Tax incentives to downsize
It’s interesting that an existing 100% waiver on taxation for downsizing isn’t part of the national conversation already.
The relief referred to as ‘PPR relief’ (principle private residence) means you pay no capital gains tax (CGT) when you sell your family home, so if you bought a house for £10,000 in the early 80’s and sold that property for €1,500,000 today your CGT tax bill is zero.
If the government really want to have people downsize then be clear about the objective, it’s about freeing up housing that is otherwise under-occupied.
That the people living in those houses don’t do this of their own volition shows that despite the most generous tax break in the country that it’s not really an incentive, we’ll discuss why later but first a solution.
Rent a room relief allows a person to receive up to €14,000 tax free a year, but to do this an older person would have to have people living in the same residence with no divisions in it (so traditional ‘house sharing’ as roommates).
It qualifies if you have a basement flat within a building so one option might be to allow people to divide homes in two which is common in many cities (and indeed in Irish cities already in the form of pre-63's), but to apply the minimum standards.
What it can’t be is a ‘granny flat’ where you build a new accommodation not attached to the property. The term ‘granny flat’ comes from a home made for an elderly relative who would live at the same address albeit in a different property.
So why not stitch the two ideas together? Allow people to build granny flats who own existing large houses and move into, then rent out the main house tax free on condition they don’t go above whatever rent rules are decided upon?
Then you have a person who stays in their exact area, can have a new A-rated property with low profile showers and the like and receive a pension from the existing property too.
I’m a northsider so don’t know this part of town but here’s an example of three new homes in an area that (could) free up large family homes and where if the owners were elderly they can create a pension income.
The fix would have to be in the form of a quick-approval planning solution where subject to simple guidelines you effectively have the right to build, this would need (perhaps) a financing solution for the asset rich/cash poor people that often live in these properties.
If you really wanted to game the system to encourage this you could also allow family members to live in the larger property as long as they pay the full rent and in return for every year that a family with dependent children live there you get some kind of future tax waiver on capital acquisitions tax.
The reason for this is that if you were to inherit a property worth a million you’ll have a massive tax bill and one thing that does incentivise older people is getting one over on the exchequer.
While this would mean you are making the rich richer you also maintain nuclear families, increase savings and increase density while keeping elderly people in the neighbourhoods they call home.
No plan is perfect, this is a quick take on a potential solution which matches a built environment need with tax ideas and linking it to the rental market as well as trying to meet some societal needs such as freeing up housing.
The reason older people don’t move out of large homes is complex because older larger homes are often expensive to maintain. Some of those reasons are as follows:
- They simply can’t envisage life elsewhere, the homes they raised families in are too deeply a part of their life and they don’t want to leave.
- They like having extra rooms free so that if family come to visit they have a place for them to stay including grandchildren having a place to cared for and play (where children might live in an apartment or the grandparent is a childminder for the grandchild).
- They lack cash to buy a smaller home and there is no bridging finance available.
- The accumulation of things is too much for a smaller home, furniture and the like, sometimes ‘where would I put all my things’ is the first hurdle.
- Property tax is too low — there are no incentives to change. As well as this many feel that holding on to a home is a way to pass on wealth when they die (which is true), or to fund a care home should it be necessary (such as ‘fair deal’).
If we can’t find a way to make some plan that keeps people in an area and doesn’t force them out of a home then it’s doomed to fail so we need to have a deep re-think about what we are trying to do because the kite-flying of ‘tax incentives’ for moving when the most generous one possible already doesn’t work is a policy failure in advance.