Budget 2023: Tax breaks for landlords and tenants under consideration

Ministers are working on a package of supports for tenants and landlords ahead of the budget, which could see a range of tax breaks introduced by next year.

The restoration of a tax credit for renters, which was removed in 2017 after at one stage being worth up to €1,440 annually, has become a “point of discussion, definitely”, according to one source familiar with the talks.

Among the options for landlords being examined by officials are some proposals included in the recent tax strategy group papers. Senior sources said these would form the basis of discussions in the coming weeks about what could be introduced to try to encourage more small landlords to stay in the rental market.

One option would be to allow the local property tax to be deducted from rental income as an expense. A review in 2019 recommended against this on the basis that it would treat landlords and owner-occupiers differently and because the local property tax is a relatively small expense.

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Another proposal would be to allow landlords to offset rental losses against other taxable income in the current year, which would improve the cash position for those whose allowable expenses exceed rental income. There are concerns, however, that such a measure could open the door to tax planning and encourage landlords to exit as soon as their losses had been relieved against other income.

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Another option under consideration would be to allow relief from capital gains tax after a property is bought with a tenant in place and retained as a rental property for five years, at a rate of 4 per cent per year. It could act to preserve tenancies and make purchasing with a tenant in situ more attractive for investors. It would also remove one of the reasons to seek vacant possession when selling a property, which is regarded as a driver of homelessness.

The tax papers also discussed an option of introducing an entirely separate method of taxing rental income — including the option to “mirror” the regime which applies to leasing of land for the farming, “such that taxable rental income is reduced depending on the term of the lease”. Officials are nervous at the idea of creating a separate system for taxing rental income as it would treat such earnings differently to salaries and wages and could cost more than €155 million a year.

Senior sources said more options are expected to be brought forward by the Department of Finance in time for the budget, with these actions mandated under the Housing for All plan before the end of the third quarter of this year.

For renters, the thinking remains focused on providing a tax credit of some description.

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Sources have cautioned against raising expectations for the budget package, which is shaping up to be the largest ever. Minister for Public Expenditure Michael McGrath and Minister for Finance Paschal Donohoe have yet to finalise the exact size of the package, but it is likely to come to at least €8 billion between extra spending of €6.7 billion and once-off cost-of-living measures worth at least €1 billion.

The cost-of-living package looks set to contain another €200 energy credit as well as a series of double welfare payments. This could include a double child benefit payment, which alone would cost about €180 million.

“The core budget is tight,” a source said. “The €6.7 billion figure sounds like a huge whack of money, but on the spending side of €5.7 billion, €3 billion of that is gone already and from the remaining €2.7 billion, a new public-service pay deal must come out. That will be chunky. Every 1 per cent pay increase is a quarter of a billion euro.”

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Coalition sources said they believe there is a good chance that a public-sector pay deal can be achieved in the coming weeks, and possibly before the budget.

Meanwhile, Tánaiste Leo Varadkar said his proposals for a new 30 per cent rate of income tax has only ever been an option to be considered, “nothing more, nothing less”. There has been resistance to the proposal elsewhere in the Coalition with opposition in the Green Party and Fianna Fáil, with Mr McGrath saying it would be “extremely challenging” to have a new tax band in place by the end of September.