Rental income, after deduction of allowable letting expenses, is subject to tax as part of the total taxable income of a landlord. Individual landlords are subject to income tax, including USC and PRSI where appropriate, at the current applicable rates. Expenses incurred in connection with the letting of a property are generally deductible under the Taxes Consolidation Act 1997, and wear & tear allowances are allowed for furnishings and fittings. A landlord may also claim mortgage interest deductibility, which in Budget 2019 was fully restored to the 100% rate, with effect from 1 January 2019.
I am advised by Revenue that it is not possible to determine the cost of a change to the present method of taxing rental income, as proposed by the Deputy. Although income streams may be identified separately in tax returns, this segregation is not maintained throughout the tax calculation process. As a result, it is not possible for Revenue to associate particular portions of net tax due with particular income streams, and therefore it is not possible to cost a proposal regarding a flat tax or a separate rate of tax on rental income.
The Report of the Working Group on the Tax and Fiscal Treatment of Rental Accommodation Providers, published by my Department on Budget Day 2017, identified the measure suggested by the Deputy as a possible long-term option. The report noted that this measure would represent a significant departure from current tax policy and, in addition to the cost of tax foregone by the Exchequer, there would also be significant administration costs associated with the development and implementation of a new system of taxation for rental income.
Following due consideration, I have implemented certain options contained within the Report over a number of Budgets. Specifically, in Budget 2018 I announced a new, time-limited deduction for pre-letting expenses incurred on properties that have been vacant for one year or more (option 4). The objective of this measure is to increase the supply of rental accommodation by incentivising the owners of vacant property to bring these properties back to the rental market. As already stated, in Budget 2019 I provided for accelerated restoration of full mortgage interest deductibility for landlords of residential property (option 1).
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. 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.