Will a new property tax be imposed on investment properties?

[Lobby]

First off, Ireland, like any economy, needs rental properties.

Their provision is a commercial activity and as such should receive the same treatment as any other commercial activity.

The government already significantly taxes rental properties through the income tax system, most (nearly all) landlords will pay tax on their rental income through the PAYE system, in addition to any income they receive through their "day job". The fact that some landlords can avoid tax is a general poblem with the tax system and is not unique to landlords - some folk just have the wealth to be able to avoid tax, this should be addressed.

There is one area where rental properties are not currently treated similar to other commercial entities, and that is commercial rates. Strictly speaking, they should be liable to commercial rates as would any other business in an area.

 

[Complainer]

If the government can change the rules on the amount of tax relief available on an investment property (which it has, and will probably do again) why can't they come along and say - all the tax relief you thought you were getting to fund your pension is wiped off the board. Tough luck and you can trust nothing in this country. It's a very bad precendent.

I'd suggest that you can also expect a cut on pension tax relief - it probably won't be eliminated entirely, but it will probably be cut back to standard rate (20%).

That's not surprising - removing incentives/imposing taxes on landlords has the effect of reducing the supply of rental properties, which leads to increasing rents

This simplistic analysis omits the important interrelationship between the rental market and the owner-occupier market. For every landlord that gets out of the business, that is one more property up for sale. It will either be purchased by another landlord (keeping the supply-side of the equation) or by an owner-occupier (reducing the demand-side of the equation).

 

[Greta]

For every landlord that gets out of the business, that is one more property up for sale. It will either be purchased by another landlord (keeping the supply-side of the equation) or by an owner-occupier (reducing the demand-side of the equation).

That's how it should be in theory but not how it has been, for some strange reason At least, this currently pops up in British press now and again - how rents are rising because there is a shortage of rental properties, many reluctant landlords having sold. Presumably they sold mostly to owner-occupies as buy-to-let mortgages are very hard to get and, if they sold to other landlords, the supply of rental properties would have stayed the same. So I don't know why the British rents are rising but they are Maybe these ex-rental properties were bought by those who had lived with their parents (thus saving a big enough deposit to buy in the current climate, where lenders demand big deposits), while those who rented continue to do so but there are fewer properties for them to rent? I don't know.

 

[gearoidc]

Having lured buyers into the investment property market with tax reliefs and then withdrawing those reliefs, the state has effectively created bank/tax slaves. They landlords will receive NONE of the rental income as it will be needed to pay the banks and the tax-man, the very ones who engineered the disaster in the first place.

It is a criminally unfair act and totally ruinous to recent entrants.

People such as Merc above, who take such delight in seeing landlords screwed in this way, seem happy to ignore the fact that

a.these people already paid huge amounts of tax in stamp duty
b.that they pay income tax on their rental income profits.
c.that they have lost tens of thousands on their original purchase
d.that the vast majority are honest hard-working people who provide clean,well-specced, well-maintained properties and who treat their tenants fairly.

Why do you want this sector to be punished so badly???

 

[mercman]

People such as Merc above, who take such delight in seeing landlords screwed in this way, seem happy to ignore the fact that

I presume you refer to me, and if so I ask you to respectfully excuse yourself. I think it poignant to ask you to refer to my posts and read them carefully. My business is the property business but I am unable to see any reason for excluding property in cut backs.

And your reference to landlords that keep clean, well specced, well maintained properties and that treat their tenants fairly, I do think you need to sit down and smell the coffee.

 

[Complainer]

People such as Merc above, who take such delight in seeing landlords screwed in this way, seem happy to ignore the fact that


b.that they pay income tax on their rental income profits.

If they are recent entrants to the market, they have no profit or maybe marginal profit thanks to our most-generous mortgage interest tax reliefs.

 

[Bronte]

Instead, the Bonuses were paid for crazy lending and allthough the loans have gone pear shaped, none of the bonuses have been recalled.

Did bank staff get a bonus for every mortgage on an investment property approved?

Also who do you classify as professional in the property market?

 

[Bronte]

Expect the tax relief on mortgage interest to be reduced or eliminated. Maybe if they had listened to Bacon in the early part of the decade, the prices wouldn't have got so crazy.

You know very well that Bacon has the opposite effect to that intended. You're always on the attack on landlords. In particular you're always on the attack to landlords who have interest only mortgages. Even though you full well know that they are mostly the one's in dire straights now. Can you imagine what abolising the relief will do to them.

You and I had this very same discussion a long time ago if I recall correctly and it was debated to death.

Why did they bring in Bacon and more importantly why did they abolish it. Oh yes that's right, it made property prices collapse and rents go up and less rental property available to tenant's restricting their choice and empowering landlords.

 

[balmed out]

Why do people always just blame government, banks and property developers. What about the fourth wheel of our reckless housing market. The house buyer and in particular those who bought multiple properties. They did so in order to make a profit and did so knowing that prices could fall as well as rise.

 

[saintstephen]

I certainly take responsibility for my decisions, however, I "invested" with the understanding that I would be working within a tax system that has now been turned on its head.
Why not increase the CG tax or the rental income profit tax, IMO it would be much pore sustainable.
I believe it is unfair that now the rules are changing at a time when landlords are in dire straights.

 

[balmed out]

Well capital gains tax would threathen family business's and jobs as well as removing the incentive for people to try to grow businesses. A Profit on rental income is fair enough but rental income profit would surely bring in nothing. At the end of the day people had a choice whether or not to buy extra houses at ridiculous prices. Now everybody has to pay whether or not they decided to contribute to the problem by buying properties or not. Anyone who makes an investment has to realise its not risk free.

 

[zxcvbnm]

Folks,

Can someone answer me the following question which in my mind will settle this argument for once and for all.(kind of at least)

Firstly - can other businesses write off interest on business loans as an expense for tax purposes ?
If so, then i don't see any reason why property shoudl not be the same.WHich begs the question as to why it is reuced to 75% in the first place.

And even if other businesses cannot do this, I presume that other businesses must not pay a lump sum to the tax man to set up their business unlike the property investor who has to pay a lot of money in taxes upfront in the form of stamp duty.
This should certainly be taken into consideration.

 

[balmed out]

Dont see the relevance. Owning property is not a business its an asset, an investment.

 

[zxcvbnm]

Dont see the relevance. Owning property is not a business its an asset, an investment.

Owning property is not a business? Can you explain that one to me please? In what way is it not a business?

Of course it's a business.

May I ask what are your criteria for being categorised as a business?

Getting back to my original question,can other businesses write off interest on business loans as an expense for tax purposes ?

 

[T McGibney]

can other businesses write off interest on business loans as an expense for tax purposes ?

Yes, of course they can. This is a fundamental tenet of our tax system.

 

[zxcvbnm]

Yes, of course they can. This is a fundamental tenet of our tax system.

Ok - I actually didn't know the answer to that.

Well - with that in mind, can someone explain to me why the same benefit should not apply for property investors?

You can be sure that property investors have paid a hell of a lot more tax than a lot of other businesses. Granted, no one was forced to get into property.
Personally i spend €750k on new investment properties during the boom resulting in me handing over nearly €130k to the govenrment in stamp duty plus VAT charged on the properties.
And of course i did it by choice. I've no issue with that.
But that is one hell of a lot of money to give over in taxes. I feel i have more than paid my fair share when it comes to taxes paid with respect to property.

Reducing the interest to 75% was actually a sacandal.

The fundamental reason for any tax is that if someobody has surplus cash in their pocket that they should chip in a bit of it to society for communal reasons.
If you take away the interest relief for investors they won't have any surplus cash. i.e. they will have a negative cash flow.
And people are suggesting that they shoudl donate more cash even though they are in fact running a loss? Yes...let the rest of society conveniently gloss over the fact that there is no annual profit coming in but in fact large losses - but lets just get them to pay extra tax anyway.

Like - Where is the fairness in that?
That is contrary to the fundamental basis of any tax system.

Seriously people - anyone who suggests that this interest relief shoudl be taken from property investors is not making any sense.
And it makes even less sense when they suggest it should only apply to property investors as opposed to other businesses.

Like - where is the fairness in targetting someone due to the type of business they run.
A person shoudl be targetted for tax depending on how much money they make - not on how they make their money.

If a property investor is making a healthy surplus in income then of course tax him accordingly with income tax as normal.

As i said earlier - keep in mind that property investors have paid a hell of a lot more tax than most people through stamp duty and vat already.

If the gvernemnet is going to target specific busineses then property investors shoudl be last on their list.
Targetting property investors is nothing short of insane hysteria.

And the reality is the only reason the governemnt dropped it to 75% that time was because they succumbed to the pressure of the hysteria soorrounding anything to do with property at the time.

And lastly - who actually gains if you get rid of this tax relief?
I can only speak for myself - but i am sure it applies to lots and lots of other property investors - but if that tax relief was taken away I would ha ve no choice but to default on my payments to the bank. I wouldn't even nearly be able to pay the extra cash.

In which case the banks would have to take the properies back,sell them at a much reduced price on teh open matrket, and realise that loss on their books.
In which case they would require further funding from the tax payer.

It's lose-lose for everyone involved and the government know that.

 

[Complainer]

Why did they bring in Bacon and more importantly why did they abolish it. Oh yes that's right, it made property prices collapse and rents go up and less rental property available to tenant's restricting their choice and empowering landlords.

So you're happy with the way house prices went after Bacon was abolished then?

Ok - I actually didn't know the answer to that.

Well - with that in mind, can someone explain to me why the same benefit should not apply for property investors?

Because housing is a fundamental human need - because investors can/do make sure that they maximise their interest (and get the state to subsidise their mortgage on an ongoing basis) by never repaying capital, and keeping their own capital on deposit. It's just a financial engineering scam.

 

[zxcvbnm]

Because housing is a fundamental human need - because investors can/do make sure that they maximise their interest (and get the state to subsidise their mortgage on an ongoing basis) by never repaying capital, and keeping their own capital on deposit. It's just a financial engineering scam.

A valid point but in practice not relevant.

The reality is most property investors don't have lump sums of cash lying in bank accounts for fun.
And banks are being far stricter these days insisting investors make capital repayments.

And even if that was the case - which it isn't- then pro pert investors have given more than their fair share in taxes. As I said in my previous post, I paid over €130k in taxes for 2 properties totalling 750k.
I really don't think the state can complain about their overall net gain in taxes due to property regardless of whether the very odd person is taking advantage of the tax relief.

 

[Complainer]

The reality is most property investors don't have lump sums of cash lying in bank accounts for fun.

If the investor can't manage to repay the debt over a reasonable period (say 20 years), they really shouldn't be in the landlord business. Interest-only loans are gambling and speculating - and have led us into the bubble.

And banks are being far stricter these days insisting investors make capital repayments.

Please don't tell me that, after all that's happened, you are prepared to put your trust into bank lending controls to keep down property inflation?

And even if that was the case - which it isn't- then pro pert investors have given more than their fair share in taxes. As I said in my previous post, I paid over €130k in taxes for 2 properties totalling 750k.
I really don't think the state can complain about their overall net gain in taxes due to property regardless of whether the very odd person is taking advantage of the tax relief.

It's a fairly simple principle - if you have the income, you pay the tax. PAYE payers don't get to whinge about all the PAYE they paid last year, or all the VAT they pay this year. The other taxes paid are irrelevant. If you have the income, you pay the tax.

 

[zxcvbnm]

As for your first point, the fact is that many if not most property investors cannot repay the debt over a 20 year period.
That is the reality on the ground. That is the world we live in. As to whether they should or shouldn't have gotten involved in the first place is neither here nor there.

As for your 2nd point, yes, banks are far stricter in trying to get capital repayments now from property investors.there are plenty of threads here on AAM. In fact,there was a big article in just last weeks Sunday business post you may have read how permanent tsb are calling in all capital repayments now by property investors irrespective of their finances.

As for your third point, you are quite right in that if you have the income you pay the tax. However, if tax relief was taken away then property investors would be in negative cash flow each month and you think they should pay tax on this income even though they are making a loss? Nonsense.

This is contrary to the fundamental basis of any tax i.e. You pay out tax on any surplus cash you have after expenses.

The only valid point you have made against this tax relief is that you think loads of property investors have loads of cash in various bank accounts making loads of interest thus taking advantage of this tax relief.
It simply isn't happening.

Bottom line is if it exists for other businesses then there is no logic whatsoever for property to be singled out for it to be abolished.
As I stated in an earlier post, if you were to be singling out individual businesses for this relief to be abolished then in the interest of fairness, property should be the last on the list given that property investors have given more than most in tax payments to the government.