Finance Minister Michael Noonan has recently moved to restore the full 100% interest tax deduction to landlords who rent properties to tenants availing of social housing supports – but only after a waiting period of 3 years.
At present, a residential landlord’s income tax deduction for interest paid is restricted to 75% of the interest they incur on borrowings used to purchase, extend or refurbish a rental property.
The 75% restriction dates from 2009 when the late Minister Brian Lenihan adopted a number of tax measures aiming to discourage investment in rental residential property in the wake of the Celtic Tiger crash.
Unsurprisingly this policy has since proven disastrous. Today, not only do we have severe housing shortages in most major towns and cities, with spiralling rents to match, but new property investment remains at a standstill.
So the problem is set to get worse – much worse – before it gets better.
In these circumstances, I would have expected Minister Noonan to finally bite the bullet and roll back his predecessor’s failed policies. An obvious, and relatively straightforward start would have been to restore the interest deduction against taxable rents to 100% of the interest cost.
This, the Minister has done, in an amendment to the 2015 Finance Bill – but only for a very narrow range of landlords and only after a 3-year waiting period.
From 1 January 2016, a landlord can enjoy the full 100% interest deduction where they provide accommodation to tenants in receipt of social housing supports, eg Department of Social Protection Rent Supplement, and the Housing Assistance Payment (HAP) and Rental Accommodation Schemes (RAS) operated by local authorities.
However they can only claim the additional 25% interest deduction after 3 years (ie starting in 2019), and subject to a number of additional and as yet unspecified, conditions.
For example, if you’re a landlord availing of this new relief, and your annual interest cost is €10,000, you can claim the following tax deductions for interest incurred:
2016 Claim: €10,000 @ 75% = €7,500
2017 Claim: €10,000 @ 75% = €7,500
2018 Claim: €10,000 @ 75% = €7,500
2019 Claim: €10,000 @ 75% = €7,500
+ 2016 25% interest €2,500
+ 2017 25% interest €2,500
+ 2018 25% interest €2,500
Total claim €15,000
In my opinion, this is ridiculously complicated, so much so that it’s actually unworkable.
It’s time for the Minister to act decisively and scrap the interest restriction altogether, instead of this timid and probably counterproductive tinkering.
Such a move would help to relieve the notoriously heavy tax burden on landlords, and also assure anyone considering a new property investment in the next year or so that the Government won’t rip them off on a whim whenever it suits them to do so.
Is this too much to ask?