"Reluctant landlords" should be facilitated

[elcato]

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.

 

[JoeB]

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.

 

[csirl]

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.

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.

 

[JoeB]

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.

 

[Greta]

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.

 

[gearoidc]

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.

 

[JoeB]

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.

 

[callybags]

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?

 

[JoeB]

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.

 

[csirl]

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).

 

[JoeB]

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.

 

[elcato]

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.

 

[JoeB]

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.

 

[elcato]

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 ?

 

[csirl]

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.

 

[gearoidc]

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.

 

[JoeB]

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.

 

[JoeB]

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.

 

[elcato]

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.

 

[elcato]

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.

If you honestly believe this Joe, I give up.