Cost of allowing local property tax deductibility for landlords when calculating rental profits

QUESTION

To ask the Minister for Finance the first and full-year cost of allowing local property tax deductibility for landlords when calculating rental profits.
REPLY



The Report of the Working Group on the Tax and Fiscal Treatment of Landlords was published by my Department on Budget Day 2017. 

Ten policy options were put forward in the report, divided into short-term, medium-term and long-term timeframes. Option 2 is for the introduction of Local Property Tax (LPT) deductibility for landlords.

I am advised by Revenue that the estimated cost of allowing LPT as an allowable expense against rental income for Income Tax purposes is in the region of €12 million in the first year and €20 million in a full year. This estimate is based on LPT returns that indicate a property is a non-principal private residence and assumes that each relevant owner has sufficient rental income against which to offset the LPT paid.

LPT is a relatively small expense and therefore the measure is unlikely to make a significant difference to the position of any individual landlord in cash terms, so may not be regarded by landlords as a sufficient measure to encourage them to stay in or enter the rental market.  The measure would also have a deadweight cost in respect of landlords who do not intend to leave the rental market and would create a more favourable position for landlords of property compared to owner-occupiers, as owner-occupiers cannot claim a tax deduction for LPT.  I note that one of the recommendations of the 2015 review of the LPT carried out by Dr. Don Thornhill on behalf of the Minister for Finance was that LPT payments should not be allowed as a deduction to landlords against income or corporation tax. Dr. Thornhill’s view was that deductibility for landlords does not rest easily with the concept of the LPT as a tax on the amenity value of residential properties rather than as a business cost. Owners and tenants of rental properties both derive value from the amenity value of these properties (the owner in the form of the rent and the tenant from living in the property). This contrasts with the situation regarding local authority rates on commercial properties.  Owner occupiers are not allowed to claim LPT as a deduction against income tax. It is not appropriate on conceptual and equity grounds that they should.  Dr Thornhill considered that there was a need to ensure equity between owners of all residential properties,  whether owner occupiers or landlords, and that it would be inappropriate to allow LPT as a deduction against the taxation of income from rents on residential properties. The Inter-Departmental LPT Review Group that reported to me in 2019 was in agreement with Dr Thornhill’s  recommendation and the rationale which underpinned it.