"Reluctant landlords" should be facilitated

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.)

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?

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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.

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.

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

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.

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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.

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.

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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.

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.

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.

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?

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

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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.

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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?

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As I said it lessens their losses.

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.

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

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.

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.

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?

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?

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.

...

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.

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)

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?