Tax Treatment of Landlords has to be Revisited

[Always Learning]

“I do think we need to do something for individual landlords who have stayed in the market because we can’t have a situation where for the last six years we’ve had the individual landlords leave the market. That is a concern for me to have to deal with,” said O’Brien.

Maybe some tax relief is on the way. I know this was floated before the last budget and never came to fruition, but perhaps they were just testing the water. Maybe I'm being naïve, but I do think some tax breaks are coming for smaller landlords and this seems the government are putting out the feelers to see what the public sentiment is like before pulling the trigger on something toward the end of the year.

 

[Páid]

He seems to be pushing this again - https://www.askaboutmoney.com/threa...dlords-from-exiting-the-rental-market.227264/

 

[Brendan Burgess]

Is there something wrong with the tax treatment of landlords?

They get full tax relief on interest paid - unlike investors in shares who get no such tax relief.

There are some minor issues about treating LPT as a deduction and pre-letting expenses. But fixing these would not affect the decision to invest in or divest from residential property.

So it's not fixing the tax treatment. It would be providing some tax incentives to keep people in the market.

But it would be far better to fix the crazy regulation of the sector and rebalance the rules to make the treatment of landlords and tenants fairer.

Brendan

 

[T McGibney]

Is there something wrong with the tax treatment of landlords?

Yes Brendan there is. The tax treatment of rental income as "passive" or "unearned" income, for example its exclusion from eligibility for pension contribution tax relief, is highly damaging, and an illogical relic of the 1970s socialism that sought to punish investors.

They get full tax relief on interest paid - unlike investors in shares who get no such tax relief.

Red herring. It would be madness to tweak the tax system to encourage individuals to borrow to invest in shares.

There are some minor issues about treating LPT as a deduction and pre-letting expenses. But fixing these would not affect the decision to invest in or divest from residential property.

The laws of economics suggest otherwise. Every incentive and disincentive to supply respectively affects supply.

So it's not fixing the tax treatment. It would be providing some tax incentives to keep people in the market.

That's needed too.

But it would be far better to fix the crazy regulation of the sector and rebalance the rules to make the treatment of landlords and tenants fairer.

There's no reason why the tax system shouldn't be included in any such rebalancing. After all, it's the same ideology and prejudice that has given rise to both the crazy regulations and the punitive tax rules.

 

[Brendan Burgess]

The tax treatment of rental income as "passive" or "unearned" income, for example its exclusion from eligibility for pension contribution tax relief, is highly damaging,

It's hardly "highly damaging".

Most people do not use up the full contribution limits on their earned income, so I doubt it would make that much difference.

Again, if the Minister announced in the morning that he was going to allow landlords to add their rental income to their reckonable income for pension purposes, I doubt if it would affect the decisions of many landlords.

Brendan

 

[Páid]

I think he recognises that there is an issue with individual landlords leaving the market and he wants to address it.

But it would be far better to fix the crazy regulation of the sector and rebalance the rules to make the treatment of landlords and tenants fairer.

Maybe the Minister would like to do both (fix regulation and provide tax incentives for individual landlords).

 

[T McGibney]

It's hardly "highly damaging".

Most people do not use up the full contribution limits on their earned income, so I doubt it would make that much difference.

Again, if the Minister announced in the morning that he was going to allow landlords to add their rental income to their reckonable income for pension purposes, I doubt if it would affect the decisions of many landlords.

Brendan

It is highly damaging Brendan. My landlord clients have tended almost uniformly tended to recoil in horror when it's explained to them that it's impossible to shelter rental income against what for most of them is 50%+ tax. It's a perverse state of affairs when we don't have enough investment in residential property.

 

[RonnieShinbal88]

Take the recent case in the IT where tenants are 70k in arrears (rising to 75k) plus legal fees to get them out at all (another 20k).
Then you have property market risk of an additional drop of 20-50% of the property value.
That's massive risk for any asset, is that a low risk/low yield investment?
Its starting to make Bitcoin look appealing!

Agreed addressing the risk side would make more sense but it's political poison for them so they seem to be looking at increasing the yield side to compensate some of the massive risks for small landlords.

Either way I wouldn't trust him, any tax changes can quickly be revoked when they are less desperate, it woudn't make sense to do long term investment planning around them.

 

[The Horseman]

Is there something wrong with the tax treatment of landlords?

They get full tax relief on interest paid - unlike investors in shares who get no such tax relief.

There are some minor issues about treating LPT as a deduction and pre-letting expenses. But fixing these would not affect the decision to invest in or divest from residential property.

So it's not fixing the tax treatment. It would be providing some tax incentives to keep people in the market.

But it would be far better to fix the crazy regulation of the sector and rebalance the rules to make the treatment of landlords and tenants fairer.

Brendan

We have a housing crisis which is getting worse by the day. We were able to introduce the PIP during the pandemic, we have special treatment for farmers in respect of various forms of farm relief. There appears to be an ideological resentment to landlords and to be seeing to do anything to benefit landlords. People fail to realise its those looking for a rental property who are suffering the most.

In my opinion the way the govt has dealt with the small landlords has backfired on them spectacularly and now they are scrambling around to try do something to improve the situation.

Ironically what people fail to realise is that the small landlord in the main is just your ordinary Joe, the local tradesman, somebody who maybe sacrificed to get a deposit together to buy an investment property, accidental landlords etc.

 

[RonnieShinbal88]

I don't think they are scrambling around at all, it was entirely predictable, just following the trend over the last 6 years, that the approach with small landlords is leading to more and more getting out and eviction bans etc. would scare more out. This isn't new information, they knew.

What this is about in my opinion is being seen to do something, so the minister can deflect the obvious questions around driving small landlords out and cover himself.

'Well we offered them tax incentives/did our best etc.' - a last minute sticking plaster thrown too late, still in its packet.

What has changed since the budget why didn't they implement this then?
He says himself it's a trend that has been ongoing for 6 years.

 

[triggs]

Crazy regulation Yes I agree.You buy a share ,get a dividend and hopefully sell with a gain.It is passive.It does not put roofs over people's heads.More importantly if you are a landlord who takes an active interest in maintaining a property your time and work is not an allowable expense.It is certainly not passive or unearned income

 

[Always Learning]

What has changed since the budget why didn't they implement this then?
He says himself it's a trend that has been ongoing for 6 years.

I think / hope that that the intention here is to introduce this idea slowly to the public, in order to avoid backlash and outrage. Landlords have been demonized over the years (rather unfairly IMO) so the government have to be careful with giving us any kind of breaks. However, as the housing crisis gets worse I do get the feeling that the court of public opinion is easing up on landlords and looking more toward the government. I think most people would be happy to support incentives for landlords if it were tied to improving circumstances for the tenant also (say capping the rent but reducing the tax to be paid so that the landlord still ends up with a bit more in his pocket and the tenant pays a little less. Just an example). I don't think it was ever intended bring these measures in at the last budget, but I think it will be introduced slowly to the public through little sound bites like that from O'Brien and it will be introduced at a later stage once people have let it settle in.

Is there something wrong with the tax treatment of landlords?

I didn't actually say there was, I'm relatively happy with my lot, although some valid arguments could be made. I'm just circulating the comments that are being made for discussion purposes. Personally, I'm a landlord so I'm biased and I would love if we were to get some incentives or tax breaks. It's only natural to want the best for your situation. I do also genuinely believe that if you want to encourage people to stay or enter it market, then incentivising people to do so is one of the best ways. If the government want private landlords to help out in allieviating the housing crisis, then they will need to encourage people to do so. Over the last few years it seems they have been trying to run people out of the scene.

 

[KOW]

Roughly.
Own Apt. outright worth 270k.
Rented out to council long term lease up in 2yrs.
Rent 1520x12=18240 yearly. Expenses approx, 3240 per annum.
Tax on 15000 roughly 7500. Profit 7500 per annum.
Bye bye as soon as lease up. Rather buy a few shares that should perform a lot better long term and are far more liquid.

 

[NoRegretsCoyote]

Is there something wrong with the tax treatment of landlords?

They get full tax relief on interest paid - unlike investors in shares who get no such tax relief.

This is true.

But, compared to investment income an investment property is over say a two-decade horizon:
1 a lower expected return
2 a lot more work
3 a lot less liquid
4) higher risk

 

[Brendan Burgess]

Hi Coyote

Why should any of those factors affect the allowability of interest?

If I borrow €100,00 to invest in shares and pay €6,000 a year interest on my loan, why should I pay tax on the dividends of €4,000?

If I borrow €100,000 to invest in property and pay €6,000 interest, I can set that against the €4,000 rent.

I can't see any reason for treating them differently. But maybe I am missing something.

Brendan

 

[RonnieShinbal88]

Hi Brendan,

The reason (to be consistent with what has been going on recently) would be that the government is tasked with looking after the common good. They are currently using this part of the constitution to railroad property rights and prevent investors from selling their assets.

If investment properties in Ireland have become bad investments in the eyes of small investors and the reward does not match the risk taken, small landlords are going to exercise their property rights to sell and invest in something with a better risk/return profile. They are selling up en masse at a time of a dearth of supply. The minister is claiming that he doesn't want this, for common good reasons.

Tax breaks then would just be another case of bending normal rules for the common good, everything is on the table at this point via this constitutional clause, once you have ripped up property rights and played that one time only card you need to consider other extraordinary options.

The obvious enticement to stay in, is what we are hearing over and over from small landlords, and that is to speed up the eviction process for non-paying tenants. That is probably the single biggest risk faced by small landlords, followed closely by the risk of changes in regulations to enforce sales with tenants in situe. But they won't do that, because the opposition will have a field day on the government 'speeding up evictions' headlines.

The risk of massive rent arrears on top of the already large property price risk in Ireland is unappealing to an undiversified small landlord with a single property, I can say that because I am one and I'm getting out, and not to 'cash in', I would ideally like to stay in long term, but the risks are just ridiculous at this point for a relatively low yielding investment, and it's mostly politics.

 

[Brendan Burgess]

OK, from a fairness point of view, there should be no difference in the treatment of investors in property or investors in shares.

But if we needed more investors in shares, we can improve the tax treatment e.g. various B.E.S. schemes.

And we need to retain landlords, so give them a tax incentive to stay. I get that.

Not being a landlord, I am not sure what the motivations are. But I would have thought that if they addressed the difficulty in getting non-paying tenants out and the difficulties in selling your investment, it would have far more impact than, say, allowing them contribute a percentage of their rental profits to a pension fund.

Brendan

 

[RonnieShinbal88]

I think a large number of small landlords that are planning to get out would agree. But they won't address those things because they all seem to go against the tide of popular opinion. Really, we need someone independent to address housing policy, for the same reasons central banks are independent, the political pressures are too great to make the best policy decisions.

 

[Páid]

I can't see any reason for treating them differently. But maybe I am missing something

It's not about treating investors or landlords fairly. It's about keeping properties owned by individual landlords in the rental market. An existing vacant house can be put up for rent much faster than a house that has yet to be built.

If (long term) rental income was not taxed at all there would be a lot more accommodation up for rent.

I don't think there would be a backlash either if more properties became available and rents decreased because of supply and demand.

 

[Brendan Burgess]

If (long term) rental income was not taxed at all there would be a lot more accommodation up for rent.

I agree and very little for new houses for First Time Buyers to buy either.

I would probably invest in residential property if the income were tax-free.

Brendan