"Reluctant landlords" should be facilitated

Moved from this thread: What options are open to the Government and lenders to help struggling homeowners?as it deserves a separate discussion

“Reluctant landlords” should be facilitated by changes to the tax regime for renting a new property
Where someone is in negative equity and needs to move for job reasons or for family reasons, but can’t sell their house, the state should facilitate this. They should be treated differently from professional investor landlords.

If they have a cheap tracker, they should be encouraged to sell their home and a deal should be done on the shortfall. If, however, they can’t sell their home, then they should be allowed to set the rent paid on their new home against the rent received on their old home. In addition, they should be freed from the onerous requirements to register with the PRTB, although the PRTB would still have a role in mediating on disputes between the landlord and the tenant.

Some conditions would have to be put in place to prevent professional landlords taking advantage of this scheme.

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This is a suggestion I put forward to the Dept of Finance and my local politicians recently. I believe the net gain would be beneficial as the loss of TRS to the would save the state the gain of getting revenue. As you say it should have conditions such as it only applies to mortgages taken out from 2004 and should only last for max 10 years. Only PPR's rented out should be allowed so no family with more than one property should get it. The rent received should also be less that the mortgage repayments. To police this would simply be including a copy of your annual statement with the form 12 so no extra work.

Objection, I'm a landlord and I don't see why someone should be helped to acquire an investment property at more favourable tax rates than myself. It would be a new artificial subsidy on house prices and we know where that landed us all.

Also what has the PRTB got to do with anything. This was set up for standards in property and standards to be complied with in how dealings operate between landlords and tenants. That's a good thing. But the PRTB is a nightmare to deal with and no help where you have a non paying tenant. That is the issue with the PRTB and that should be solved. The state itself has an exemption from the PRTB which should also be done away with. This has nothing to do with the 'reluctant landlord' proposal.

But Bronte they would not really be being 'helped to acquire an investment property", they don't want to be investors in the first place, they're being forced into it because they can't sell and they can't stay (due to job/family reasons). I'm sure they'd like to get shot of it if they could. Why is that not fair? It would not be such an issue only for the restriction in interest relief and the possibility that these people could lose their trackers.

Bronte said:

Objection, I'm a landlord and I don't see why someone should be helped to acquire an investment property at more favourable tax rates than myself. It would be a new artificial subsidy on house prices and we know where that landed us all.

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Are they being helped to acquire an investment property? You are talking about a scheme that will be limited to people who own only 1 property. The moment they acquire a new property - whether it be a PPR or an investment, they will drop out of the scheme permanently. In reality, all you are doing is assisting people who are in a temporary 'holding pattern' between selling one PPR and buying another. You could look at it from a different perspective i.e. if you are moving house, and you can't dispose of your previous PPR for a period of time, you can rent it out for a limited time to defray any additional costs. Is it really very different to the circumstances in which removal expenses are allowed under the tax code?

I gave an example on another thread of a family forced to move for employment reasons. The rent their own house out for €1,000 and rent a similar house at the new location for €1,000. They are down €400 per month as there are taxes and other expenses (PRTB etc.) to be paid on the rental income. Someone also mentioned that the State is saving on mortgage interest relief with this situation.

Person could be allowed to claim a tax credit for the additional expenditure incurred.

Some ground rules could be as follows:

1. It can only be done once in a persons lifetime.
2. The rent paid at the new location cannot exceed the gross rent received at old location (with a small % tolerance) - ensures the family is not using the scheme to improve their accommodation - keeps it like for like.
3. It is only for a limited period (2-3 tax years?)
4. Terminated once the person buys a new house (whether PPR or not).
5. Maximum amount claimed can only be difference between net rental income and the amount being paid in rent at new location i.e. the amount of money the person is losing due to the move - the €400 in the example above.
6. Usual PRTB etc. and any other rental standards apply to house.
7. Person loses mortgage interest relief (may be very little difference between lost MIR and tax credit anyway). It is fair that someone availing of the proposed scheme should give something.
8. Net rental income received must be lower than mortgage repayments.
9. House must be in negative equity.

It should be accepted by everyone that the taxable income that the State is currently receiving due to people having to rent is a windfall due to the current financial situation - under normal circumstances, the person would just move house and the State would receive no tax as there would be no rental income on the former PPR. The windfall is doubled when you consider that the State also receives tax on the rent that the person is paying at the new location.

There is a very strong argument that people who have been caught in this situation should not be penalised on the double by what is effectively a windfall tax taking advantage of their unfortunate situation.

Well it's news to me that tax on rental income is windfall tax. The amount of times I've argued on here with people (and you know who you are) that think being a landlord is a gateway to financial heaven and are now arguing that landlords are taxed too much, well I'm just speechless.

Tailspin, Elcato mentioned acquiring a new property and keeping the old property so two properties.

Removing the ridicuolous 75% interest relief restriction would go a long way to alleviating some of the problems faced by landlords.

The other rule that can be added to my suggestion above is that people who avail of the scheme should be subject to a higher rate of CGT - so that they are not in a more favourable position when they do sell the house and so that the government can make some money for facilitating the arrangement.

elcato said:

Moved from this thread as it deserves a separate discussion

This is a suggestion I put forward to the Dept of Finance and my local politicians recently. I believe the net gain would be beneficial as the loss of TRS to the would save the state the gain of getting revenue. As you say it should have conditions such as it only applies to mortgages taken out from 2004 and should only last for max 10 years. Only PPR's rented out should be allowed so no family with more than one property should get it. The rent received should also be less that the mortgage repayments. To police this would simply be including a copy of your annual statement with the form 12 so no extra work.

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Tailspin, Elcato mentioned acquiring a new property and keeping the old property so two properties.

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Not me. Btw - I mention the word family clumsily as what I mean if there are two cohabitating neither should benefit if they own another property.

I see this as applying definitely to people who own only one house and rent another.

I thought that it might be extended to people who traded up and kept their old house because they could not sell it. However, on reflection, I prefer csirl's rule that it is restricted to people who only own one property.

I don't agree with most of the other rules. For example, many people will use this to rent out their apartment and rent a house because they need more space for a growing family. So they would be allowed set the whole rent paid against the rent received meaning that they would have no tax liability. Of course, they could not set the deficit against their other taxable income.

Maybe the PRTB is a red herring. The requirement to register with it should be abolished for everyone. I was just trying to recognize the difference between professional landlords and reluctant landlords.

Brendan

For example, many people will use this to rent out their apartment and rent a house because they need more space for a growing family. So they would be allowed set the whole rent paid against the rent received meaning that they would have no tax liability. Of course, they could not set the deficit against their other taxable income.

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Actually this was one of the groups I believe should be allowed do this. A lot of people bought 'to get on the property ladder' by buying small apartments (avoiding the obvious arguments of the rights or wrongs of this). They are now wanting to have a family but are stuck. Remember the mortgage will be declining with time and hopefully a few years down the road they could be in a position to have a deposit and enough NE paid down to actually buy the bigger property.

The problem as I see it with all schemes of this type is our legislators incompetence.


There will be loopholes, and these will be exploited by rich people who can afford specialist tax advice.

For example, if buying a house rules you out of the scheme, then it'll only be a short while before specialised property hiolding companies come online, who will sell you an 'option' to purchase a house in the future, .. and that won't rule you out of the scheme. But of course you have broken the spirit of the scheme, but not the actual rules.


Very difficult to solve these problems. If any scheme goes ahead we will hear stories two or three years later as to how several millionaires benefited.

I'm such a cynic that I wouldn't be surprised if rich politicions built in loopholes which they themselves could exploit.


I agree with debt for equity swaps. I agree with some other proposals, including a form of debt forgiveness but only through social welfare, and only after the person has disposed of assets.


The problem is that people who bought the most expensive homes likely have the largest negative equity, so will those people benefit the most? That's incredibly unfair if so, and that's the moral hazard.


I'd agree with a single once off payment to every Irish citizen... not just those who own homes, or those in negative equity. That'd be fair wouldn't it?

Perhaps we could give 25,000 Euros to every man, woman, and child in Ireland, regardless of age or circumstance. That'd only cost 100 billion,.. less than the banks isn't it?

People may not realise that the bank bailout has cost us up to 25,000 for every man, woman and child In Ireland. Many people pay no taxes, and so the cost per taxpayer is truly enormous.

I do think additional help should be given to reluctant landlords in addition to the 75% interest relief. I guess we'll see what happens.

Bronte said:

Tailspin, Elcato mentioned acquiring a new property and keeping the old property so two properties.

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Not me either, I didn't mention acquiring a new property, although I didn't make it clear. I meant someone who moves out of their owned family home, and rents a property, because they have to. Obviously someone in negative equity on their existing property would find it impossible to buy again.

I thought that it might be extended to people who traded up and kept their old house because they could not sell it. However, on reflection, I prefer csirl's rule that it is restricted to people who only own one property.

I don't agree with most of the other rules. For example, many people will use this to rent out their apartment and rent a house because they need more space for a growing family. So they would be allowed set the whole rent paid against the rent received meaning that they would have no tax liability. Of course, they could not set the deficit against their other taxable income.

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I admit I didnt consider the position of the apartment owner who needs a house due to growing family - was considering the like for like movers for work reasons.

There is one problem with having a trader upper rule - it will invariably be abused by people who dont need it e.g. someone on fixed rate mortgage on starter home in the commuter belt may have a mortgage of up to 2.5k per month. If they were allowed rent a house to this value, they could move to a nice 4 bed semi in one of the richer suburbs of Dublin. So how do you restrict the scheme to people who genuinely need a bigger home? Could it only be allowed if a couple have extra children?

There is one problem with having a trader upper rule - it will invariably be abused by people who dont need it e.g. someone on fixed rate mortgage on starter home in the commuter belt may have a mortgage of up to 2.5k per month. If they were allowed rent a house to this value, they could move to a nice 4 bed semi in one of the richer suburbs of Dublin. So how do you restrict the scheme to people who genuinely need a bigger home? Could it only be allowed if a couple have extra children?

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But this doesn't make sense. Why would a person on a 2.5k mortgage rent it out for say 700 and rent in a D4 property for say 1k ? They would be paying more all round. How much tax is paid currently on a rent return of 8.4k ? Very little AND the trs is gone for this person so they'd be mad to do this unless they have money to burn. Also consider that there is a time limit on the relief. Perhaps you could give a better example with figures that would prove your theory as oppose to mine as I can't see this being feasible for someone just to 'save' on tax ?

"If, however, they can’t sell their home, then they should be allowed to set the rent paid on their new home against the rent received on their old home."

This is a copy and paste from the first post on this thread. That looks to me like someone renting their old home and acquiring a new home?

"If, however, they can’t sell their home, then they should be allowed to set the rent paid on their new home against the rent received on their old home."

This is a copy and paste from the first post on this thread. That looks to me like someone renting their old home and acquiring a new home?

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Oh OK - I didn't see that part and was not part of my suggestion. I don't believe they should be allowed offset their current rent against tax, just the rent received from their original PPR which is their form 12 return.

I think tax system should be simpler, not more complicated. While the idea to help "reluctant landlords" may (or may not) be considered fair, the resulting rules will be far, far too complicated!

There must be better ways to help those who are genuinely in need, such as maybe an agreement with the Revenue to defer tax on rental income for a few years, or a hardship loan. Or better still, a reform of the Irish bankruptcy laws.

The tax and regulatory system in Ireland is far too complicated as it is, I don't think it needs any more complexity.

To clarify the proposal, as I see it.

People who rent out their home and who own no other residential property should be allowed to set the rent paid on another home against the rent received for tax purposes.

1) As the property on which they are getting rent is no longer their home, they would not be getting TRS. However, they would be allowed to set 75% of the the interest paid on their mortgage against the rent received, as they are at present.
2) If the rent paid exceeds the rent received, it would not create a loss for tax purposes. In other words, they would not get any tax relief on the rent paid, they would just not be paying any tax on the rent received.
3) If they own another property, they would not qualify.

Example
John rents out his home for €14,000 a year net rent after expenses
John pays €8,000 a year mortgage interest
John pays €10,000 rent for his new home

Present situation

Proposal

Now, Una is paying 10,000 pa rent on her new place, but William has a different PPR on which he pays a 10,000 pa mortgage (lets imagine William had to downsize from no. 35 into what used to be his investment place because of the downturn).

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You forget that William is reliant on Una and people like her to stay afloat. If Una cannot afford to move into rental accommodation or can only pay a lesser amount in rent, William and Steve Seven Gaffs will not get as much rental income and will go bust.

You could logically argue that William, as Una's new landlord, is also being subsidised by this proposed scheme.