Politically sensitive tax relief for landlords not ruled out

Two weeks ago, late in the evening, during the Dáil’s questions on housing, a potentially important moment surfaced.

In the midst of a sparring match between Housing Minister Darragh O’Brien and ever-hardworking Sinn Féin spokesman Eoin Ó Broin, an unlikely subject has come up.

The possibility of accidental owners paying less tax in the future has been politically mooted.

“We have repeatedly called for landlord tax reform. It is not acceptable that real estate investment trusts (REITs) and large institutional landlords pay no tax, while many accidental and semi-permanent landlords pay very high rates,” Eoin Ó Broin told Loger.

The Housing Minister accused Sinn Féin, through its pre-budget submission, of wanting to “impose a tax of €400 on family landlords” while lamenting their loss to the rental sector.

Away from the agitated tone of this exchange, there is surprisingly more consensus on the issue than meets the eye.

Sinn Féin wants the Residential Tenancies Board (RTB) and the Housing Agency to come up with a strategy that would have the backing of ‘government and opposition’ to stop the disorderly exit of landlords from the area.

The party believes that any plan on this front should radically review and limit the grounds for expulsion.

This would be a central part of efforts to allow leases to span decades.

The average lease term is currently three and a half years.

Significantly, the government’s Housing for All plan pledges to review the tax treatment of landlords this year to ensure continued investment in the rental sector.

This is expected to take place in the third quarter of the year and any agreed changes would be included in the budget in October.

Between 2016 and 2020, an estimated 20,000 accidental homeowners sold their properties once they got rid of the lingering negative capital triggered by the economic crash over a decade ago.

A closer analysis of last year’s figures is expected to show that between 5,000 and 7,000 additional properties have been taken off the rental market in 2021.

Interestingly, an RTB survey found that while 88% of small landlords have a positive experience with tenants, 26% still intend to sell a rental property within the next five years.

The question for politicians then is whether there is a way to convince this group to continue providing much needed rental accommodation.

Tax relief is seen as the most obvious way to stem the exodus as some pay taxes at the marginal rate.

That said, they can deduct certain expenses from their rental income, including: mortgage interest, insurance, maintenance, repairs as well as management and accounting fees.

Indeed, the total amount of deductible expenses claimed by residential property owners in 2018 was €1.140 billion.

A total of €3.043 billion was declared as residential rental income that year.

These numbers, coupled with rising rents, have led one political party to form a very clear view.

People Before Profit sees no circumstances in which there might be other tax advantages for owners.

However, other parties take a more nuanced approach.

Social Democrats housing spokesman Cian O’Callaghan wants a few things to happen and chief among them is an end to the favorable tax treatment of large investment funds.

The Dublin Bay North TD also believes it is unfair that large institutional owners pay very little tax while owners of one or two properties pay very high rates.

“Any landlord tax reform must be linked to improvements in tenant security of tenure and measures to make rents more affordable,” he said.

Labour’s Finance spokesman Ged Nash takes a tougher line on the issue of taxation for accidental homeowners.

“There is no clear and strong evidence to support claims that taxation is a problem for homeowners leaving the market. Labor focuses on unfair eviction rules rather than tax relief for homeowners. owners,” he said.

While Aontú’s main focus in this area is contained in a bill the party has tabled in the Dáil titled Finance Real Estate Investment Trust Bill.

It seeks to remove the tax “privileges” of REITs and end the competitive advantage this gives these investors over first-time buyers and local landlords.

But there is another view at Leinster House that seeks to unite the many opposition strands of thought on this issue.

Independent TD and former environment minister Denis Naughten believe there is precedent that would offer tenants greater security and a lower tax bill for small landlords.

He evokes the situation of agriculture in the 1990s when the vast majority of farm leases were for 11 months.

Today, half of all farmland leases are for five years or more and some are for up to 15 years after “the tax system was reformed to encourage long-term leasing of land for the common good” .

Denis Naughten is convinced that the same approach to residential properties would transform the rental sector.

“I’m talking about landlords with one or maybe two houses. There could be an incentive put in place for them where they would rent a house to a family for five, ten or 15 years,” he said.

But despite detailed submissions on this policy proposal both at the Dáil and at the Committee level, it has not progressed so far.

Finance Minister Paschal Donohoe has previously said the challenge with such a proposal is that “tax support” for new rentals should be matched with support for existing rentals.

He warned that the “financial consequences” of such action would be significant.

It will become clear later in the fall whether the rent crisis, and the subtle but significant policy thinking on this tense issue, will change this year.