The Budget failed to address one of the key issues for landlords in the private rental sector, who are providing good quality homes for in excess of 600,000 people.
The so called Local Property Tax, billed for the funding of local services, should be collected from the people using the services under the “Users Pays Principle”. “This perpetuates a blatant unfairness in the system”, said Stephen Faughnan, Chairman of the Irish Property Owners Association. “This situation will inevitably result in rents having to rise, and represents another layer of of continuing unfairness.” Property Owners in the private rental market may now be forced to participate in an unfair tax code.
The only very slight crumb of comfort in the Budget for private landlords is that the inequitable Non-Principal Private Residence Charge and the Household Charge are being abolished, but their replacement with a Local Property Tax just continues the discrimination whereby tenants and a variety of others availing of local services do not have to directly pay for those services, unlike private home owners who may live next door.
In addition, private landlords are the only sector in society expected to pay tax on a loss and this Budget has done nothing to eliminate the anomaly of only 75 per cent of mortgage interest being offset against income tax as they do not have the benefit of property letting being treated as a business.
Below is the IPOA Pre-Budget Submission for ease of reference issued October 2012
IPOA Pre-Budget Submission
The private rental sector is now housing 19% of all households – that is 1/5th of all households. It is an essential component in the provision of accommodation in Ireland. However, the Buy to Let sector is in financial crisis. 55% of property owners surveyed had restructured their loans. Banks are forcing sales of properties.
Rents fell – market forces
Costs Increased -State Intervention
§ Reduction in Mortgage Interest Allowable to 75%
§ Household Charge
§ Increased Standards
§ Registration Charges
§ Refurbishment relief abolished
§ Property Tax
§ Water Charges
§ PRSI on rental income
At a time that the sector is on its knees, with severe debt problems, it was harshly targeted by the State, resulting in more significant difficulties. If this sector is not treated fairly, more repossessions will occur and the banks will be left with unnecessary debts; there will be a reduction in the amount of rental accommodation available; and owners who were asked to invest in their future will be further punished. We would ask for a few simple measures to help this sector:
Mortgage Interest Allowable
We would ask that the Mortgage Interest allowable be re-instated to 100% as a matter of urgency. This measure only affected people with borrowing, but it has resulted in investors in a loss making situation also having a liability for taxation. It has also resulted in reducing an investor’s ability to pay back capital on the loan. We are currently experiencing historically low mortgage interest rates and as these inevitably increase, the sector will not only face the higher interest rates, but will be burdened with the resultant increased taxes without any additional income.
The banks are now forcing investors to sell their rental properties and not lending to facilitate investors. We are starting to face a shortage of property at a time when rental property is required more than ever.
Buildings Energy Rating
By 2020, we have to reduce our energy consumption as directed by the EU to comply with Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy performance of buildings: “The existing and proposed measures listed by Member States may include, in particular, measures that aim to reduce existing legal and market barriers and encourage investments and/or other activities to increase the energy efficiency of new and existing buildings, thus potentially contributing to reducing energy poverty.”
We would request that any money spent on making a rental property more energy efficient should be allowable in the tax year it is spent, rather than as a capital expense. This would:-
·encourage Investors to make their property more energy efficient
·reduce energy costs and benefit tenants
·help create employment
·reduce carbon emissions and help achieve 2020 target.
Property Tax/Water Charges/NPPR
The taxes that are, and have been, introduced to fund Local Authority Services and water charges should be paid by the user. The “user pays” principle is the fairest system, with waivers available for those on low incomes. Property owners if in a profit making situation will pay tax each year at their marginal rate, and USC, while they have already paid Stamp Duty when investing, will pay Capital Gains Tax when selling, and are now to be levied with PRSI on rental income without any tangible benefit to them. They are already sufficiently taxed.
Good quality accommodation is required for the 19% of the population residing in the private rental sector. Rental property needs to be refurbished regularly to maintain good standards. We would ask that the Refurbishment Relief which was withdrawn on the 31st July 2008 (Section 11 Finance Act 2006) be reinstated.
PRSI should not be brought in on rental income; it is another unfair imposition on the private rental sector. It should not be brought in on gross rent, or on what is currently classed as net income. It will just increase the losses that are being made as a result of paying tax on expenses and will not produce any tangible benefit to those in the business of providing private rental accommodation.
The State is obligated to house its citizens and the private rental sector, vital in the provision of accommodation, should be seen as a partner of Government. These are not costly measures but will help ensure the supply of good quality accommodation that provides homes for 1/5 of all households in the country.