Is it time to bring back tax relief for renters?

At its peak, it cost about €100 million a year and helped more than 200,000 renters meet their accommodation bills. Now, with rents at historic highs amid a cost-of-living crunch, could it be time to bring back tax relief on rent?

Rent credit

Introduced in the 1982 Finance Act, tax relief on rent first applied for the 1983-1984 year of assessment and subsequent years. At the time, it applied only to individuals aged 65 or over, and worked by reducing the amount of income that was subject to tax.

The maximum deduction was £1,000 (€1,270) for married couples, and £500 (€635) in all other cases. It was subsequently opened to those aged 55 and over in 1985.

Then, in 2000, the way the relief was offered changed. It was decided to offer relief by way of a tax credit, rather than a deduction. This meant that it would be used to reduce the income tax liability payable by the claimant going forward. It was also opened up to everyone, regardless of age.

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The credit was worth £750 (€953) for an individual under the age of 55 when it was first introduced in 2000, but steadily increased in the following years, in line with rising rents.

By 2007-2008, the peak of the Celtic Tiger years, the credit stood at €1,800 for someone under the age of 55, or €3,600 for someone 55 or over. The relief was also worth €3,600 for a married couple, or widow/er, and double that for a couple or widow/er aged 55 or over – so €7,200 at most.

It’s important to note that the credit didn’t equate to an equivalent savings in tax for a renter; rather, as with other tax credits, it was calculated based on the standard rate of tax – 20 per cent. This meant that a 30-year-old, for example, benefited to the tune of €360 a year (€1,800/100 x 20) from the relief , while a pensioner paid €720 less in tax due to the credit, and a pensioner couple €1,440 a year.

Not everyone would have qualified for the credit, as, like help to buy today, you had to pay enough tax to benefit from the full amount. So, for example, if a pensioner couple paid only €1,000 a year in tax, they would not be able to benefit from the full amount – €1,440 – of the credit.

Moreover, the tax credit scheme was restricted to people who paid rent in private rented accommodation, including flats, apartments or houses, but not rent paid to local authorities or the Army.

To claim the relief, tenants had to have a receipt of their rental payment, on which was shown the landlord’s name and PPS number, the amount of rent paid and the period covered by the receipt.

In 2010, as the economy sank, the scheme was withdrawn. Its withdrawal was on a phased basis between 2011 and 2017. During this time, only those who had been renting on December 7th, 2010, were entitled to claim it, while the relief was steadily reduced.

It was withdrawn completely in December 2017, by which time, the maximum credit was €800, which gave a reduction in tax of just €160 a year – a sharp fall on the €1,440 maximum enjoyed in 2007.

The cost

According to Revenue figures, the scheme peaked in 2008 when some 221,000 tenants claimed the relief, costing the exchequer some €96.5 million, for an average rebate of €437.

Thereafter, the numbers claiming declined as the relief became more restrictive. In its last year of operation, 2017, 117,100 renters obtained the relief, at a cost of just €6.3 million – an average payment of just €54 each.

Many think now is the time for it to come back.

"The reintroduction of it would be very welcome, given the financial pressures that are on people right now," says Barry Cahill, business development director of wellbeing with Taxback. com, noting that it was a credit people frequently availed of to reduce their tax liability.

If it was to be reintroduced, it is not clear, however, what the cost might be. Figures from the Central Statistics Office, based on the 2016 census, show that 326,493 people were in private rented accommodation that year, an increase of just 2 per cent on the figure for 2011. This is not say, however, that all these people would qualify for the relief or would have sufficient earnings to benefit in full from the relief.

Speaking in the Dáil in 2018, Minister for Finance Paschal Donohoe indicated that Revenue could not cost the scheme, as it could not "accurately predict either the numbers of tenants that could be eligible to claim a rent credit were it to be reintroduced post 2017 for all tenants".

The real issue, however, is unlikely to be a significant increase in the number of tenants looking to make a claim; rather it’s how much a scheme would cost if it were to offer meaningful relief to tenants.

Rental growth

Back in 2008, at the peak of the scheme, the average monthly rent in Dublin in the first quarter of the year was €1,239, according to the Residential Tenancies Board (RTB), and €824 outside the capital.

This meant that a married couple in Kilkenny, with annual rent of almost €10,000, would have benefited from the tax credit to the tune of €720 – paying that amount less in tax. So the tax credit then accounted for 7.3 per cent of their annual rent, and worked out as being almost enough for one month’s rent in full.

In Dublin, the credit accounted for about 5 per cent of average annual rent, and almost two-thirds of a typical month’s rent. The relief would have been worth even more than that in the years prior, thanks to lower rents.

Fast forward to 2022, however, and rents have risen substantially. The latest report from the RTB, for the third quarter of 2021, shows an average of €1,915.58 a month in Dublin and €1,113.75 outside of Dublin.

To give the same level of relief for those living outside Dublin, you would need a credit that would offer a married couple a benefit of about €975 – which would equate to a credit of about €4,878.

In Dublin, you would need to consider a higher benefit, of about €1,149, which would equate to a credit for a married couple of almost €6,000. This would likely push the cost to the exchequer someway north of the €100 million that applied in 2008.

And some say it should go even higher than this.

Political will

The credit was abolished in 2010, on a phased approach over eight years, in a decision made by the then Fianna Fáil-led administration. At the time, the country was facing several years of austerity amid the financial crisis and the phasing out of the relief was part of an overall strategy aimed at restricting reliefs, particularly property-based legacy reliefs, with mortgage interest relief also brought to an end.

Since then, however, there have been repeated calls for the credit to come back. Back in 2020, Fianna Fáil itself, in its pre-election manifesto, pledged a €600 rent tax credit for all private renters, although this hasn't – yet? – come to pass.

Reintroducing a rent credit is also one of Sinn Féin’s proposals for government, although it has put forward a far more generous rate.

It says it wants to put “one month’s rent back into renters’ pockets”. For those living in Dublin, the credit would be worth as much as €1,000 a year. Those who don’t pay sufficient tax would receive a refund from Revenue for the amount due.

Such a move would cost about €273 million, Sinn Féin says.

Downside

Of course, the potential complicating factor with any sort of relief or money back is that it could have an inflationary impact on rents; something some argue happened to new house prices due to the help-to-buy scheme.

The Minister for Finance warned last year that offering tax relief may result in rents spiralling even further: back in 2019, while there was overwhelming support for the reinstatement of the credit in a Taxback.com survey, some respondents warned that the relief would only result in driving rents upwards.

“There is the possibility that landlords could increase rents and try and take advantage of rent credit being introduced,” says Cahill.