Noonan’s Useless Tinkering With Landlords’ Interest Relief

January 6, 2016

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.

noonan

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?


Revenue abandon Lenihan’s Professionals’ Tax Plan

March 25, 2011

Revenue have today abandoned Brian Lenihan’s plans to tax employees on professional subscriptions and membership fees.

In an eBrief unveiled this evening,  Revenue confirm that most professional subscriptions will continue to be exempt from tax under Benefit in Kind rules.

This reverses the former Finance Minister’s announcement in last December’s Budget, that the existing Benefit in Kind exemption on these fees would be scrapped from January 2011. This would have meant that where an employer paid a professional membership or subscription fee on behalf of an employee, the employee would have faced a tax, PRSI and USC charge on the amount paid.

Today, Revenue confirm that the exemption will still apply

  • Where the employee is required by law to be a member of a professional body, in order to carry out their work. This includes architects who (under the Building Control Act 2007) must be registered with the Royal Institute of the Architects of Ireland; and Health care professionals who are obliged by the  Health and Social Care professionals Act 2005, to be registered with the Health and Social Care Professionals Council.
  • Where the employer requires the employee to hold a practising certificate or licence, eg accountants  working in professional practices.
  • In certain other situations, where the employee is a member of a professional body which is relevant to their occupation.  This will cover accountants, engineers and others working in professional capacities in industry.

Revenue stress that the BIK exemption applies only where the professional subscription is relevant to the employee’s work. They cite practical examples to show that the exemption will not apply to a qualified architect who works as a HR manager, or a trained solicitor working as a media presenter.

The Revenue eBrief on this subject outlines 11 practical examples which illustrate how these rules will work in practice. Revenue also stress that Benefit in Kind PAYE, PRSI and USC must be charged on all cases not covered by the exemption.

I think this is a very positive move on Revenue’s part. The original plans to scrap this BIK relief were badly thought out, and a very poor appreciation of the much-vaunted ‘knowledge economy’.  It is nice to see Revenue taking action to restore this relief in most cases.

That said, I wonder would  such a u-turn have been politically possible if Mr. Lenihan was still Minister for Finance. Maybe it is time for his successor Michael Noonan to work alongside  Revenue in reversing some of the anti-business and anti-employment measures introduced in recent Budgets – several of which have proved in the meantime to be counter -productive.



Budget 2011 Latest

December 7, 2010

The 2011 Budget has been announced by Brian Lenihan, Minister for Finance.

Budget 2011 Cuts - Brian Lenihan Minister for Finance

The key tax measures announced by the Minister in his Budget Speech are as follows:

  • Income Levy & Health Levy to be replaced by a new Universal Social Charge.
  • Tax Bands and Credits to be cut by 10%
  • Nine tax relief schemes are to be abolished
  • Restrictions on the carry forward of property-based capital allowances and Section 23 reliefs.
  • Capital Acquisitions Tax tax-free thresholds to be cut by 20%
  • D.I.R.T. tax increases to by 2% from 25% to 27%.
  • Pension Tax relief employee PRSI & levy relief to be abolished.
  • No change to 12.5% Corporation Tax rate.
  • Employer PRSI relief on employer Pension contributions to be cut by 50%
  • Business Expansion Scheme to be revamped & renamed – a new investment limit of €10 million will apply up to 2013.
  • Accelerated Capital Allowances scheme for energy efficient equipment is to be extended.
  • Major revamp of Residential Stamp Duty with a 1% flat rate on transactions  up to €1m, 2% thereafter. All current Residential Stamp Duty exemptions & reliefs to be abolished – changes apply from tomorrow 8 December, transitional arrangements for contracts in progress, once they are completed by 30 June 2011.
  • Major changes to Relevant Contracts Tax with a cut from 35% to 20% for contractors with an established compliant tax record. Existing rate of 35% will continue to apply to other contractors.
  • Travel Tax to be cut to €3 from 1 March 2011, subject to review at end of 2011.
  • Excise Duty rises of cent per litre on petrol, 2 cent per litre on auto diesel, applying from midnight tonight.
  • Internet betting to be subject to Betting Tax as applies to Betting Shops.

The Minister’s speech is now online.