Tax Reliefs Cost

Dáil Éireann Debate, Tuesday - 29 January 2013

Tuesday, 29 January 2013

Questions (250)

Róisín Shortall

Question:

250. Deputy Róisín Shortall asked the Minister for Finance further to Parliamentary Question No. 99 of 20 December, 2012 and in respect of the part of the question dealing with tax breaks on rental income from foreign property, if he will provide a breakdown by country of the location of the foreign properties with details of the amount of tax foregone by country; the rationale for continuing the regime whereby approximately €70 million of tax revenue each year is lost through allowing landlords to offset interest on borrowings against the rental income derived from properties outside the State; the benefits to the State of continuing this tax break; if any cost-benefit analysis has been undertaken of this tax break and if unpublished will he now publish same; and if he will consider using the Finance Bill to eliminate this tax break. [4133/13]

Written answers

Minister for Finance

I am informed by the Revenue Commissioners that as the information furnished in income tax returns in relation to foreign rental income does not require the location of these properties to be identified it is not possible to provide a breakdown of the properties in question by country of location as requested by the Deputy. I am also advised by the Commissioners that the legislative provision which allows a deduction for interest on borrowings used for the purchase, improvement or repair of rental property outside the State (section 71(4) of the Taxes Consolidation Act 1997 (TCA 1997)) was introduced by Finance Act 1974, and provides a similar deduction in respect of interest for the owners of such property as applies in respect of owners of rental property in the State (section 97(2)(e) TCA1997).

Rental income received by a property owner who is resident or ordinarily resident in the State from property outside the State is taxable here under the provisions of the TCA1997. As such, taxable rents from property outside the State form part of the property-owner’s total taxable income and are subject to tax here at the applicable rates in force when the charge to tax arises, currently 20% and 41% for income tax and 25% for corporation tax. They are also subject to the Universal Social Charge in the hands of an individual.

Discontinuing the existing interest deduction for properties outside the State could fall foul of EU law on grounds of discrimination in that different tax treatments would apply here for some residents of the State as compared with other residents of the State. In addition, it would likely fall foul of EU law in terms of restricting the free movement of capital within the Union. In those circumstances, discontinuing the interest deduction for foreign rental property could not be contemplated without a similar abolition of the deduction for all rental property owners. Such a move would have broader economic impacts, for example, by acting as a disincentive to potential investors in the Irish residential property market at a time when stabilisation and normalisation of the market is desirable.