# "Reluctant landlords" should be facilitated



## elcato (13 Apr 2011)

_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.
> ...


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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## Bronte (13 Apr 2011)

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.


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## Tailspin (13 Apr 2011)

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.


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## csirl (13 Apr 2011)

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.


 
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.


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## Bronte (13 Apr 2011)

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.


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## DB74 (13 Apr 2011)

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


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## csirl (13 Apr 2011)

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.


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## elcato (13 Apr 2011)

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.





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


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.


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## Brendan Burgess (13 Apr 2011)

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


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## elcato (13 Apr 2011)

> 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.


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.


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## JoeB (13 Apr 2011)

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.


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## denise2007 (13 Apr 2011)

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.


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## Tailspin (14 Apr 2011)

Bronte said:


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


 
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.


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## csirl (14 Apr 2011)

> 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.


 
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?


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## elcato (14 Apr 2011)

> 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?


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 ?


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## Bronte (15 Apr 2011)

"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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## elcato (15 Apr 2011)

> "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?



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.


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## Greta (17 Apr 2011)

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.


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## Brendan Burgess (17 Apr 2011)

*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 


Rental income|14,000|
less interest allowed|€6,000|75% of 8,000
Taxable income|8,000
Proposal


Rental income|14,000|
less interest allowed|€6,000|75% of 8,000
Less rent paid|10,000|
Taxable income|nil|


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## csirl (18 Apr 2011)

> 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).


 
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.


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## elcato (18 Apr 2011)

Brendan - Your proposal is not what I intended. I propose that only the rental income be given tax relief. This would make all the other arguments null and void and would make it clear and simple.

John rents out a house and gets 14k gross rent. If his mortgage repayment (capital + interest) is > 14k then he fills out a form 12 and pays no income tax. If he pays < 14k per for his mortgage then he is taxed in the same way as currently.


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## JoeB (18 Apr 2011)

Are there potential problems?

Consider a millionaire who currently rents a large house, owns no home, and pays tax on all his income. Under this proposed scheme he'd be better off buying a house and continuing to rent.. given that he would receive 100% tax relief on his mortgage, both capital and interest,, and so his new house would cost him nothing... as the tax payer is paying for it. He would increase his mortgage payments so that they exactly balance out his rent, and thus he can squeeze the taxpayer for every last cent.

(sorry, not sure if that is correct, but he does benefit, ... to at least the tune of his mortgage payments multiplied by his tax rate.)


Yes, things can be dated etc, .. but this loophole will remain, as will others for all schemes of this type. And the tax payer will end up supporting some genuine cases, but a lot of money will go to rich people who qualify themselves for a scheme.


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## csirl (18 Apr 2011)

JoeBallantin said:


> Are there potential problems?
> 
> Consider a millionaire who currently rents a large house, owns no home, and pays tax on all his income. Under this proposed scheme he'd be better off buying a house and continuing to rent.. given that he would receive 100% tax relief on his mortgage, both capital and interest,, and so his new house would cost him nothing... as the tax payer is paying for it. He would increase his mortgage payments so that they exactly balance out his rent, and thus he can squeeze the taxpayer for every last cent.
> 
> ...


 
But it's Ex-PPRs only. You can only participate in the scheme if you move out of a PPR into rental accommodation. Therefore it does not apply to anyone who is already in rented accommodation or any house purchased after the person moves out. It would also be a rule that the scheme ceases for anyone when they buy a property after entering into the scheme.


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## JoeB (18 Apr 2011)

Yes CSIRL, good point. So people should start preparing now...
But it does incentivise people to move out of PPRs, and into rented accomadation. Some people would move from PPR house 12, to next door, rented house no 13., and avoid paying tax that way.

There seems to be a blurring of taxation and social welfare here.

I feel it's the Dept of Social welfare that should help people in poverty and unable to cope... not the tax system. 

The tax system will become even more complex and convoluted if we attempt to deal with social problems through the tax system.

These taxation ideas are subsidies.. for example, the person in Brendans table avoids paying tax on 8,000 through this scheme... such reductions in tax for some people are unfair, and 'free money' should only really be given out by social welfare, imo.


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## Greta (18 Apr 2011)

JoeBallantin said:


> There seems to be a blurring of taxation and social welfare here.



I agree absolutely. The proposals are messy and will inevitably lead to more mess and more taxpayers' money being wasted, not only on subsidies but also on administration and enforcement of this scheme.

I just wish the government would stop messing about with the markets. Genuinely hard up people should be helped through welfare and, as far as I know, nobody is starving in Ireland. Keeping a property that is not suitable for your needs and that you can't afford to keep is not a basic human right that should be paid for by taxpayers.

A reform of bankruptcy laws would allow those with too much debt to manage or pay off in the foreseeable future a way out.


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## gearoidc (18 Apr 2011)

JoeBallantin said:


> Yes CSIRL, good point. So people should start preparing now...
> But it does incentivise people to move out of PPRs, and into rented accomadation. *Some people would move from PPR house 12, to next door, rented house no 13., and avoid paying tax that way.*


 
Sorry, but you are making no sense.
There would be zero benefit in following a course of action such as the one you are suggesting would be taken above.

There has yet to be decent argument made against the original proposal.


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## JoeB (19 Apr 2011)

Sorry, the loophole that people would be incentivised to rent their own home, and rent the one next door themselves is difficult to remove. If you introduce a time limit then no-one new can apply after the time limit date, which sort of defeats the purpose. If you apply a distance measurement then you may rule out moving 600 yards in Dublin, even though it could make a big difference to your quality of life. So people moving one house to avoid paying tax on the 8,000 is possible, especially if 'wink wink' house swap arrangements, with agreed tax favourable rents, aren't ruled out explicitily.

It'd be difficult to legislate.


I think all these proposals are too far removed from the problem, and too complex. If they're attempted then the cynic in me will think that of course the elite are setting up a nice new tax break for themselves.

Help should be through social welfare, .. if that means a special 200 million fund is set up and people can apply that's fine. Or should it be 1,000 million, or whatever?

People apply for assistance if they meet certain criteria, and the criteria and benefits are transparent and available. The problem for some, as I see it is that this is too transparant, as when the public see how big the fund is there'll be an outcry. So creeping in a tax bill which costs 1,000s is easier, and less visible, even if less reliable.


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## callybags (19 Apr 2011)

> So people moving one house to avoid paying tax on the 8,000 is possible, especially if 'wink wink' house swap arrangements, with agreed tax favourable rents, aren't ruled out explicitily.


 
This does not make any sense.

If they didn't move, they would have no tax liability anyway so how are they any better off?


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## JoeB (19 Apr 2011)

They pay tax on their capital payments, and on their 25% of the interest that's not covered.

They wouldn't pay tax on those as per Brendans table on the first page, where the person reduces their taxable money to 0, from 8000. That's the saving, right there.

Yes, it doesn't make sense to do this now.. it would only make sense once the government intervenes in the market.

The favourable rents would be ones agreed between two people, so that they 'house swap'.. and both pay enough rent, to each other, so that neither has to pay any tax, on money that they would previously have had to pay tax on. Both benefit from this cosy arrangement, and these type of people aren't the intended benefit-ees.


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## csirl (19 Apr 2011)

> I think all these proposals are too far removed from the problem, and too complex. If they're attempted then the cynic in me will think that of course the elite are setting up a nice new tax break for themselves.


 
Nobody is proposing to exempt the former PPRs from CGT, so why would anyone move for no benefit if they are going to incur additional CGT? I think the CGT will separate the genuine cases from the messers. People in the scheme would also lose TRS, so would be down some money.



> Help should be through social welfare, .. if that means a special 200 million fund is set up and people can apply that's fine. Or should it be 1,000 million, or whatever?


 
I dont get the SW argument. Isnt Sw supposed to be for people in difficulties? The people we are concerned about here are people who can currently pay their mortgages, but need to move house for employment or family reasons.

The proposed scheme is to facilitate labour force mobility, not necessarily for people in difficulties (though people may get into difficulties in the future if they cannot move with their employment).


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## JoeB (19 Apr 2011)

csirl said:


> The proposed scheme is to facilitate labour force mobility, not necessarily for people in difficulties (though people may get into difficulties in the future if they cannot move with their employment).



Oh, so that's a different scheme entirely.

Anyone who wants to move can apply?, and you don't need to be in difficulty?, but you do need to be in negative equity?

The scheme can be abused, and will be abused. People living next door to one another can house swap, and avoid tax. How will this be legislated against? Simplistic proposals to solve this will not work, and will leave loopholes.


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## elcato (19 Apr 2011)

> Oh, so that's a different scheme entirely.
> 
> Anyone who wants to move can apply?, and you don't need to be in difficulty?, but you do need to be in negative equity?
> 
> The scheme can be abused, and will be abused. People living next door to  one another can house swap, and avoid tax. How will this be legislated  against? Simplistic proposals to solve this will not work, and will  leave loopholes.


Hi joe
I don't believe it's open to abuse as stated in my post that tax only received by the person is liable for relief. It does not make sense for someone to rent their house out for 700 a month and pay 700 a month elsewhere (even apart from assuming next door neighbours will have exactly the same rents). They would be worse off for starters as they will still incur the usual costs of charges such as a non-occupancy time, maintenance, loss of TRS etc.


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## JoeB (19 Apr 2011)

I disagree.

It doesn't make sense to introduce a scheme which leaves people worse off. If the scheme allows people to move somewhere new for a new job then it also seems to allow next door neighbours to house swap to get the same benefits.

If there are no benefits for one then there's none for the other either, and the scheme is pointless.

If one benefits, as you'd expect from a scheme explicitily set up to benefit people, then I haven't seen any way to exclude the next door house swap thing. Some simplistic proposals may seem to make sense but on reflection, these don't solve the problem, they only move it.


The fact that it's complicated to work out who benefits and to what degree indicates that the proposal is too far removed from the real problem that we're aiming to solve. I've lost track of what the original problem was... I think it was to help people who cannot get work near their house, and so they want to move to get work, and not lose out by moving.

I think the proposal may work, but in it's current form I don't think so, and I think there will always be loopholes.


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## elcato (19 Apr 2011)

The whole point of it is that rather than getting a net gain you lose less. Anybody that is forced to move and can't sell will just lose less per month therefor giving them to opportunity to cut the loss of doing this. Currently if someone moves and rents out they will still be losing by doing so but rather than a person forking out a net loss of say €500 per month they would lose by say €400 a month. Nobody wins in the situation I propose, just makes it less painful. Why does everyone always assume the worst and then feel if they can't benefit personally they object ?


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## csirl (19 Apr 2011)

JoeBallantin said:


> I disagree.
> 
> It doesn't make sense to introduce a scheme which leaves people worse off. If the scheme allows people to move somewhere new for a new job then it also seems to allow next door neighbours to house swap to get the same benefits.


 
As electo pointed out, the person is not better off - it just reduces the loss. The issue is a short term cash flow one covering a rental shortfall at the new location.

The person acquires a potential CGT liability in the future which is fine if you need to move as you will be able to pay it when you do sell your house - but stupid if you are moving next door. In fact, you've actually made a good argument for introducing it as if people chose to swap with their next door neighbour, the Government will get additional CGT taxes for nothing.



> If there are no benefits for one then there's none for the other either, and the scheme is pointless.


 
As said above, the issue is a shortfall now, not a long term funding issue. There will be a lot of people who will benefit from the flexibility of being able to move to follow employment etc. 



> If one benefits, as you'd expect from a scheme explicitily set up to benefit people, then I haven't seen any way to exclude the next door house swap thing. Some simplistic proposals may seem to make sense but on reflection, these don't solve the problem, they only move it.


 
See above - if people are stupid enough to incur a CGT liability they dont need to incur, let them - it benefits the exchequer.



> The fact that it's complicated to work out who benefits and to what degree indicates that the proposal is too far removed from the real problem that we're aiming to solve. I've lost track of what the original problem was... I think it was to help people who cannot get work near their house, and so they want to move to get work, and not lose out by moving.


 
Is very easy to work out as Revenue already routinely collects the relevant data i.e. rental income at both locations, and is also aware of the mortgage payments in most cases (due to TRS). Can all easily be cross referenced by Revenue computers with little manual intervention. Also no grey areas - the figures are set.


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## gearoidc (19 Apr 2011)

The arguments being put forward against this proposal are truly bewildering. "The rich will find a loophole and exploit it" 
"Peolple will swap homes with their neighbours and dodge tax"
Are you for real JB?
What are these loopholes that you envisage? Can you not see that your Neighbour-Neighbour swap scam would be totally pointless? There would be absolutely zero benefit to either neighbour.
If you disagree, please explain.


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## JoeB (20 Apr 2011)

Yes, I believe that any taxation measure will be abused by the rich, and this will be known in advance.

The CGT issue is real, but it doesn't help struggling homeowners to incur CGT liabilities either, even if they are deferred into the future. So I had assumed that CGT would not be payable on homes vacated under this scheme.

In any event, in the absence of a house price databse the CGT issue will be problematic.. who will decide what the house was worth when vacated?, as it is this value which is relevant to CGT.
So pretty unworkable from that point of view.

A reduction in a loss is identical to a gain. This is quite basic, similar to half full or half empty.

The reduction in tax paid is what's important, not the overall situation.

Consider the sums
 -200 + 70
and +200 + 70

The +70 is identical on each line, and that's the saving made by not paying tax. The amount that it's added to is irrelevant.. so whether it's added to -200 or +200 doesn't matter,.. it's still +70.

So a gain is a gain, regardless of whether it's added to an existing positive or negative number.


Elcato, you say no-one wins. Well, the people not paying tax on 8,000 win, and the taxpayer loses to the same extent. Yes, everybody loses when our country is bankrupted, but it's not correct to say that not paying tax on 8,00 isn't a benefit.


People are asking me to explain my objections in detail. Well, no detailed proposal has been put forward.. when and if it is I will provide my detailed comments then.

For example,.. should people availing of this scheme be liable for CGT on their PPR home which they vacate?, when they sell the home in the future? or should the CGT be waived? 
How will the house value be determined at vacation time? Will we ask our expert estate agents?, or some other vested interest?
We don't even have proper addresses in this country...  how are we going to determine house prices when we can't sort out addresses.

Details like this need to be given.


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## JoeB (20 Apr 2011)

gearoidc said:


> The arguments being put forward against this proposal are truly bewildering. "The rich will find a loophole and exploit it"
> "Peolple will swap homes with their neighbours and dodge tax"
> Are you for real JB?
> What are these loopholes that you envisage? Can you not see that your Neighbour-Neighbour swap scam would be totally pointless? There would be absolutely zero benefit to either neighbour.
> If you disagree, please explain.



yes I am(for real). The rich are known for exploiting tax loopholes, do you disagree?


You'll have to explain why the neighbour - neighbour thing is pointless. After all, I am implicitily assuming that the scheme is set up to benefit people, not disadvantage them.
You ask me for extar info, and yet you provide absolutely none yourself,.. you simply dictate your view that it's pointless.
It's not pointless, unless the scheme is pointless for everybody, in which case the entire scheme is pointless.
The benefit to each neighbour is not paying tax on 8,000, as per Brendans example.

Please outline your reasons as to why this neighbour-neighbour thing cannot work. It absolutely works under the scheme as decribed so far.


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## elcato (20 Apr 2011)

Joe



> The CGT issue is real, but it doesn't help struggling homeowners to  incur CGT liabilities either, even if they are deferred into the future.  So I had assumed that CGT would not be payable on homes vacated under  this scheme.
> 
> In any event, in the absence of a house price databse the CGT issue will  be problematic.. who will decide what the house was worth when  vacated?, as it is this value which is relevant to CGT.
> So pretty unworkable from that point of view.


I never mentioned this so please stop trying to muddy the argument. No CGT breaks, nice and simple only rent received as long as it's under the existing payments and they have one PPR and no other property. You keep trying to bring in some kind of extra problems which would help the rich in some way.


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## elcato (20 Apr 2011)

> You'll have to explain why the neighbour - neighbour thing is pointless.  After all, I am implicitily assuming that the scheme is set up to  benefit people, not disadvantage them.
> You ask me for extar info, and yet you provide absolutely none yourself,.. you simply dictate your view that it's pointless.
> It's not pointless, unless the scheme is pointless for everybody, in which case the entire scheme is pointless.
> The benefit to each neighbour is not paying tax on 8,000, as per Brendans example.
> ...


If you honestly believe this Joe, I give up.


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## JoeB (20 Apr 2011)

Ok, so no CGT breaks.

This does complicate the tax affairs of those affected but that's fine.

The house value at time of vacation has to be determined in order to determine the CGT liability.

While I'm not predicting house prices I feel that house prices may not increase, and so the CGT issue would be moot, if house prices don't increase.


So neighbours may be prepared to incur a possible CGT liability, in order to definitely recieve a tax break on 8,000 now.
It depends on how the CGT is calculated.... but in many cases not paying tax on 8,000 a year would be a greater benefit than a possible tax liability in the future. 
The figures could be worked out in detail, but I'm confident that moving next door would be justified by the figures.


If you pay tax at the higher rate then not paying tax on 8,000 would save you 3,280 Euros per year. If you make this saving for each of five years you're 16,400 better off... how much would your house have had to increase in price over that period in order to incur a 16,000 CGT liability?

CGT is 20% on increases in the house value, yes? So the house would need to increase more than 80K in five years when using the above figures, in order to make it not worth your while to move next door. Is that likely? I'd say that'd be close to a 10% rise per year, for five years,  on the average house price.

(The CGT rate of 20% may be wrong.)


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## elcato (20 Apr 2011)

> If you pay tax at the higher rate then not paying tax on 8,000 would  save you 3,280 Euros per year. If you make this saving for each of five  years you're 16,400 better off... how much would your house have had to  increase in price over that period in order to incur a 16,000 CGT  liability?


You're forgetting that the person has incurred 14k x 5 years of paying rent = 70k. So by trying to save 16k on paying tax he is willing to spend 70k ? You are looking at it from the wrong point of view. Think in practical as oppose tax saving terms.


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## truthseeker (20 Apr 2011)

elcato said:


> You're forgetting that the person has incurred 14k x 5 years of paying rent = 70k. So by trying to save 16k on paying tax he is willing to spend 70k ? You are looking at it from the wrong point of view. Think in practical as oppose tax saving terms.


 
Would the person not have spent the rent money on their mortgage payments anyway had they not swapped house?


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## JoeB (20 Apr 2011)

elcato said:


> You're forgetting that the person has incurred 14k x 5 years of paying rent = 70k. So by trying to save 16k on paying tax he is willing to spend 70k ? You are looking at it from the wrong point of view. Think in practical as oppose tax saving terms.


Well, yes, but he has also been in receipt of 14,000 rent, each year, from his neighbour, they have entered into a nice cosy arrangement after all. 

So the only difference to him is that he has saved 3,280 tax a year, and he may have to pay tax on a possible CGT liability, in the future, when money will be worth less. .. and in any event the CGT liability may not arise. He also has to move next door, and likely fill in 100 forms.


I am thinking about this correctly. The scheme is set up to benefit people,.. the problem is that the terms are too wide, and so everyone can benefit, not just those originally intended.

If people are in difficulties they should apply to social welfare, who are far more capable of determining real need than Revenue. 


No one has yet explained how the intended benefit-ees can benefit, while ruling out hanger ons in the exact same circumstances. Keep in  mind that the tax system is not aware of your disposable income, (whereas SW is) and so your disposal income cannot be used to determine if this benefit is payable, and so rich people can also benefit.

It's not illegal to adjust your circumstances to benefit from a tax arrangement, even if you are acting against the spirit of the tax break. We would be reliant on the legislators producing cast iron legislation, and I think it will certainly go wrong, based on the historical performance of our government.


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## Mrs Vimes (20 Apr 2011)

JoeBallantin said:


> Ok, so no CGT breaks.
> 
> This does complicate the tax affairs of those affected but that's fine.
> 
> The house value at time of vacation has to be determined in order to determine the CGT liability.



CGT on ex-pprs is calculated by using the difference between purchase and sale value with a time apportioned exemption for the period when the house was your ppr. You cannot calculate it by valuing it any other way. The only valuations needed are purchase price and sale price. Take the case where a house was bought in 2000 for Eur100,000 and lived in until 2011, let out for 4 years and sold in 2015 for say 125,000 (no predictions, just need numbers). The gain is 25,000 which is time apportioned even though the house did not appreciate during the time when it was let out.

In relation to your point about rich people taking advantage by renting each others houses, I expect sensible people will seriously take the mick by living in their own houses and avoiding NPPR, higher insurance costs, maintenance costs, future cgt, etc.

The intended beneficiaries will benefit by being able to live in the location they find work or having a house large enough to raise a family.


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## JoeB (20 Apr 2011)

Thanks for the rule on CGT payments.

But that may be bad news for this scheme, as people in negative equity cannot incur a CGT charge, unless and until the house price recovers to the price paid originally. That would be years away in many more recent cases, and in cases where negative equity doesn't apply then the house must have been purchased a long time ago, and so a proportioned CGT liability will be small. (i.e 4 years out of 25 years ownership)



If all of these extra charges like NPPR, higher insurance etc apply then the scheme is worthless, even for those who are supposed to benefit.


The simple point is that if by using the scheme you incur so many extra expenses as to make it the case that you'd be better off not on the scheme then the scheme is pointless for everybody.

If, on the other hand, it's the case that the scheme saves money for some, .. then the scheme will also save money for those not originally intended, but who can engineer the situation for themselves.



I would agree with a scheme which isn't guaranteed or likely to pay out to the wrong people. I don't believe that our legislators can write such legislation.


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## elcato (20 Apr 2011)

Let's take realsitic figures here and be conservative. 

A mortgage of 400 on a NE property of 3 beds in Dublin suburb/ 1 or 2 bed apt City.

a) Cost of mortgage 2k x 12 = 24k based on 400 over 30 years

b) Rent 1.5k pm = 18k pa.

c) Shortfall a - b = 6k


Tax inclusive

d) Allowable Interest = 18k @ 75% = 13.5k

e) Allowable expenses = 2k (modest)

f) Taxable amount 18k - 15.5k = 2.5k

g) Tax due 1.3k

So in order to save 1.3k on actual paying money to revenue they pay an extra 6k pa on rent on their accommodation that they're renting. Even if the allowable expenses are cut the margin will always be too great. 

I used Karls calculator above to get rough figures and rounded down. I have not allowed for the loss of TRS.


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## JoeB (20 Apr 2011)

I will have to examine this more fully later but I think there are errors.

He also receives rent of the same amount as he pays himself.. is that accounted for above?

And would the intended benefit-ees not also lose out on such a scheme, so what's the point of the scheme?


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## elcato (20 Apr 2011)

> If people are in difficulties they should apply to social welfare, who  are far more capable of determining real need than Revenue.


how so if they are working and not receiving SW ?



> Keep in  mind  that the tax system is not aware of your disposable income, (whereas SW  is) and so your disposal income cannot be used to determine if this  benefit is payable, and so rich people can also benefit.


Eh ? Neither would know this unless people went in and did a means test. I dont think any person on revenue does a means test apart from those being audited.



> And would the intended benefit-ees not also lose out on such a scheme, so what's the point of the scheme?


As I said it lessens their losses.


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## JoeB (20 Apr 2011)

Exactly my point.

I presume you agree that a means test should be necessary.. or that the intention is that millionaires cannot apply?

If there is no means test then millionaires can aply as easily as stricken people.. that would seem to be against the spirit of the scheme.

The point is that there should be an assumption that the people on the scheme would pass a means test, i.e be determined to be broke. If that restriction doesn't apply then who is the scheme for?, people who aren't broke? Why introduce such a scheme?

So my point is that the intended benefit-ees are exactly those who would fail a SW means test.. if you can pass such a test then you are too rich to be considered for a scheme.


Revenue don't have the ability to do a means test, whereas SW do.


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## Mrs Vimes (20 Apr 2011)

Using the figures from Elcato's example:

John owns No 11
Mary owns No 12

John and Mary decide to move into each other's houses to outfox Revenue.
John pays Mary 18,000.
Mary pays John 18,000.
Under normal circumstances both pay Revenue 1,300.
Under this proposed scheme, neither pay Revenue 1,300.
Insurance is always higher for rented houses as insurance companies believe that tenants do not take as good care of a property as owners do.
NPPR is payable by both or neither depending on the scheme we're trying to invent here.

I just really don't understand how John and Mary are benefitting.
Surely they would both be better off living in their own houses for the reasons that people prefer to own their own houses anyway (not needing permission to make internal alterations, for example).

I can understand the attraction if John needs to be in Galway but owns a house in Cork and Mary owns a house in Galway but needs to be in Cork, but if these two houses are near each other, why bother moving to save on paying a tax of about 1,300 euro which only becomes payable if you rent out your house in the first place.

In short JoeBallantin, how is this open to abuse?

Sybil


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## JoeB (20 Apr 2011)

Well, it's wrong to say '_why bother moving to save on paying a tax of about 1,300 euro which only becomes payable if you rent out your house in the first place.'_

because people do pay more tax than this. They pay tax on their income which they use to pay 25% of their interest, and they also pay tax on the full amount of their capital payments. Under the scheme, as described by Brendan on page 2 I think, this was the point... the rent you pay can be offset against what would otherwise be a tax liability.



edited to add:
To be honest I've lost track of what the schemes were. It's all so complicated.

I think the first step would be to propose a scheme. Brendan has done that, and under that scheme next door neighbours can swap houses and benefit.

There is no other scheme proposed that I've seen, and Brendan isn't 100% clear on issues like CGT taxes, NPPR charges, increased insurance payments etc.


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## Mrs Vimes (20 Apr 2011)

But elcato's figures used only the allowable amount of interest so it would be 1,300.

The people who own one house and rent it out and rent another house to live in are only being let off the tax that they would have to pay as regular investors which in this example would be 1,300.

I don't understand what you mean by "They pay tax on their income which they use to pay 25% of their  interest, and they also pay tax on the full amount of their capital  payments". Their other income would still be taxed in the usual fashion.

Brendan was not suggesting that the total rent paid be allowed as a tax credit against all income, just that in cases where a person is paying rent and receiving rent the rent received not be subject to tax where the two figures are similar.


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## JoeB (20 Apr 2011)

OK, this is getting complicated now.

Elcato's example isn't very appropriate as the proposed scheme will not help someone in that situation.

Brendans proposal is that people can offset rent paid against the tax due. If the tax due is only 1,300 then the savings aren't great, the person is hardly better off, and the purpose of the scheme has been nullified.

If, on the other hand, using Brendans figures, the tax saving is much more significant,.. tax relief on 8,000 which would be 3,280 at the higher rate.


So, when using Elcatos figures the scheme is hardly worthwhile, whereas when using Brendans figures the scheme is worthwhile, but is open to abuse.

So using contrived figures to demonstrate that no savings are possible (or tiny savings) just means that the scheme itself is pointless.
Using more realistic figures indicates that there may be large savings available, but these large savings may be open to everyone, not just those in difficulty.


Also, by offering tax credits, doesn't this mean that those richer people who pay tax at the higher rate get more relief than those who pay at the standard rate? So more benefits for the rich as opposed to the poor?, is that correct?


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## Mrs Vimes (20 Apr 2011)

But in Brendan's example the guy is paying out 10,000 a year in rent so he's basically paying out 10,000 in order to save 3,280 which is daft.

If we're comparing neighbours who swap houses then presumably Brendan's guy is paying out the same 14,000 he's getting in in rent so the saving (still 3,280) is costing him over 10,000!

Could you devise any scenario where someone could take advantage by letting out their house, renting another house and being better off than if they lived in their own house?

Also, aside from using slightly different figures, how do Brendan's and elcato's examples differ?


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## JoeB (20 Apr 2011)

Yes, but he's also in receipt of the same rent, in my cosy house swap arrangement.

So he only benefits, there is no downside that I can see.

He pays out 10K, he gets back 10K.. he saves tax on 8K. (He also moves next door, and fills in forms.)

The way to look at it is, in my opinion.. if there are benefits for genuine users of the scheme then the same benefits accrue to 'cosy house swappers'.

I do think it can be complicated, and perhaps I'm missing something big.


I keep saying move next door... but it could be move down the road, or across the county.  The point is that you can move for other reasons other than moving for work, and so not only the intended benefit-ees benefit.


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## JoeB (20 Apr 2011)

...


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## Mrs Vimes (20 Apr 2011)

But at the moment in the absense of any such scheme, he pays out 10,000 he gets in 10,000 he also pays out tax of 3,280, as does the person he's swapping with, so both get to live in each other's houses at a cost of 3,280 each in tax.

No-one would wish to do this voluntarily, but at present many people have no choice but to let their house for 10k, rent another for 10k in a different location and also pay out 3,280 in tax.

The suggestion in this thread is that these people be exempted the tax so that they are paying out 10k and getting in 10k and still paying their old mortgage. It would mean that they didn't incur a charge of 3,280 to rent a house for the same as their own house would rent for (larger/smaller house in same location or house in another county).

You say "He pays out 10K, he gets back 10K.. he saves tax on 8K" as though this 8k is a reduction in his paye tax or something. It's not, it just means he can swap houses without a tax liability. He is not in a better position than he was when he was living in his own house.


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## JoeB (20 Apr 2011)

Yes ok, I'm eventually understanding! Sorry for wasting peoples time!

I said earlier..
The way to look at it is, in my opinion.. if there are benefits for genuine users of the scheme then the same benefits accrue to 'cosy house swappers'.


That is wrong, in a subtle way. (and Brendan did pre-empt my objection by saying that you cannot create a tax loss using the scheme, similar to Mrs Vimes saying that you cannot offset your rent paid against PAYE for example)


So while genuine users benefit, they only benefit to the tune of a loss they must necessarily take before they can enter the scheme. And 'normal' people won't bother taking a hit, (and the inconvienience of moving) just so they can have the hit cancelled out..

I get it now, thanks..

(and yes, good idea, and relatively fair for everybody)


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## Sylvester3 (18 May 2011)

How would such a scheme work if the reluctant landlord moves countries? For example I may need to move back to England next year and will not be able to sell the house without incurring a substantial loss. So if I do this I would likely rent out the property and pay the difference from savings and my future earnings, whilst also renting a flat in England. Would a scheme like this benefit me in such a situation, or would I be cut loose by choosing to move abroad?


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## balmed out (19 May 2011)

Why would they not be able to sell their home?

Only 2 reasons so far as im aware.

1) The bank wont let them as their in negative equity. 

We do need to do something about this either adding the negative equity to a new house they buy or transfering itinto a personal loan. Its ridiculous that an unemployed person cant sell up if offered a job on the other side of the country.

2) They are asking for too much for their house.

People need to have realistic expectations. Plenty of homes are being sold and quickly when priced appropriately.


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## elcato (19 May 2011)

> How would such a scheme work if the reluctant landlord moves countries?  For example I may need to move back to England next year and will not be  able to sell the house without incurring a substantial loss. So if I do  this I would likely rent out the property and pay the difference from  savings and my future earnings, whilst also renting a flat in England.  Would a scheme like this benefit me in such a situation, or would I be  cut loose by choosing to move abroad?


Interesting. But I would allow the same rules apply as long as you were not to buy elsewhere. This would require further checks which may or may not make it cost effective depending on how much work is required for revenue to make the relevant checks.


> Why would they not be able to sell their home?
> 
> Only 2 reasons so far as im aware.
> 
> ...


You are going off topic. Please discuss this topic and not other schemes or solutions.


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## waxy (17 Aug 2011)

Interesting thread.

As a person living with his wife and child in a one bed apartment I would be interested in any solutions to this that are being proposed. At the moment we cannot move as our apartment is worth around half what we owe on the mortgage and to move would see us hit with rental income tax etc etc as well as losing our tracker mortgage.
We would hope to have one or two more kids before it's too late too so are in very sticky situation. All we want is to move out and rent a two or three bed place.

Did anyone hear any talk about this since from government circles or elsewhere?


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