BUDGET 2016: RLAI Submission to Government on Landlord Taxation issues

Supply needs to be increased to cater for the increasing demand for accommodation in Ireland. Encourage new and existing Investors.

Background to RLAI submission

• Homelessness is now a major problem in the country with increasing demand for rented properties due to a shortage in supply.

• Our members believe that it is time for the government to introduce real measures to tackle the problem.

• With many landlords (up to 30% according to PRTB findings) planning their exit from the market, government urgently need to attempt to encourage potential investors into the market and existing landlords to remain in the sector.  

• Rather than deterring them with unnecessary regulations which are increasing the costs, tax and administrative burden on landlords as this will only lead to a further decrease in supply available to meet the increasing demands.

• The regulations in recent years in relation to bedsits, attempted to introduce a blanket ban on budget accommodation. This, coupled with the inequity in the tax system in relation to residential landlords has and will continue to deplete the supply of private rented accommodation.

Residential Landlords Association of Ireland (RLAI) proposes the following recommendations

• Capital Taxes

CAT (Inheritance & Gift Tax) is currently 33% and with the group thresholds having been more than halved in recent years, the effect is that rental type properties are being forced to be sold by a beneficiary in order to pay the tax liabilities.  With a high proportion of these properties being taken out of the rental sector the stock of rental properties is being reduced significantly.

The RLAI recommends that relief be provided to those who receive these type of properties to encourage them to continue to operate the properties as rental properties.

A reduction in the CAT rate and increase in the group tax free threshold would be welcome measures. This would help in maintaining the levels of available rental accommodation in the country.

• Capital Gains Tax

Capital Gains Tax is also 33%, increased from 20% over the recent years.

For potential investors, this is detrimental. Not only are income tax rates reaching 55%, slicing any potential rental profits (from which many expenses are not allowable in calculating the profits) but the hope for long term gain on the increases in asset value is overshadowed by the high tax on any gain from the eventual sale of assets.

RLAI recommend the introduction of a Retirement Relief for landlords (similar to that of those in business) that spend or have spent a greater part of their time as a residential landlords. This will without doubt encourage investment in the sector.

• Restore the loan interest as a 100% fully deductible expense

The restriction to 75% is a major deterrent to people considering investing in buy to let residential property. It does not apply to commercial property and therefore this discourages investment in the residential sector.

The effect of the reduction of the allowable portion results in landlords effectively paying income tax, USC and PRSI on amounts that are not profits.

RLAI recommend full restoration of interest as a fully deductible expense and the removal of this restriction would immediately benefit the housing crisis due to increased investment in the sector.

• Clarity in relation to deductible expenses – Property Tax

All expenses that are wholly for the purposes of obtaining rental income should be allowable expenses as with other sectors.

Property tax was to be an allowable expense to be introduced on a ‘phased basis’. Still no clarification on when this will be deductible. The lack of clarity around these types of expenses are further deterrents to new entrants to the sector.

The government should confirm the position – that these expenses are fully deductible – as soon as possible.

• Diminish the threat of additional regulations

There is a level of fear and uncertainty about ‘What is coming next?’ in relation to rent caps, deposit retention, blanket bans on budget accommodation and other measures that will in effect steer any potential investor away from the sector as well as enticing existing landlords to exit the sector.

We must also point out that as supply is increased to meet demands, rents will automatically reach a market equilibrium which, over time, will ensure more affordable and better quality accommodation and provide a choice for tenants depending on their budget.

RLAI recommend that the Government outline to the public and therefore existing and potential investors that their intentions will be to encourage investment in the private rented sector rather than increasing barriers to entry into the sector.

Conclusion

We understand that other measures regarding social housing will need to form part of the plan to tackle the housing shortages but a key element will always be the private rental sector. Until the government make a commitment to encourage investment by introducing some of these measures and reducing barriers, we will continue to see a decline in the supply of accommodation in the country.

Finally, we are available to meet with any government officials to discuss the above proposals at any point. Feel free to contact us.

Submitted by:

Liam Burns BBS, ACCA, AITI – Founding Committee Member of the Residential Landlords Association of Ireland

Contact Details:

RLAI: Info@rlai.ie  | Liam Burns: info@liamburnsandco.ie