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Dáil Éireann Debate, Tuesday - 17 April 2018

Tuesday, 17 April 2018

Ceisteanna (271)

Michael McGrath

Ceist:

271. Deputy Michael McGrath asked the Minister for Finance if the options set out in the report of the working group on the tax and fiscal treatment of rental accommodation providers dated September 2017 have been considered; his views on the short-term, medium-term and long-term options; and if he will make a statement on the matter. [16305/18]

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Freagraí scríofa

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. I examined the ten policy options that were put forward in the report in the context of the limited tax expenditure resources that were available to me for Budget 2018.  As the Deputy mentions, 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. I introduced one of these options in Budget 2018 - 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.

Another 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. The guiding principle for the Group is that housing policy requires the best evidence available to inform analysis, forecasts and decisions. The Group’s initial focus is to review the various sources of housing and housing related data collected nationally. Once gaps or deficiencies have been identified the Group will make recommendations for improvement.

A further 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 provided for. The second step, an increase from 80% to 85% deductibility, took effect from 1 January 2018.  It was decided not to further accelerate this deduction in Budget 2018 as to do so would have undermined the social housing tenancies incentive introduced in Finance Act 2015, which allows 100% mortgage interest deductibility where a landlord commits to let their property to social housing tenants for a minimum of 3 years. As of June 2017, the total number of tenancies registered for the scheme was 2,277.

Another short-term option identified by the Group was to consider introducing Local Property Tax (LPT) deductibility for landlords with an estimated cost of €28 million in a full year. In view of this cost, and the recommendation of Dr. Thornhill, in his 2015 review of the LPT, which recommended that a deduction should not be allowed because the concept of the LPT is linked to the amenity value of residential property which is of benefit to the tenant in addition to the landlord, I do not believe it is appropriate to allow a deduction for LPT at this time.

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.

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