Cost of establishing an enhanced loss relief for landlords to allow relief for rental losses against other income sources
To ask the Minister for Finance the first and full-year cost of establishing an enhanced loss relief for landlords to allow relief for rental losses against other income sources in the same year.
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 3 is to enhance loss relief for landlords (or a sub-set of landlords), to allow relief for rental losses against other income sources in the same year.
Currently, landlords can carry-forward their rental losses for offset against future rental profits, but cannot offset rental losses against other net taxable income in the current year, other than other rental profits from other properties. However, rental losses can currently be carried forward indefinitely against future rental income, even after the loss-making property has ceased to be a rental property. This is in contrast to the treatment of trading losses under Case I, where the loss relief effectively ceases when the trade ceases. The current system of rental loss relief has the effect of encouraging landlords to remain in the market, in order to avail of the loss relief against future streams of rental income. Allowing offset of rental losses against all other income could potentially encourage landlords to exit the market at an earlier date, once their losses had been fully relieved against other income.
I am advised by Revenue that in 2017, the latest year for which tax returns are currently available, there was approximately €1.45bn in rental losses from prior years that were available to be offset against rental income in that year. Assuming losses of €1.45bn to be available for offset and applying an average (blended) tax rate, the tax cost could be tentatively estimated at €420m.
Revenue advise that approximately 10% of those with rental income in 2017 did not have other income sources, in which case there would be no extra tax cost for that segment. For all other taxpayers, the tax cost associated with such a change would vary for each taxpayer, depending on the nature of their income, their level of available losses carried forward, and their level of income. Also, tax returns do not separately capture unused losses for residential and commercial properties, therefore this estimate includes losses in relation to commercial properties as well as residential properties. For these reasons, the estimate presented above should be considered highly provisional.
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