# Dept of Finance Launches Consultation on Tax Treatment of Rental Income



## Sarenco (16 Mar 2017)

On foot of a commitment contained in the _Rebuilding Ireland – Strategy for the Rental Sector _published by the Department of Housing, Planning, Community and Local Government (DHPCLG) in December 2016, a Working Group has been established to examine and report on the tax treatment of landlords (or rental accommodation providers), and to put forward options, where appropriate, for amendments to such treatment. The Working Group is chaired by the Department of Finance and its membership includes officials from DHPCLG, Revenue and the Residential Tenancies Board.

During the process of developing the _Rebuilding Ireland _strategy a public consultation was undertaken by DHPCLG on a broad range of issues relating to the housing market. A number of taxation issues were raised in the responses received to this consultation and the Working Group has decided to conduct a focused consultation seeking further detailed input from interested parties on these matters.

http://www.finance.gov.ie/sites/def... Consultation_taxation of rental income_3.pdf


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## Sarenco (16 Mar 2017)

The objectives of this consultation are two-fold.

Firstly, it will inform the review being undertaken by the Working Group on the tax treatment of landlords to determine if it is fit for purpose in the current housing market and in the longer term.

Secondly, the submissions received will be reviewed as part of a process to determine if a policy rationale exists to introduce new reliefs or otherwise alter the tax system to incentivise landlords to remain in, or to enter, the residential accommodation market. This assessment will have regard to the wider regulatory framework for accommodation providers to ensure that any taxation proposals would not act merely as an alternative source of income for other control measures implemented by the Government.

This *public consultation process will run from Friday 10 March to Friday 7 April 2017*, a period of four weeks. Any submissions received after this date may not be considered.


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## Nordkapp (16 Mar 2017)

Many thanks Sarenco, I will be feeding into this.


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## Setanta12 (16 Mar 2017)

If anyone has a link to a paper produced some years ago, where - I think - they argued in favour of the discrepancy and perceived unfairness* of treatment between prospective-residents and -investors; I'd love to re-read it.

*investors can be VAT registered and can claim back the VAT on a new-build straight-away, effectively immediately reducing the price payable by them.  Prospective-residents have no such clawback available to them.


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## The Horseman (16 Mar 2017)

Is this just the government trying to stem the exit of landlords from the market to buy them time to increase supply?


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## Nordkapp (16 Mar 2017)

The Horseman said:


> Is this just the government trying to stem the exit of landlords from the market to buy them time to increase supply?


Looks like that. I did feed back to them on all aspects, the one that most irks is the €14,000 ceiling tax free for rent-a-room. This is capital risk free compared to renting out a house and where there is no tax free exemption (if there is no mortgage) and certainly a route I will consider for the future. I also indicated that the goalposts change too often in regard to reliefs providing no certainty to investors and the 8 year depreciation for wear and tear items is a joke given white goods tend to last just 3 years.


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## T McGibney (16 Mar 2017)

Setanta12 said:


> *investors can be VAT registered and can claim back the VAT on a new-build straight-away, effectively immediately reducing the price payable by them.  Prospective-residents have no such clawback available to them.



Where did you dream this? It's totally untrue.


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## Vanessa (17 Mar 2017)

Nordkapp said:


> Looks like that. I did feed back to them on all aspects, the one that most irks is the €14,000 ceiling tax free for rent-a-room. This is capital risk free compared to renting out a house and where there is no tax free exemption (if there is no mortgage) and certainly a route I will consider for the future. I also indicated that the goalposts change too often in regard to reliefs providing no certainty to investors and the 8 year depreciation for wear and tear items is a joke given white goods tend to last just 3 years.


The rent a room scheme is wide open to abuse. My pal has his two bed apartment rented out. He keeps the electric and gas bill in his own name and all other correspondence for him goes to the address. He has an arrangement with the tenant as regards payment of utilities. Meanwhile he is living elsewhere with the girlfriend


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## JoeRoberts (18 Mar 2017)

T McGibney said:


> Where did you dream this? It's totally untrue.


I too thought they had the option but needed to then charge vat on rental income...


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## cremeegg (19 Mar 2017)

T McGibney said:


> Where did you dream this? It's totally untrue.



I dont know where they go for tax advice in your part of the world, but a landlord can charge VAT on a letting.

See Revenue details here: http://www.revenue.ie/en/tax/vat/leaflets/property-guide/letting-property-new-system.html

"the landlord may, with some exceptions, exercise an option to apply VAT to a letting". 

It is usually disadvantageous to do so, but under certain circumstances it is done.


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## torblednam (19 Mar 2017)

cremeegg said:


> I dont know where they go for tax advice in your part of the world, but a landlord can charge VAT on a letting.
> 
> See Revenue details here: http://www.revenue.ie/en/tax/vat/leaflets/property-guide/letting-property-new-system.html
> 
> ...



Oh Cremeegg, you're going to make him really cross now!! 

From the document you linked:
*6. Can the landlord's option to tax a letting apply in all cases? (Section 97(2)) *
No. There are restrictions on the option to tax rents. The option to tax cannot apply in the following circumstances:


Where the property is occupied for residential purposes. (See Section 97(4))


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## cremeegg (19 Mar 2017)

Oh Dear! Mea Culpa.  I really thought I had him there.

Apologies for the incorrect information and to Mr. McG for doubting him.


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## Sarenco (20 Mar 2017)

IPOA reaction to consultation reported here:-
http://www.irishtimes.com/news/cons...em-overhaul-under-department-review-1.3016144

I think the basic principle that the provision of residential accommodation should be taxed like any other business endeavour - no better and no worse - is absolutely sound.  Any other treatment simply creates distortions in terms of the allocation of capital.

Equally, I don't see any need to re-introduce gimmicky tax reliefs or incentives - just allow for the deduction of legitimate expenses and the market will react appropriately. 

The constant tinkering with the tax code, without any obvious principle or sound policy objective, gives rise to uncertainty and ultimately causes more problems than it solves.


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## Sarenco (20 Mar 2017)

Interesting perspective on Peter McVerry's proposed vacant homes tax -

http://www.independent.ie/irish-new...acant-homes-should-not-be-taxed-35547929.html


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## Nordkapp (20 Mar 2017)

Sarenco said:


> IPOA reaction to consultation reported here:-
> http://www.irishtimes.com/news/cons...em-overhaul-under-department-review-1.3016144
> 
> The constant tinkering with the tax code, without any obvious principle or sound policy objective, gives rise to uncertainty and ultimately causes more problems than it solves.



This I pointed out to them in my response to the consultation paper. The uncertainty would put off any investor looking back over the last 12 to 15 years. Bacon reports 1 & 2, investor stamp duty on housing, NPPR, Household charge and LPT, USC applied to income etc etc


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## The Horseman (21 Mar 2017)

The one sided approach by the state to landlords will have far reaching consequences. Until supply comes on line bed spaces will be lost as landlords exit the market. All landlords be they corporate or individual should be treated equally.

Interestingly I wonder how many landlords are aware of the new HAP scheme and why the other housing supports (RA and RAS) have been discontinued outside Dublin. The UK are facing a similar housing crisis and private landlords are now refusing to rent to tenants in receipt of housing support which is driving tenants out of the major cities.

We need a holistic approach to the current situation and looking solely at the Tax treatment is not enough. Without the right to mitigate your losses by changing the tax treatment is useless if you are not receiving rent due to over holding tenants.


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## Sarenco (3 Apr 2017)

Interesting piece on the current consultation exercise by Brian Keegan (Director of Public Policy and Taxation at Chartered Accountants Ireland) –

"The new consultation offers 10 ideas to help landlords stay in the rental market or get into the rental market. Most of these are standard enough. They centre around the notion that a landlord should get a deduction from taxable income not just for the running costs of renting but also for the capital amount spent on the house or apartment in the first place.

One idea is more radical, however, and merits more attention.* The radical bit of the idea is that residential accommodation lettings should be treated as a business like any other*. The tax rules for calculating the income tax on rent are a law unto themselves. The reason for this is deeply historic.

Our income tax system was modelled on the UK system. In 1799, the only people who were asked to pay income tax were landowners. That meant that most of the tax rules were designed around the relationship between landlords and tenants.

Back then, if you were vulgar enough to make your money buying and selling things, you barely merited consideration in the tax acts. Employment wasn’t considered. Things have changed but key aspects of the rental rules have not changed. The main change would be if you were losing money renting a house or apartment, that loss could be used to reduce your PAYE or self-employed income, and thus reduce your tax liability overall.

At the moment it’s like there’s a ringfence around a landlord’s income. Accidental landlords could be losing money hand over fist on the tenancy, yet paying PAYE through the nose on their wages. The idea in the consultation would sort that out and leave them motivated to stay in the rental market while encouraging new landlords to invest.

*It’s such a good idea that it won’t happen*. Something like it was done when the holiday cottages scheme was launched, but the ability to offset rental allowances against general income was so popular the Government took fright and it lasted only a year. It is this type of radical tax approach that’s needed to help get us out of the housing slump."

http://www.irishexaminer.com/business/tax-plan-to-keep-landlords-in-the-rental-business-446799.html


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## Dermot (3 Apr 2017)

Another idea might be to allow the same relief on inheritance of rental property as other businesses and farmers can rely on.  I would expect that the business would have to continue in the rental sector to benefit from this.  The rental property business is very capital intensive and it is quite difficult to expand it to generate a decent living and make repayments and paying all the associated taxes.  You can spend a lifetime at it and all you seem to have done is work/make payments to the bank and pay taxes.  Some people maybe lucky and hit the jackpot but for the majority it is a grind. 
Outside the major cities it is quite difficult to make the rental business worthwhile and the vulture funds certainly will not be investing in those areas and without some meaningful incentive in areas like this the exodus of landlords will continue.
I have given up on any relevant and meaningful incentives from politicians that will make the market fair to all sides.  Populism will always trump doing the right thing when politicians are involved.


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## Sophrosyne (4 Apr 2017)

Sarenco said:


> Interesting piece on the current consultation exercise by Brian Keegan (Director of Public Policy and Taxation at Chartered Accountants Ireland) –



"At the moment it’s like there’s a ringfence around a landlord’s income. Accidental landlords could be losing money hand over fist on the tenancy, yet paying PAYE through the nose on their wages. The idea in the consultation would sort that out and leave them motivated to stay in the rental market while encouraging new landlords to invest."[/QUOTE]

Should legislation be constructed around “accidental" landlords?


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## Sarenco (4 Apr 2017)

Sophrosyne said:


> Should legislation be constructed around “accidental" landlords?



I don't think it needs to be that complicated.

If somebody runs two businesses - one profitable and one loss-making - they should expect to pay tax on the net position.  There is no logical reason to treat a residential letting business as a special case that should be taxed separately.

In calculating the taxable profit, all expenses properly incurred in operating a residential letting business should be fully deductible.  Again, just like any other business.

If there is a clear and logical approach to the tax treatment of residential letting businesses that would give much needed certainty to market participants and would remove the current distortions that are obvious in the allocation of capital.

I think it is inevitable that thousands of "accidental landlords" that bought at, or near, the top of the market will exit the residential letting business as soon as they emerge from negative equity unless we see significant changes to the unfair taxation of this business.  Ultimately, their tenants will suffer as a result.


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## Gordon Gekko (4 Apr 2017)

Hi Sarenco,

I agree with you, but the losses point is a bit of a red herring; I doubt that there are very many landlords making a loss on a residential investment property.

And the items that can't be deducted are thin on the ground; 20% of the interest (which is en route to 0%), LPT, and that's about it.

Gordon


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## The Horseman (4 Apr 2017)

The simple fact is that landlords should be treated like any other business. All businesses get capital allowances for the building which is normally over a 25 year period. In business costs are deductible, I can assure you landlords are making losses on a residential property investment. Landlords who bought at the boom levels are making payments on mortgages that exceed the net income they receive from rental.

Investment property values are not being allowed find their natural value as the govt is continually interfering with the market due to populous views. This interference is seen both in the various legislation enacted and also in the tax treatment of individual landlords. Investors will leave the market and no new ones will enter because the market is not allowed function the way it should and this is most notable in the tax treatment. Treat landlords like any other investors and let them take the rough with the smooth.


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## Sarenco (4 Apr 2017)

Hi Gordon

I personally know of a number of situations where a residential letting business was loss making last year for a variety of reasons.  The losses can obviously be carried forward but cannot be netted against other taxable income.

In any event, my key point is that a residential letting business should simply be treated the same as any other business for tax purposes.  No gimmicky tax incentives are required.


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## Gordon Gekko (4 Apr 2017)

The Horseman said:


> Landlords who bought at the boom levels are making payments on mortgages that exceed the net income they receive from rental



That doesn't constitute a loss.

Mortgage repayments are made up of capital and interest; only the interest element is relevant when ascertaining whether one is making a loss or not.


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## The Horseman (4 Apr 2017)

it does constitute a loss if the value of your investment is less than you paid for it when you come to dispose of it.


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## Gordon Gekko (4 Apr 2017)

The Horseman said:


> it does constitute a loss if the value of your investment is less than you paid for it when you come to dispose of it.



For which you get a capital loss.

A business wouldn't get a trading deduction for such a loss (on an investment).


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## The Horseman (4 Apr 2017)

A capital loss is only useful if you have something to offset it against. what if you are selling your one and only investment property.


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## landlord (4 Apr 2017)

The sky rocketing headline rents as seen on the daft website and which the media are constantly quoting are only achieved by an extremely low percentage of those landlords currently renting.  Existing tenants are not moving as there is nowhere to go.  I would imagine 95% or more of propertys currently being rented are at least 30% below these headline rents.  I know this is a guess but with the 4% rent cap my rents are at least 35% below the average current daft rents in my area.  My point is that with current average rents way below  headline figures perhaps less people are making as much profit as we think especially those on variable rate mortgages.


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## T McGibney (4 Apr 2017)

Gordon Gekko said:


> Hi Sarenco,
> 
> I agree with you, but the losses point is a bit of a red herring; I doubt that there are very many landlords making a loss on a residential investment property.
> 
> ...


Motor & travel costs incurred in the management of the property. Local property tax. Repairs & maintenance costs that involve an element of improvement.


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## Bronte (4 Apr 2017)

Nordkapp said:


> the 8 year depreciation for wear and tear items is a joke given white goods tend to last just 3 years.



White goods don't only last 3 years, that's not my experience but they certainly last less than my own white goods.  You're allowed to write off the total after the 3 years if the item is caput.  ie you write off the balance.


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## Bronte (4 Apr 2017)

Sarenco said:


> IPOA reaction to consultation reported here:-
> http://www.irishtimes.com/news/cons...em-overhaul-under-department-review-1.3016144
> 
> I think the basic principle that the provision of residential accommodation should be taxed like any other business endeavour - no better and no worse - is absolutely sound.  Any other treatment simply creates distortions in terms of the allocation of capital.
> ...



It's absolutly unreal the amount of changes they constantly do.  I think us landlords are an easy bunch to attack. There is no logic to not treating us like any other business.


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## Sarenco (4 Apr 2017)

landlord said:


> My point is that with current average rents way below  headline figures perhaps less people are making as much profit as we think especially those on variable rate mortgages.



Agreed and it's also worth bearing in mind that BTL rates are now typically north of 5%.


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## Sophrosyne (4 Apr 2017)

It may be useful to summarize how rental income is not treated the same as any other business.


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## The Horseman (24 May 2017)

I am aware of the Capital nature of tax and the various incentives offered over recent times. The question I asked is about the depreciation charge and its affect on taxable income (Rental income) not the tax on disposal etc.


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