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?


Minister Noonan’s Budget 2015 Speech

October 14, 2014

The full text of Minister Noonan’s Budget 2015 Speech is now online at: http://www.budget.gov.ie/Budgets/2015/FinancialStatement.aspx

Budget2015

 


No Change to Pay And File Deadline … For Now

November 20, 2013

The Department of Finance have announced that there will be no changes to the 2014 Income Tax Pay & File deadlines.

This good news follows a recent consultation process to consider alternative plans to bring forward the annual tax deadline from 31 October to 30 September or 30 June each year.

Pay & File Tax Deadline

Ominously, today’s Department statement emphasises that Finance Minister Michael Noonan still intends to introduce an earlier Pay & File date, but concedes that no such change will be made until this time next year, in Finance Bill 2014.

So we can’t be sure whether this frankly barmy idea has been ditched altogether (which I suspect), or is being merely kicked down the road for another 12 months.

So much for business and cashflow certainty…

The Dept of Finance Statement  and the details of the Consultation Process are online


Budget 2013 – Some initial thoughts

December 5, 2012

Some of my initial thoughts on (a rather unimaginative) Budget 2013:

Local Property Tax

I predict that the new Local Property Tax will create much difficulty for the Government within the coming year.

While Revenue will provide “valuation guidance”, this is likely to be tailored more to their own objectives (ie, raise as much tax as possible) than those of the property owner (the opposite) and will not be a particularly appetising option. The alternative option to hire “a competent valuer” to value one’s property will rankle with many people, especially as auctioneers and valuers:

  1. will, (quite properly), charge a fee for their services.
  2. as a group, have a long record of overvaluing properties (one of the main contributors to the Tiger-era bubble)
  3. have a vested interest in renewed property price inflation.

NPPR €200 Property Charge

Given the mess that the local councils have made of collecting the Household Charge (HC) and NPPR, it is quite correct that the new tax will be collected by the Revenue Commissioners. However, as with the HC & NPPR, I think it is a serious error to make the owner, not the occupier, liable. Quite simply, I believe that people should be encouraged, within reason, to own their own homes and the property market is likely to remain in the doldrums if individuals and families are incentivised to rent rather than own their homes.

The €50,000 ‘bands’ for the property tax are too narrow and in my view are a temptation to evasion. A wider band, of €100,000 or €150,000 would have generated the same tax revenue with a lot less scope for undervaluation.

It seems that  a minimum rate of €90 will apply to properties valued under €100,000. This may be okay for someone living in a €100,000 property (which may be more numerous than the Minister expects, given the quoted prices on local and online property listing), but a €90 charge is scarcely justifiable in the case of a person living (or more precisely existing) in poverty in a semi-derelict, low value property.

Among the Property Tax payment options is the facility to pay in cash. This is rather  ironic in the light of Revenue’s stated determination to stamp out the cash economy and the government’s wider policy to move towards a cashless society.

The facility for voluntary deferral of the Property Tax entails an interest charge of 4% p.a.  This is not the highest interest charge on the planet, but given the fact that people who opt for deferral will only be doing so on the basis that they are already in straitened circumstances, the fact that they are facing an additional interest charge will only add to their woes.

It is good that the Household Charge is being abolished  from 1 January 2013, but it is an absolute, and gratuitous, disgrace that the NPPR Charge on non-owner occupiers will be charged for 2013 in addition to the Property Tax. Another example of double taxation.

Business

I predict that the much touted “10 Point Tax Reform Plan” for SME’s will make little or no difference to almost all firms.

Budget 2012 Business Reliefs

The 3 Year Corporation Tax Relief for Start Up Companies has already been significantly diluted in earlier Budgets, and I honestly see little point in continuing with it, except perhaps for political window-dressing purposes.

The €250,000 increase in the VAT cash receipts basis threshold  (from €1 million to €1.25 million) is indeed a welcome measure, as is the doubling of the “initial spend” eligible for the R&D tax credit (from €100,000 to €200,000).

However the extensions to the Foreign Earnings Deduction for work related travel will need to be dramatic if they are to be of any use to Irish businesses. The Budget 2012 measure which allowed for this Deduction to apply only for travel to Brazil, Russia, India and China was laughably restrictive.

News of a long-awaited diesel rebate for hauliers, to apply from 1 July 2013, is very welcome, but the devil will be in the detail.

I fear that the new “PlusOne initiative” to employ long-term unemployed workers will be more window dressing.  The Irish economy needs small businesses and sole traders to hire more workers. If every one of our 270,000 sole traders (as per 2010 figures) and many more small companies, employed one extra person next year, our unemployment problem would be well on the way to being resolved. However this is unlikely to happen and I fail to see the logic in telling a young graduate (or even a not-so-young non-graduate) that they must rot on the dole for 6 months before an employer can be incentivised to hire them.

Farming

The extension of the farmers’ 25% & 100% Stock Relief incentives is a perennial feature of almost every Budget.  Sadly this Budget contains little else for the agricultural sector. The Stock Relief concession for beef production farm partnerships, and the  new farmland Capital Gains Tax relief for farm restructuring purposes are welcome but will have limited impact.

Film Industry & Tourism

The Budget promises an extended Film Tax Relief Scheme until 2020, with a new “tax credit model” in 2016 which will replace the current ‘‘high earner’ investor-driven incentive. Again the devil will be in the detail.

The 9% VAT rate for the tourism industry will continue  in 2013, but will this survive post-The Gathering into 2014?

Property

The Property Tax exemptions for “new or previously unoccupied homes” by 2016, and for 2013 first-time buyers, underline what I see as the key structural problems of the Property Tax, ie discouraging first time buyers and others from buying or trading up. The exemption for residences in “unfinished estates” may prove controversial if this is applied in practice in a fashion as arbitrary as the corresponding Household Charge exemption. Some people living in luxury estates found themselves unexpectedly exempt from the HC on the basis that their estates included a couple of vacant sites or unsold homes, while their neighbours in less salubrious neighbourhoods had to stump up the €100 charge.

Pensions

The continuation of tax relief on pension contributions at the 41% marginal rate of tax is welcome and a small, if significant, victory over the reactionary voices calling for the effective destruction of pension cover for private-sector workers. The measure to curb the relief on on pension pots projecting income of over €60,000 per annum is a sensible one, as are the scrapping of the 2012 private pension levy after 2014 and the ending of the reduced USC charge for high-earning over-70s.

I remain unconvinced of the wisdom behind allowing individuals to withdraw up to 30% of their AVCs. Withdrawals will be charged income tax at marginal rates and I fear that many people will erode their long-term financial security in a desperate attempt to pander to unreasonable demands from their banks or other lenders.

Budget 2013

PRSI

The increase from €253 to €500 in the minimum annual self-employed annual PRSI contribution is a reasonable move, as such contributions are invariably good value for self-employed people, yielding a contributory old age pension amongst other benefits. However the increased cost will by its nature exclusively hit low-income self-employed people many of whom will have to cope with property tax and other financial pressures.

The abolition of the weekly €100 PRSI-exempt allowance for employees makes sense from a crude mathematical viewpoint,  but again will impact, disproportionately but not exclusively, on low earners.

From 2014, PRSI will apply to employees’ rental income, investment income, dividends and deposit interest. In my view this is long overdue, as it has already applied to the self-employed for many years.

Income Tax 

The only Income Tax measure mentioned in the Budget Speech relates to Maternity Benefit, which will be treated as taxable income from 1 July 2013. The question remains as to why Maternity Benefit remains exempt from the USC.

Excise Duties

There is a most welcome absence of the threatened increases on excise duty on diesel and petrol.

The excise duty hikes on beer, cider and wine will do nothing for our struggling hospitality sector in the year of The Gathering, and makes something of a mockery of the special 9% VAT rate on tourist enterprises.

Capital Taxes

The rises in the Capital Gains Tax (CGT) & Capital Acquisitions Tax (CAT) rates from 30% to 33%, and the cut in the CAT threshold, each make sense at first glance but ignore the fact that they both discourage property owners sell or gift properties. As Minister for Finance, Charlie McCreevy, sharply increased the revenue from both tax headings by cutting the rates to 20%. This experiment is worth repeating and might yield surprising results.



Budget 2012 – More Highlights

December 6, 2011

The 2012 Summary of 2012 Budget Measures – Policy Changes is now online.

This includes the following points that were not fully addressed in the Minister’s Speech today.

Budget 2012 6 December 2011USC Surcharge on ‘Property Reliefs’ income – A surcharge will apply from 1 January 2012 on individuals with gross incomes over €100,000. The surcharge will be 5% on the amount of income sheltered by property reliefs in a given year. This will be operated as a a higher rate of USC and will apply to all ‘high earning’ investors with Section 23 or accelerated capital allowance schemes investments

Investors in accelerated capital allowance schemes will no lose their entitlement to unused capital allowances,  beyond the tax life of the scheme after 1 January 2015.

The new 2% Stamp Duty rate on non-residential property applies from Budget Day, 6 December 2011.

Consanguinity relief from Stamp Duty, which applies on transfers of non-residential properties between blood relatives is to be retained to the end of 2014 but will be scrapped after 1 January 2015. This relief provides for a 50% cut in the standard rate of Stamp Duty on intra-family transactions.

The €100 household charge will be replaced by a full property tax in 2014.

The increases in Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) from 25% to 30% will apply from Budget Day. The cut in the tax-free Group-A CAT threshold (most commonly parent-to-child gifts and inheritances) will cut the maximum tax-free sum from €332,084 to €250,000. This also applies with immediate effect.

A new CGT incentive relief applies to properties bought between Budget night and the end of 2013. If the property is held for more than seven years, the Capital Gain arising in that period will not attract CGT. This incentive is introduced with immediate effect.

The tax relief scheme for corporate investment in renewable energy projects is being extended from 31 December 2011 to 31 December 2014. This scheme encourages investment in approved renewable energy projects in the solar, wind, hydro (including ocean, wave or tidal energy) and biomass sectors

The exit tax on life assurance policies is being increased from 27% to 30% in line with the increase in DIRT tax on deposit interest. These changes apply from 1 January 2012.

The €200,000 Domicile Levy is being extended to include non-Irish citizens. The Budget 2011 version of this levy was an embarrassing failure with just 10 people declaring themselves liable to pay it by the recent deadline, according to RTE News last month.

The VAT rate increase from 21% to 23% will apply from 1 January 2012. Traders will therefore avoid the VAT hike on their pre-Christmas and pre-New Year Sales receipts.

The VAT rate on District Heating is being cut from 21% to 13.5%

Admission charges to open farms will become liable to VAT from 1 January 2012. This will be charged at the 9% VAT rate for tourist enterprises.

Excise Duty on cigarettes goes up by 25 cents (including VAT) for a packet of 20. A pro-rata increase applies to other tobacco products.

The Carbon Tax increase on petrol and diesel applies from midnight on Budget Day, with the corresponding increases in Kerosene, Marked Gas Oil, Liquid Petroleum Gas (LPG), Fuel Oil and Natural Gas applying from 1 May 2012.

Betting Duty of 1% is being applied to remote betting. A  Gross Profits Tax of 15% is being charged on betting exchanges. These will commence from the second quarter of 2012, subject to EU Commission approval.

Research & Development Tax Credit – The first €100,000 of qualifying R&D expenditure will benefit from the 25% R&D tax credit on a volume basis. The tax credit will continue to apply to incremental R&D expenditure in excess of €100,000 compared to the equivalent expenditure in the base year 2003.

The outsourcing limits for sub-contracted Research & Development costs are being increased.

A portion of the R&D credit may be used to reward key employees who have been involved in the development of R&D.

The annual ‘imputed distribution’ charge on Approved Retirement Fund (ARF) assets is being increased from 5% to 6% in respect of ARFs with asset values over €2 million. This comes into effect on 31 December 2012. A similar charge will now apply to vested PRSAs with assets in excess of €2 million.

The 20% ‘final liability tax’ on the transfer of ARF assets on the death of an ARF owner to their adult children is being raised to 30%.

The current 50% employer PRSI relief for employee contributions to occupational pension schemes and other pension arrangements is being scrapped from 1 January 2012.

Capital Gains Tax Retirement Relief

The existing unlimited retirement relief from CGT for transfers of ‘qualifying assets’ to family members will be maintained for individuals aged 55 to 66. An upper limit of €3 million will apply to such transfers made by owners over 66 years, after a two year transitional period.

The current upper limit of €750,000 for assets transferred outside the family is being retained for individuals aged between 55 and 66 years. However a lower limit of €500,000 will apply to such disposals by persons over 66 years after a similar two year transitional period.

 

 

 

 

 


Budget 2012 Live Updates

December 6, 2011

Michael Noonan, Minster for Finance is now delivering his Budget 2012 speech to Dáil Éireann.

Budget 2012 6 December 2011The Minister has announced the following Tax measures:

Corporation Tax

  • No change in the 12.5% Corporation Tax rate.
  • A special Assignee Relief Programme to attract multinationals’ executives to Ireland
  • New Foreign Earnings deductions for individuals developing markets abroad
  • International financial services sector boosted by measures to be announced in Finance Bill
  • First €100,000 of Research & Development expenditure to be allowed for R&D credit.
  • Corporation Tax exemption for new companies extended for a further 3 years.

Farming

  • Farm transfers to the next generation are to be incentivised
  • Significant fall in the rate of stamp duty for farmland and other commercial property
  • Retirement relief for CGT to be modified – no detail of this measure included in the Budget Speech.
  • Farm partnerships to be encouraged by 50% Stock relief for participating farmers and existing 100% Stock relief for young farmers
  • The 9% rate of VAT to apply to Open Farms

Air Travel Tax

  • Government are ‘prepared to negotiate’ with Aer Lingus and Ryanair to incentivise tourist routes into Ireland

Construction Sector

  • Stamp duty for commercial property to be cut to 2% overnight – the previous top rate was 6%
  • The current rates for residential property will apply
  • CGT exemption for properties bought between tonight and the end of 2013 – if they are held for 7 years.
  • Commercial properties – NAMA can now approve rent reductions in certain cases, even in cases where ‘upward only rent review’ clauses apply
  • Those who bought homes at the end of the property boom will gain by an increase in mortgage interest relief to 30% for those homeowners
  • First time buyers will get 25% mortgage interest relief for property purchases in 2012

Property Reliefs

  • Detailed policy measures to be made in Finance Bill
  • s.23 Reliefs to small scale investors will not be cut
  • Surcharge of 5% will apply to sheltered income where one’s income is over €100,000

Income Tax

  • No increase in Income Tax bands, rates or credits.
  • Universal Social Charge to be changed to help low paid seasonal & temporary workers – the exempt income level rises from €4,004 to €10,036
  • the USC will be collected on a cumulative basis in 2012

Value Added Tax

  • The Standard rate of VAT will rise by 2% to 23%
  • The other rates of VAT remain unchanged

Capital Taxes

  • Capital Acquisitions Tax & Capital Gains Tax go from 25% to 30%
  • Standard Exemption for Capital Acquisitions Tax (parent-child transfers) cut from €332,084 to €250,000

Investment Income

  • Deposit interest retention tax (DIRT) increased from 27% to 30%
  • PRSI will cover rental and investment income from 2013

Approved Retirement (ARF) Funds

  • ARF ‘imputed distribution’ charge increased to 6%
  • ARF tax on death of a child over 21 goes to 21%
  • Citizenship condition on domicile levy is scrapped
  • Carbon Tax goes up from €15 to €20 per tonne – a 33% increase. This increase does not apply to home heating oil or solid fuel.
  • Double income tax deduction for Carbon tax for farming
  • VAT Refunds on farm buildings will include wind turbines

Other

  • The income tax relief on pension contributions remains unchanged – tax relief will remain at the marginal rate of tax.
  • A household charge of €100 per household is being introduced. Certain limited waivers will apply.
  • Motor Tax increases to raise €47 million
  • A new export refund scheme will apply to exports of motor cars
  • The existing tax exemption for the first 26 days of disability benefit per annum is to be abolished. The Minister described this as ‘an incentive for absenteeism’

Excise Duty

  • Alcohol excise duty is unchanged.