Brian Keegan: There are better ways to stem exodus of small landlords

Any new tax relief shouldn't make matters more complicated for smaller landlords

Sun, 12 Jun, 2022 - 15:09

As the housing crisis deepens, it is hard to know what to make of reports in recent days that the Government is considering a new system of tax incentives for smaller private property investors. The suggestion is that as long as a landlord fits a certain profile, and charges rents below a particular threshold, some additional tax relief will be available to take rents out of the charge to income tax, at rates of as much as 52% when USC and PRSI are added in.

Proposing a new property tax relief represents quite a change of approach from official Ireland. Up until relatively recently, any suggestion or proposal to introduce tax relief for rental accommodation was dismissed out of hand. Excessive and extended tax reliefs did contribute to the 2008 property crash, but the world has changed and there is growing evidence of a genuine exodus of smaller investors from the rental market.

This exodus seems strange given the increase in rental costs for private accommodation over the past several years. Lucrative markets normally attract investors, not repel them.

However, the onus on landlords to comply with the increasingly strict Residential Tenancies Board requirements and the difficulties associated with troublesome tenants mean that the private letting market is not for the fainthearted.

That’s before the upfront capital cost of getting involved in the first place.

Since 2008, the tax system has been well and truly loaded against the private landlord. While a company can let residential property and pay a 25% corporation tax on rents, the rate can be double that for private individuals. There is little or no upfront tax relief for the refurbishment or improvement of rented residential property. Nor is any tax relief available on the capital cost of the building itself, while any profit on the sale will attract capital gains tax at a rate of 33%.

The Irish tax system is already littered with tax reliefs which are so complex and so restrictive in eligibility that they are hardly ever used. They help nobody except the politician who announced it in the first instance, providing an illusion of action without much in the line of a positive outcome.

And there can be no doubt that real progress is needed. The challenge and the crisis in the provision of affordable accommodation is about supply. The solution is simple to articulate if not to deliver. New housing units need to be built more rapidly than are currently being built. Though the housing output has improved, it will be some time before the new property build rate matches the level of demand.

Unless and until the fundamental problem of supply is addressed, a new income tax relief will only sustain some rental availability at best. It will not be sufficient to tackle spiralling rental costs.

Nor should any new tax relief, however useful, make matters more complicated for smaller landlords. We need to simplify their tax situation by treating rental income the same way as any other business income and not as a special category which is a hangover from British colonial influence on our law. That would mean, for example, that in a lean year for a landlord, some rental losses could be offset against PAYE income to reduce the overall tax bill.

This would be one of the more obvious ways of providing tax relief than introducing yet another set of special conditions and hoops through which landlords might be asked to jump.