mortgage interest write off against rental income

B

blueskies

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hi there
I know in the latest budget the amount of interest that can be written off against rental income is now only 75%. I was talking to my estate agent today and be commented on the little gem that it is the intention of the government to eliminate this completely over time.I am pretty sure that he is getting this confused with the interest relief that owner occupiers get for seven years because he mentioned that is was going to be gone after seven years But it set the heart a flutter. If this interest reduction against income is eliminated , it will cause an run of landlords from property . anyone any thoughts on this? Did the government say that mortgage interest will no longer be allowable against rent in the future?
 
This is more of a property investment question, but it is a worrying development.

I've brought it up elsewhere and nobody seems to have much sympathy. There is a belief out there that people with second homes are wealthy. That is far from the case in this country. Some people will be sitting on huge losses but will continue to pay high taxes.

It has been rightly argued that those investing directly in shares pay full marginal income tax on the dividends regardless of whether they have made a loss or gain. This is not the case for investment in bank deposits, where dirt is much lower than the marginal rate of tax, or in an investment with an insurance company, where you are only taxed on the gain.

Personally I feel that investment property owners are now being targetted for too much tax by weak politicians at the whim of those deluded individuals who mistakenly believe someone with an investment property worth €200k and an investment mortgage of €300k is actually well off.

I do not have an investment property nor would I now touch one with a barge pole until there is a clear signal on taxation policy with regard to offsetting mortgage interest

PS: The ultimate measure of profit or loss you make on a property will be rental income less outlays (such as mortgage interest), taxing rental income with no offset for these outlays cannot be seen as a fair taxation method
 
it is a crazy situation. At the time when property prices are causing these properties to be in negative equity, there is now the possiblity that landlords could be suffering the added horror of being unable to charge interest against its income. If this happens, then there will be complete inequity between this type of business and any other business where expenses are allowed against income. Instead of freeing up the property market this will create bankrupcy and chaos in an economy in freefall.

By the way I am not a landlord by choice . I am trying to sell the property that i used to live in but it is now in substantial negative equity. I cannot live in it because it is not feasible as a family home so i have to rent it. But if I cant rent it because of the inequitable treatment of rental income causing an impossible financial burden, what then
It will defnitely be time to emmigrate then ,,,,,,but to where?
Any they say that the budget is designed to be equitable
 
Surely there is a rationale for allowing landlords to offset interest costs against rental income?

All other businesses can do it?

So why not landlords?
 
Agree totally with Protocal. Just wonder if it is legal to treat business differently for tax purposes. Landlord of commercial property are allowed to offset 100% of interest against income.
 
Protocol said:
Surely there is a rationale for allowing landlords to offset interest costs against rental income?

All other businesses can do it?

So why not landlords?
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Because landlords have (and will presumably continue to) abuse this facility by going interest-only forever on the loan, to artificially maximise their interest, even when they have funds on deposit elsewhere to cover the deposit.

The minister should have capped the interest allowable to the standard repayment schedule for a 20-year principle plus interest loan, not to 75% of the interest payed.
 
Complainer - we have an interest only loan for a rental propert - 1 only I might add - we did this to provide for our future, we did without other things in order to afford to do this, we are not property moguls by any means, but as I was a stay at home mother for many years before returning to work part-time I missed out on paying a pension for myself. Why should we be penalised for trying to provide for a better retirement? You can be sure the real "property moguls" will not be overly hit by this unfair treatment
 
TLC said:
Complainer - we have an interest only loan for a rental propert - 1 only I might add - we did this to provide for our future, we did without other things in order to afford to do this, we are not property moguls by any means, but as I was a stay at home mother for many years before returning to work part-time I missed out on paying a pension for myself. Why should we be penalised for trying to provide for a better retirement? You can be sure the real "property moguls" will not be overly hit by this unfair treatment
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Why did you opt for an interest only loan?
 
DerKaiser said:
I do not have an investment property nor would I now touch one with a barge pole until there is a clear signal on taxation policy with regard to offsetting mortgage interest
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I agree with you that some people will not now purchase until there is a more clear signal on where the taxation relief is going on this. But it just means if one were to currently purchase one would factor in the possibility of no interest relief and see would the return justify the investment. All this ultimately means a further decrease in property values.
 
We remortgaged our own house on an interest only basis & used the money to purchase the rental property as the repayments were the cheapest we could get, they were all charging more for the buy to let mortgage.
 
Complainer said:
Because landlords have (and will presumably continue to) abuse this facility by going interest-only forever on the loan, to artificially maximise their interest, even when they have funds on deposit elsewhere to cover the deposit.

The minister should have capped the interest allowable to the standard repayment schedule for a 20-year principle plus interest loan, not to 75% of the interest payed.
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Complainer, could you please bear with this explanation.

An investment property is an investment. If I go out in the morning and buy one, my aim will be to ultimately take in more in rent that I pay out in interest, capital and expenses.

It would be neither here nor there if I had €50k lying around on deposit elsewhere. I am trying to generate a positive return on this investment.

You are effectively saying to anyone in negative equity on an investment property that they should subsidise that investment from elsewhere in order to ensure that their rental income after tax is sufficient to meet interest, capital and expense outlays.

This measure hits those with high loan to value the hardest.

If you want to target wealth, targeting those with high loan to value on an investment property on the basis that they've stashed away wealth elsewhere is not a sound assumption.
 
Actually the rental from the property covers the interest only mort repayments & the insurance, of course an ordinary re-payment mort would have been more expensive & as we will only redeem the mort when we sell the property (not in the near future maybe 5 or 6 years) the loan will be paid off & cap gains paid & hopefully we'll have a bit to spare. We got a really good deal on the house - including appliances, flooring etc, just before prices went crazy, so we're happy enough with it. As it is an investment we have been prepared to pay the mort out of our own funds for a period if it is unoccupied, but luckily it has been rented out for 4 years with only 3 tenants - they all seem to have been very happy with the house - luckily enough.
 
DerKaiser said:
Complainer, could you please bear with this explanation.

An investment property is an investment. If I go out in the morning and buy one, my aim will be to ultimately take in more in rent that I pay out in interest, capital and expenses.

It would be neither here nor there if I had €50k lying around on deposit elsewhere. I am trying to generate a positive return on this investment.

You are effectively saying to anyone in negative equity on an investment property that they should subsidise that investment from elsewhere in order to ensure that their rental income after tax is sufficient to meet interest, capital and expense outlays.

This measure hits those with high loan to value the hardest.

If you want to target wealth, targeting those with high loan to value on an investment property on the basis that they've stashed away wealth elsewhere is not a sound assumption.
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That's one way of looking at it. Here's an alternative.

Uncapped tax relief on investment mortgages is a further Govt subsidy to the building industry, that passes through the hands of landlords. It was one of many Govt supported inflationary pressures in the housing sector, that pushed up prices to bubble-levels.

Housing is not just another investment. Housing is housing, a basic building block of communities and family life. THe Govt was/is providing more support for landlords (via uncapped relief) than it provides to residential purchasers. Landlords to do (like TLC) more than cover the costs of their interest are actively discouraged from paying down their capital, as it makes more financial sense to put any excess funds on deposit.

The continuing uncapped tax relief is an ongoing unnecessary support to landlords. It needs to be removed or at an absolute minimum capped to the same level as residential purchasers.
 
Complainer said:
That's one way of looking at it. Here's an alternative.

Uncapped tax relief on investment mortgages is a further Govt subsidy to the building industry, that passes through the hands of landlords. It was one of many Govt supported inflationary pressures in the housing sector, that pushed up prices to bubble-levels.

Housing is not just another investment. Housing is housing, a basic building block of communities and family life. THe Govt was/is providing more support for landlords (via uncapped relief) than it provides to residential purchasers. Landlords to do (like TLC) more than cover the costs of their interest are actively discouraged from paying down their capital, as it makes more financial sense to put any excess funds on deposit.

The continuing uncapped tax relief is an ongoing unnecessary support to landlords. It needs to be removed or at an absolute minimum capped to the same level as residential purchasers.
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Comparing mortgage interest relief on residential property to the mortgage interest offset on investment property is not a valid comparison.

If you live in a house the implied benefit is the rent you would otherwise have paid. If you invest in a house and cannot offset your costs against your revenue (i.e. rental income) for taxation purposes, the value to you of that property is the after tax value of rent.

This creates an anomaly between what an owner occupier would pay and what someone would pay as an investment. We saw the impact of this course of action at the start of this decade. Investors pull out of the market and the rental sector gets completely squeezed with limited availability and rising rents.

This squeeze will not happen immediately due to the overhang of unsold property, but the long term effects are obvious.



You keep referring to the excess funds that should be used to pay down the mortgage, what your are conveniently ignoring is:
  1. These excess funds have already been taxed at the marginal rate
  2. Excess funds simply do not exist for the huge number of investors due to the high price they paid and falling rents
 
Complainer not all landlords purchase only from builders so I don't see your point about subsidising the builders, landlords provide housing to those that need housing, be they families saving for a home or foreign workers who have no interest in purchasing or those that will never buy a home. Without the incentive of being able to write off the costs incurred as in any business then there would not be enough housing. And not all landlords pay interest only mortgages.
 
Kaiser - You are ignoring the inherent direct connection between the housing market and the rental market. Householders are competing with investors, and the investors get this unfair and inflationary support from the Govt. Without this subsidy, property prices would be significantly lower. It should never have been allowed, and it should now be withdrawn over 2-3 years.
 
Complainer said:
Kaiser - You are ignoring the inherent direct connection between the housing market and the rental market. Householders are competing with investors, and the investors get this unfair and inflationary support from the Govt. Without this subsidy, property prices would be significantly lower. It should never have been allowed, and it should now be withdrawn over 2-3 years.
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This did remove this relief after the Bacon report, but the government very quickly reinstated it as the market collapsed. So I don't think your idea is a runner.
 
so now its not the rampant credit and the grasping developers that have caused the inlfationary housebubble but the landlords,maybe in collusion ,maybe altogether in a room with the politicians!!!!! t
 
Complainer said:
Kaiser - You are ignoring the inherent direct connection between the housing market and the rental market. Householders are competing with investors, and the investors get this unfair and inflationary support from the Govt. Without this subsidy, property prices would be significantly lower. It should never have been allowed, and it should now be withdrawn over 2-3 years.
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And lets not talk about owner-occupiers competing with investors when it comes to VAT!
 
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