• Current students
      • Student centre
        Enrol on a course/exam
        My enrolments
        Exam results
        Mock Exams 2020/21
        CAP1 essential documents
        CAP2 essential documents
        FAE essential documents
      • Course information
        Students FAQs
        Student induction
        Course enrolment information
        Key dates
        Book distribution
        Timetables
        FAE Elective Information
      • Exams
        Exam Info: CAP1
        E-assessment information
        Exam info: CAP2
        Exam info: FAE
        Reasonable accommodation and extenuating circumstances
        Timetables for exams & interim assessments
        Interim assessments past papers & E-Assessment mock solutions
        Main examination past papers
        Information and appeals scheme
        JIEB: NI Insolvency Qualification
      • CA Diary resources
        Mentors: Getting started on the CA Diary
        CA Diary for Flexible Route FAQs
      • Admission to membership
        Joining as a reciprocal member
        Conferring dates
        Admissions FAQs
      • Support & services
        Audit Qualification requirements
        Recruitment to and transferring of training contracts
        CASSI
        Student supports and wellbeing
        Learning Hub data privacy policy
    • Students

      View all the services available for students of the Institute

      Read More
  • Becoming a student
      • About Chartered Accountancy
        The Chartered difference
        What do Chartered Accountants do?
        5 Reasons to become a Chartered Accountant
        Student benefits
        School Bootcamp
        Chartered Connect
        Study in Northern Ireland
        Events
        Blogs
        Testimonials of Flexible route
      • Entry routes
        College
        Working
        Accounting Technicians
        School leavers
        Member of another body
        International student
        Flexible Route
        Training Contract
      • Course description
        CAP1
        CAP2
        FAE
        New education offering
      • Apply
        How to apply
        Exemptions guide
        Fees & payment options
        External students
      • Training vacancies
        Training vacancies search
        Training firms list
        Large training firms
        Milkround
        Training firms update details
        Recruitment to and transferring of training contract
        Interview preparation and advice
        The rewards on qualification
        Tailoring your CV for each application
        Securing a trainee Chartered Accountant role
      • Support & services
        Becoming a student FAQs
        Who to contact for employers
        Register for a school visit
    • Becoming a
      student

      Study with us

      Read More
  • Members
      • Members Hub
        My account
        Annual subscription fees
        Annual returns
        Application forms
        CPD/events
        Member services A-Z
        District societies
        Professional Standards
        Young Professionals
        Advocacy
        Careers development
      • In practice
        Going into practice
        Practice Matters
        Practice toolkits
        Members in practice committee
        Practice networks
        Helpsheets
        Compliance support
        Members' complaints adviser
        Free services
        Our approach
        Workshops and professional training with a difference
        Abhaile Scheme
        Practice News webinars
        GDPR resources for practices
      • Overseas members
        Working abroad
        Working in Australia
        Overseas members news
        Tax for returning Irish members
      • In business
        Networking and special interest groups
        Articles
      • Public sector
        Public sector news
        Public sector presentations
      • Support & services
        Letters of good standing form
        FAQs for Chartered Accountants
        AML confidential disclosure form
        CHARIOT/Institute Technical content
        TaxSource
        Pocket diaries
    • Members

      View member services

      Read More
  • Employers
      • Training organisations
        Authorise to train
        Training in business
        Course enrolment information for firms
        Manage my students
        Incentive Scheme
        Recruitment to and transferring of training contracts
        Securing and retaining the best talent
        Tips on writing a job specification
      • Training
        In-house training
        Training tickets
      • Recruitment services
        Hire a qualified Chartered Accountant
        Hire a trainee student
      • Non executive directors recruitment service
      • Support & services
        Hire members: log a job vacancy
        Firm/employers FAQs
        Training ticket FAQs
        Authorisations
        Hire a room
        Who to contact for employers
    • Employers

      Services to support your business

      Read More
☰
  • Find a firm
  • Jobs
  • Login
☰
  • Home
  • Knowledge centre
  • Professional development
  • About us
  • Shop
  • News
Search
View Cart 0 Item

News

  • Home/
  • News
☰
  • News
  • News archive
    • 2020
    • 2019
  • RSS feeds store
  • Press releases
    • 2020
    • 2019
    • 2018
    • 2021
  • Newsletters
  • Press contacts
  • Media downloads
  • Podcasts Chartered Accountants Ireland
  • Budget day news

Yield Signs

Aug 26, 2019
Sunday Business Post, Sunday 25 August 2019

This week daft.ie issued its Quarterly Rental Price report highlighting yet again the shortage of rented residential accommodation stock on the Irish market.  

In the context of the yields being quoted in the same report, that's an extraordinary finding.  You can apparently get a yield of up to 12.5% on a one-bedroom apartment in Dublin 17.  So in this age of negative interest rates and faltering stocks, why aren't people flooding into the residential market in search of a better return on their cash?  Why should it be the case that, if as the Irish Property Owners Association claims, landlords are leaving the market rather than entering? 

A gross yield in the order of 12.5% per annum (that’s up to one eighth of the capital invested) is colossally attractive as an investment proposition.  However there is a world of difference between gross yields and net yields.  A world of difference in this case means that the net yield is possibly less than half the gross yield for a landlord paying tax at Irish marginal rates (including PRSI and USC) of 52%.  

It is indeed true, as the Daft report clearly illustrates, that it can be cheaper to be paying off a mortgage than to be paying rent, and this holds good for many different types of property in many areas of the country.  This though is solely from the tenant’s perspective.  From the landlord's perspective, the cost of servicing the debt on a mortgaged property is paid out of after-tax rental income.  The Irish tax system conspires to ensure that the after-tax amount for a private investor in rented residential accommodation is as little as it possibly can be. 

It's ironic that this is particularly true in a low interest environment.  Interest charges on property are one of the biggest tax breaks for landlords, to the extent that these were restricted in times gone by.  Now with interest rates so low, far more rental income falls within the charge to tax each year.  The interest paid used to largely extinguish the tax charge and thus the cash flow burden of renting out a property.  You always had to pay the bank and the Revenue, but rarely both in the early years of a mortgage.  Just like any other business, when renting property cash is king.  Too much of a negative cash flow will swamp any capital yield, no matter how attractive the yield might be. 

Nor is it possible to offset the capital cost of a property against the rental income arising from it.  This wasn’t always the case.  Offsetting the capital costs against rental income to wipe out the tax bill was the essence of the so-called “section 23” properties which first surfaced in the 1980s.  That incentive made property investment from private individuals very lucrative, while at the same time dramatically increasing the supply.  But the country overdid it a bit and left the relief in place for too long.  This contributed to the property crash in 2008. 

In fact we may now have gone to the other extreme when it comes to the rigours of the regime for taxing rents from residential property.  There are several restrictions on the tax deductibility of costs associated with property for rental.  There is only an annual deduction for one eighth of the cost when it comes to items like replacing appliances.  A new dishwasher in a rental property costing €400 provides an annual tax saving of less than €30 for the landlord. 

All these restrictions apply because generally speaking, income from rented residential property is ring fenced from other income and allowances, and is subject to a special set of rules all of its own.  Residential property is not the only type of property that has its own set of rules, but they are tough in comparison with those which apply to other types of property.  

Take, for example, the way farm buildings are treated for tax.  A farmer gets a tax write-off of 15% of the capital cost of a milking parlour or a hayshed, as well as full tax relief for interest paid on any borrowings to build it.  Even if a farm building is inherited, a lower rate of inheritance tax is charged, provided that the farming business continues on.  

It is bizarre that it is more tax efficient in this country to provide housing for an animal than it is to provide housing for a child. 

The Irish rented residential market, provided you have the capital in the first place, can be a solid investment proposal.   Otherwise, despite its high yields, it can be a money pit when a rental property is heavily indebted.  Tax is not the only reason for the shortage of supply of accommodation, but it is undoubtedly a factor. 

Dr Brian Keegan is Director, Public Affairs at Chartered Accountants Ireland

 

 

 

 

 

The latest news to your inbox

Useful links

  • Current students
  • Becoming a student
  • Knowledge centre
  • Shop
  • District societies

Get in touch

Dublin HQ

Chartered Accountants
House, 47-49 Pearse St,
Dublin 2, Ireland

TEL: +353 1 637 7200
Belfast HQ

The Linenhall
32-38 Linenhall Street, Belfast
Antrim BT2 8BG, United Kingdom.

TEL: +44 28 9043 5840

Connect with us

Something wrong?

Is the website not looking right / working right for you?
Browser support
CAW Footer Logo-min
GAA Footer Logo-min
CCAB-I Footer Logo-min

© Copyright Chartered Accountants Ireland 2020. All Rights Reserved.

☰
  • Terms & conditions
  • Privacy statement
  • Event privacy notice
  • Sitemap
LOADING...

Please wait while the page loads.