The Report of the Working Group on the Tax and Fiscal Treatment of Landlords was submitted to me for consideration in September 2017, in advance of its publication on Budget Day, 10 October 2017. The report put forward options for further consideration, rather than recommendations, and any further consideration would require the participation of several Departments and organisations, including my own Department. The ten options are split into short, medium and long-term options. Five potential short-term options were identified as measures which could potentially be implemented within 18 months, i.e. within Budgets 2018 and 2019.
One short-term option was to increase the mortgage interest deduction available to landlords. In this context, it should be noted that in Budget 2017, a phased unwinding of the restriction on interest deductibility over five years for all residential landlords was initiated. The second step, an increase from 80% to 85% deductibility, took effect from 1 January 2018. Budget 2019 accelerated progress in this area and, from 1 January 2019, the restoration of full mortgage interest deductibility for landlords of residential property has been in place.
A further option was to consider introducing Local Property Tax (LPT) deductibility for landlords. Earlier this year, the report of the interdepartmental review of LPT noted that LPT is a relatively small expense and therefore is unlikely to make a significant difference to the position of any individual landlord in cash terms and so may not be regarded by landlords as a sufficient measure to encourage them to stay in or enter the rental market. The report also found that the measure would also have a deadweight cost in respect of landlords who do not intend to leave the rental market and would create a more favourable position for landlords of property compared to owner-occupiers, as owner-occupiers cannot claim a tax deduction for LPT.
In Budget 2018 I introduced another of the short-term options, deductibility for pre-letting expenditure for previously vacant properties. This measure applies to residential premises which have been vacant for at least 12 months and which are then let after the date of the passing of the Finance Act 2017, i.e. after 25 December 2017. The expenditure is allowed as a deduction against rental income from that premises. It applies to expenses that would be allowable if they had been incurred while the property was let, such as the cost of repairs, insurance, maintenance and management of the property. Certain limitations are in place regarding this measure, for example the expenditure must have been incurred in the 12 months before the premises is let as a residential premises. The total deduction allowed is capped at €5,000 per vacant premises and the deduction will be clawed-back if the property ceases to be let as a residential premises within four years of the first letting. I prioritised this option as it was specifically designed to encourage an overall increase in housing supply by bringing currently vacant property back into residential use.
The final short-term option was to improve the collection and sharing of data on the rental accommodation sector. A significant issue that hampered the progress of the Working Group was a lack of robust data on various elements of the housing market, due to the differing metrics used by the various agencies. The Housing Analytics Group, chaired by the Department of Housing, Planning and Local Government, is currently active and a number of Departments and agencies are involved in its work, including the Residential Tenancies Board, the Central Statistics Office (CSO), Revenue and the Department of Finance.
Five of the options put forward in the report were medium-term and long-term options. Medium-term options are measures which work with the current tax system but might take longer to develop and implement, and as such would require a longer lead-in period. The long-term options look at the potential for more fundamental changes to the tax system, and so would require significantly greater resource commitments to progress. Consideration of these options will continue within the relevant time frames.
As the Deputy will be aware, taxation is only one of the policy levers available to the Government through which to boost rental and overall housing supply and that, in line with the Tax Expenditure Guidelines, consideration of whether a tax measure is the most appropriate policy tool for a given purpose would be required. Ireland’s past experience with tax incentives in the housing sector strongly suggests the need for a cautionary stance when considering intervention in the rental sector. There are many competing priorities which must be considered when deciding which policy measures to introduce and the rental sector is just one of many other sectors that may require assistance and intervention.