Seven years after having been abolished in 2017, last month’s budget brought back the rent credit in a €1,000 boost to tenants across the State.
But the rent credit was not the only tax relief to go the way of the dodo in recent years; here we take a look at the many other measures that came to an end, and consider the likelihood that they too may be reintroduced.
Mortgage interest relief
With renters getting a boost in the latest budget, some argue that homeowners should also have got a little fillip, particularly in the context of rising interest rates.
Joey Sheehan, head of credit with MyMortgages.ie, would have liked to see mortgage interest relief brought back. “At a time of rising interest rates, there would have been huge merit in reintroducing mortgage interest relief in Budget 2023,” he says.
The relief, which was abolished at the end of 2020, reduced the burden of mortgage interest on homeowners by allowing them to offset a percentage of interest costs against their tax bill.
Ostensibly introduced to help drive home ownership, the relief was criticised as offering a perk to the middle classes, as you had to own a home in the first place to benefit, and, clearly, the larger your mortgage, the more you potentially benefited.
Consider a homeowner with a €300,000 mortgage at an annual interest rate of 3 per cent. Their annual interest bill is of the order of about €8,000; but if interest relief at a rate of 25 per cent applies, their bill would fall to €6,000, saving them a significant €167 a month.
In the past, the amount of interest eligible for relief was capped, although these caps tended to be generous, for example, in 2018 married first-time buyers had a threshold of €15,000.
It wasn’t just interest on the mortgage that was covered; top-ups drawn down explicitly to improve, extend or repair your home were also subject to relief. It was paid at source, which meant that lenders applied the deduction to homeowners’ monthly mortgage payments.
Unsurprisingly then, it was a popular scheme; back in 2005, some 587,800 homeowners benefited from it at a cost to the exchequer of €279 million. By 2020, the last year of the scheme, it had shrunk to 359,900 taxpayers at a cost of €27.4 million.
However, the scheme had been in decline for some time before that. In 2009 for example, then minister for finance Brian Lenihan had limited it to the first seven years of a mortgage as he started to wrestle with the fallout from the financial crisis.
It was then due to expire in 2017, but Minister for Finance Paschal Donohoe extended it on a sliding scale until the end of 2020, which meant that people who bought a home between 2004 and 2012 were offered some relief on their mortgage repayments.
Given the recent move to reinstate the rent credit as well as the expected jump in mortgage interest rates ahead, it is a possibility, but will likely depend on the trajectory of interest rates over the coming years. Of note, perhaps, is that in 2015, then Fianna Fáil finance spokesman Michael McGrath expressed a preference for the relief, remarking: “This payment is a very important support for families, particularly those struggling with sky high variable mortgage rates.” Mr McGrath is considered likely to take over the finance ministry in a Cabinet reshuffle in December.
Yes, medical expense tax relief still exists. You can claim tax relief on a wide range of medical and dental expenses, ranging from GP visits to specialist food and from dental crowns to root canals. However, the relief is available only at the standard rate of tax – 20 per cent – though nursing home expenses may be eligible for the higher rate of 40 per cent.
It wasn’t always like this. Until 2009, the relief was far more generous with those paying tax at the higher rate, which at the time was 41 per cent, entitled to relief at this level. Someone with eligible medical expenses of €1,000 can now claim only €200 back against the tax they have paid, compared with €410 previously.
“Reinstating the tax break to 41 per cent would make a huge difference to those facing prohibitively high medical and dental bills,” says Marian Ryan, consumer tax manager at Taxback.com.
While it would be a popular move, it is unlikely that relief will be increased again with Government pushing other health incentives, such as the abolition of public hospital inpatient charges.
Until January 2011, residents could claim tax relief on the cost of refuse collection. The relief was offered at the standard rate of tax, 20 per cent, and a ceiling applied of €400. This meant that those paying such charges were entitled to a tax credit worth as much as €80 a year.
Unlikely, but if the cost-of-living crisis continues, it may be considered.
Trade union subscriptions
Between 2001 and 2010, Ireland’s 500,000 or so trade union members were entitled to tax relief on their membership subscriptions. The relief was worth about €70 a year to members and, in 2010, Revenue figures show that 337,500 people benefited from it at a cost that year of €26 million.
However, a 2009 recommendation from the Commission on Taxation was implemented in 2011, which abolished the relief. The commission argued that the relief should come to an end as part of efforts to widen the tax base. Since then, there have been calls from unions such as Fórsa to bring back the relief.
Unlikely. A review carried out by the Tax Strategy Group back in 2020 concluded that it should not be brought back, due in part to the cost (an estimated €39.5 million a year) as well as the “unintended consequences” it could lead to, such as an increase in trade union fees. Again, the importance of maintaining a broad tax base was cited.
Going, going... but not gone yet
One relief which is due to expire shortly – at least for some people – is the flat rate expense regime. But will it really go?
The scheme was introduced to cover the cost of certain expenses employees incur in the course of their profession or trade for uniforms or specialist equipment. So, for example, teachers can claim €518, pilots €275, bar workers €93, members of the National Symphony Orchestra €2,476 and nurses €733, where they’re required to supply and launder their own uniforms. Typically, about half a million claim the reliefs each year.
In 2019, it was decided that the reliefs should be reviewed with some withdrawn, due to changes in “employment circumstances, regulations and work practices across employments”. It was also argued that those on higher incomes benefited more from the reliefs than those on lower incomes, as reliefs work by reducing the amount of tax someone pays based as a percentage of the relief.
So, for example, a bar worker paying tax at the standard rate will benefit from just €18.60 a year; if they paid tax at 40 per cent, they would benefit by double that amount. Moreover, if you fall outside the income tax net, you don’t benefit from the reliefs at all.
Revenue then embarked upon a review, which resulted in a decision to increase, decrease or even withdraw the reliefs “where the continuation is no longer justified”. Jobs affected included professional valuers in the valuation office, agricultural advisers and journalists. But then Covid-19 happened, and implementation of the review was put on the back-burner, with a date of January 1st, 2023 now suggested for introduction of the new regime.
Last year, however, the Tax Strategy Group noted that “any policy changes to the flat rate expenses regime may result in a reduction of income for a significant number of employees”, concluding that timing of the changes “remains a valid consideration at this time”. Twelve months on, with the cost-of-living crisis replacing Covid-19 as the issue of the day (at least for now), any moves to cut people’s incomes is unlikely to be popular, and would suggest that any changes may once more be put on the long finger.
Indeed, citing the pandemic as well as other considerations, a spokeswoman for Revenue says it may now be necessary “to further review a small number of the FREs [flat rate expenses]”. Once this work is complete, she says a further update on the implementation of changes to the regime will be made available and published on Revenue’s website.