The tax treatment of residential landlords requires a “fundamental overhaul” if the sector is to survive, the Irish Property Owners’ Association has said.
The unfair tax treatment of the residential sector, coupled with caps on rent, is driving landlords out of the the rental market, the organisation claimed.
It was commenting ahead of a Department of Finance review on the tax treatment of landlords.
The department recently published a consultation paper which seeks to determine if a “policy rationale” exists to introduce new tax reliefs or otherwise alter the tax system to incentivise landlords to remain in the residential accommodation market.
One of the issues under consideration is whether “accidental landlords” were likely to leave the sector as property prices rose. Accidental landlords are generally considered home owners forced to rent out their property, because they could not afford the mortgage or it no longer suited family needs, but were unable to sell because of negative equity.
The consultation paper asks whether a specific tax measure could incentivise these property owners to remain in the rental market as landlords.
Making the case for new reliefs, property owners’ association spokeswoman Margaret McCormick said: “Landlords’ income is treated as unearned income. The sector is not treated as a business, like any other business. Legitimate expenses are not treated as tax deductible.
“Landlords are leaving the business in increasing numbers. With any other sector in dire trouble the Government would be working to save that sector instead of looking at how if can be punished further.”
While the commercial rental sector gets 100 per cent mortgage-interest relief against rental income, the housing rental sector can only claim up to 80 per cent.
Commercial rates can be claimed against tax by commercial landlords, but residential landlords cannot claim Local Property Tax as an expense, Ms McCormick said.
“We need a fundamental overhaul of the tax treatment of the sector. All mortgage interest paid to the bank should be offset as an expense, as it clearly is an expense.”
However she said tax incentives should be targeted to the areas of the country that required them and should be time-limited.
“In certain areas, such as Dublin and the other cities where shortages are acute, there is a place for tax incentives, but in rural areas aren’t the same shortages.”
The Government could increase supply by allowing an exemption from income tax on long-term lets, a provision which already exists in the agricultural sector where there is an income tax exemption on the long term letting of farm land.
“A similar exemption, which could apply to a 12 year letting would facilitate the cultural change that is required to make long-term letting a viable part the market in Ireland.”
Properties could be rented unfurnished at lower than market rent, which would represent a saving to tenants and landlords and allow tenants to make a place feel like their own home, she said.
The association is also seeking the reinstatement of “refurbishment relief” to increase the standard of properties, and the ability to claim relief on making a rental property more energy efficient in the tax year it is spent, instead of when the property is sold.
