Why Ireland Is Reversing Finance Cost Restrictions For LandlordsMake Text Bigger
In 2009 the Irish government disallowed 25% of the interest cost in calculating a landlord’s taxable profit. This was retroactive because it applied to properties that were already owned, not just future purchases.
This was partly amended as from 1 January 2016 because of the shortage of accommodation for tenants in receipt of certain social housing supports. Home providers taking such tenants will now be able to deduct 100% of their interest cost.
This was a clear admission of the adverse impact that the tax change of 2009 has had on the poorest members of society in Ireland.
In last week’s Budget statement, the Irish minister for finance said the remaining landlords would be able to deduct 80% from next year, instead of 75%, because of the housing crisis. The allowable deduction will increase by 5 percentage points each year until it reaches 100% in 2021. What effect such tiny changes will have on increasing supply remains to be seen.
However, it is another admission that the tax change of 2009 has had an adverse effect on the supply of housing in Ireland.
Just as the Irish government is undoing the damaging change, the UK government is preparing to introduce a similar one, only worse – S 24 of the Finance (N0. 2) Act 2015.
When S 24 is fully in force in 2020/21, its effect will be twice as bad as the 2009 change in Ireland which disallowed 25% of finance costs.
Disallowing 25% would make a landlord who is in the 40% band pay extra tax equal to 10% (40% x 25%) of the finance costs.
However, under S 24 the extra tax will be equal to 20% (40% – 20%) of the finance costs, i.e. double.
For someone in the 45% band, the extra tax will be equal to 25% of the finance costs under S 24, compared to 11.25%.
The effect on homelessness of retroactively disallowing the deduction of interest has been demonstrated in Ireland. In the UK, Section 24 has already caused home providers to increase rents and evict tenants on housing benefit who cannot afford the increases.
In the 15 months since it was announced, S 24 has deterred some landlords in the UK from increasing the housing supply. They have stopped financing new builds, rehabilitating run-down properties or converting large residential or commercial buildings into flats or houses in multiple occupation (HMOs).
Osborne’s lunatic tax has adversely affected the supply of housing, and has adversely affected tenants, especially people on benefits – and it is not even in force yet. How long will it be before S 24 is repealed, and how much damage will it be allowed to cause in the meantime?
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