Cost of allowing CGT relief for properties acquired and retained as rental accommodation

QUESTION

To ask the Minister for Finance the first and full-year cost of allowing CGT relief for properties acquired and retained as rental accommodation.
REPLY



CGT becomes payable on any gain made on the disposal rather than the acquisition of an asset.  

It would be difficult to cost the Deputy's proposal in the absence of further detail for example on the number of qualifying rental properties, the duration for which such rental properties were retained and any gains made on their disposal.

I would say that the issue of a tax incentive to encourage landlords to enter into longer term leases was put forward as one of the ten options for consideration in the Report of the Working Group on the Tax and Fiscal Treatment of Landlords. This was published as part of the Budget documentation in 2017. 

Using a set of modest assumptions, the Department of Finance Tax Division modelled the above option in order to provide a high-level estimate of the potential costs of implementation. The assumptions used included the following elements:

• 10% of landlords might avail of the relief
• Average property in Year 1 of €300k
• 2.5% capital appreciation each year.

The modelling suggests that the cost to the Exchequer in terms of CGT foregone could be of the order of €78 million if landlords held their properties for 5 years and then sold in year 6.  The potential costs would be higher - of the order of €157 million - if the properties were held for 7 years and sold in year 8. Notwithstanding the cost of such a proposal, other issues arise. These include the potential for abuse of any such relief; the incentive effects provided by such a relief to sell the property after a specific time and how to provide for rental properties purchased between 2011 and 2014, which attract no CGT on any gains made on their sale.

This work was provided to the Committee on Finance and Public Expenditure during the Finance Bill process.

However, it should be borne in mind that the above option, which goes down the Capital Taxes route, is only one approach that might be taken. Thus, it might also be possible to incentivise the renting of property for longer periods through the provision of an incentive using the income tax system. 

My Department is aiming to have a broader piece of work completed on the benefits and potential costs and disadvantages of changes in this area and whether it could play a role in future budgetary and fiscal policy.