it’s generally understood to mean that you should have been in rental accommodation since 2010 to qualify. However, Barry Flanagan, senior manager with taxback.com, notes that another interpretation could be taken.

“You can make the case that you don’t need to have been in rented accommodation since that date – so you could have moved home for a period – but just in rented accommodation on that date. Not a lot of people know that,” he advises.

But, whichever way you look at it, the relief has dropped significantly, falling almost tenfold since 2010.

As such, Flanagan notes, “It’s difficult to see anyone becoming aware of this now who is both eligible and motivated.”