The Government should consider cutting taxes for individual private landlords in Budget 2023 to stop their “exodus” from the rental market, a major accountancy body has said. However, it warned that tax measures alone will not solve the housing crisis.
In a pre-budget submission, the Consultative Committee of Accountancy Bodies Ireland said “Ireland needs a functioning housing market to attract and retain talent to our shores”, and that the current “housing system is not meeting the needs of our people”.
The representative committee for the main accountancy bodies operating in the State said October’s budget should focus on addressing the housing crisis and personal taxation reform so that the State continues to attract top talent from abroad.
It said: “While the exodus of the ‘accidental landlord’ may be due to increasing house prices, it appears that in general landlords consider it to be no longer economical for them to trade. A public consultation was held in 2017 which examined the tax treatment of landlords, yet little changed on foot of this process.
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“Based on the experience of the last 40 years, tax measures on their own will be ineffective in resolving the current crisis,” the body said. It does not support a return to pre-2008 levels of property tax relief, which it said “contributed to the property crash”. However, it said that “the disparity of tax rates applicable to rental incomes of differing persons has become more apparent” and must be addressed.
Commenting on the submission, Cróna Clohissey, tax and public policy lead at Chartered Accountants Ireland, said: “Landlords are an essential feature of a fully functioning residential property market. However in general landlords consider it to be no longer economical for them to continue in the market.”
Companies are given “favourable” treatment within the Irish tax system compared to most individual landlords, the submission notes. While many companies will generally be taxed at a rate of 25 per cent on their rental incomes, Ms Clohissey said individual landlords face income taxes of 40 per cent, on top of which they pay USC and other charges, meaning they effectively end up paying rates of up to 52 or even 55 per cent on their rental income.
“The 25 per cent rate should be extended to individuals to address some of the inequity,” she said. “By removing disparities the tax system could be effectively harnessed to encourage landlords to stay in the market and new entrants to meet the supply shortage.”
Among other things the committee proposes allowing landlords to deduct the Local Property Tax against rental income.
The committee also said that the current rate 33 per cent rate of capital gains tax is “too high”, and proposed reducing it to 20 per cent, which it said would “release much-needed residential property back into the property market for younger generation”.
Personal tax rates should also be reformed to address “worker-retention issues” within the economy. “Presently retaining our highly qualified workforce is a prominent concern among employers,” the committee said in its submission.
As such the Government should consider reforming personal tax allowances so that they are “front-loaded” at the beginning of a person’s career. “This could be achieved by increasing allowances available to those under 35, while reducing the allowances available to those over 55, for example,” the committee said.
“We need to turn our attention to personal tax rates, as they are impacting attraction and retention of talent,” Ms Clohissey said. “Recalibrating personal tax allowances is a long-term project, and the biggest obstacle will be overcoming political resistance to change. Nonetheless, personal tax allowance reform should form part of Ireland’s overall policy to retain talent.”
