Tax Relief Schemes
This section of the site deals with tax reliefs available in certain areas/regions of the country on residential properties and the likely tax implications which a purchase of such a property would create. The principal reliefs available are "Section 23" Type Relief, Section 50 Relief and Owner-Occupier Relief and are discussed in more detail below.
A. What is Section 23/Section 50 Relief ?
How is it calculated?
How can it be used?
What are the main conditions and clawbacks?
B. What is Owner-Occupier Relief?
How is it calculated?
How can it be used?
What are the main conditions and clawbacks?
C. Where are the reliefs available?
(i) Urban Renewal Schemes
(ii) Rural Renewal Schemes
Section 23 Type Relief provides tax relief for the capital expenditure incurred on the construction, refurbishment or conversion of rented residential accommodation. Section 23 Relief is a tax deductible rental ("Case V") expense or loss. Any rental loss created as a result of this deduction may be set-off against any other Irish rental income of the taxpayer in the current or subsequent periods.
Note: Section 23 is coming to an end in July 2008
Section 50 relief operates in the same manner as Section 23 relief but relates to qualifying student accommodation.
The relief is calculated by reference to the price paid to the property developer. The price paid for the site does not qualify for relief, therefore calculation of the relief is based on a percentage of total cost. The developer will usually identify the percentage (usually 80-95%) of the total costs incurred by him which relate directly to the construction/ conversion. This percentage is the qualifying amount of the purchase price paid. Thus, an apartment costing €200,000 which has a qualifying cost of 90% would attract a Section 23 allowance of €180,000.
To illustrate how this relief can be used, take the following example. An apartment costing €200,000 may have a 90% qualifying cost of construction of €180,000. The qualifying cost of construction is, in effect, the "Section 23" allowance/deduction and can be written off against all Irish rental income in the first letting year. Thus, a landlord with sufficient other Irish rental income could potentially save €79,200 in tax (assuming the landlord pays income tax at the marginal rate of 42% plus 2% levies), reducing the cost of the apartment to €120,800 (before stamp duty). Any unused relief can be carried forward against any Irish rental income indefinitely.
What are the main conditions and clawbacks?
Certain Section 23 conditions must be satisfied. In particular, a Certificate of Reasonable Cost must be obtained from the Minister for the Environment and Local Government and the dwelling must comply with certain floor area conditions.
It must be let in its entirety as a residential dwelling without previously having been used, and must continue to be let for a period of 10 years from the date of first letting, although a temporary vacancy as a result of a change of tenant does not trigger a clawback. A clawback is triggered when a person who has claimed Section 23 relief either disposes of or causes the property to cease to be a qualifying Section 23 property.
Some examples of when a clawback would occur include the sale of the property, the transfer of the property as a result of death or the use of the property for a non-qualifying purpose (e.g as a business premises or owner-occupation). However, it is important to note that the clawback will only apply if the sale/transaction takes place within 10 years from the date on which the house was first let.
B. What is Owner-Occupier Relief?
This type of relief is given to owner-occupiers who incur expenditure on the construction or refurbishment of a qualifying premises which is a qualifying owner-occupier dwelling.
The relief is calculated by reference to the price paid to the property developer.
The price paid for the site does not qualify for relief, therefore calculation of the relief is based on a percentage of total cost. The developer will usually identify the percentage (usually 80-95%) of the total costs incurred by him which relate directly to the construction/conversion. This percentage is the qualifying amount of the purchase price paid.
A newly constructed apartment costing €200,000 with a qualifying cost of 90% would attract an additional annual allowance of €9,000 (€180,000 @ 5%) which when relieved at the marginal rate of income tax would reduce the funding cost of the apartment by €3,960 per tax year for a period of 10 tax years. (Where the apartment is one that is refurbished, these allowances would be doubled). It is worth noting also that where a couple are jointly assessed, any excess allowance available under this relief can be set off against the total income of a spouse.
What are the main conditions and clawbacks?
A dwelling must be used solely as a dwelling by the owner after completion of capital expenditure, it must also comply with Section 23 floor area limits and qualify for a Certificate of Reasonable Cost, if applicable. Unlike Section 23 relief, no clawback provisions apply in the case of owner-occupier relief where there is a disposal of the dwelling or where it ceases to be used as the taxpayer's sole residence. However, only the first purchaser is entitled to the relief and no allowances transfer on a subsequent sale.
C. Where are the reliefs available?
The residential reliefs available under this scheme are
(1) Section 23 Type Relief and (2) Owner-Occupier Relief as discussed earlier. A combination (or all) of these reliefs have been granted to the various urban areas around the country.
The areas qualifying for relief are listed below
Dublin City - Ballymun, HARP, Inchicore/Kilmainham,
Liberites/Coombe, O'Connell Street,North East Inner City
Galway City - 3 suburban estates
Cork City - City Docks Area, Blackpool/Shandon
Limerick City - Parts of city centre
Waterford City - Periphery of commercial centre
Carlow - Carlow
Clare - Shannon
Cork - Mallow, Passage West/Glenbrook, Cobh, Bandon
Donegal - Buncrana
Dublin - Balbriggan, North West Blanchardstown, Dun Laoghaire, North Clondalkin, Tallaght
Galway - Tuam
Kerry - Tralee
Kildare - Athy, Kildare
Kilkenny - Kilkenny
Laois - Portlaoise
Limerick - Newcastlewest
Longford - Longford
Louth - Drogheda, Dundalk
Mayo - Ballina
Meath - Navan
Monaghan - Monaghan
Offaly - Tullamore, Birr
Sligo - Sligo
Tipperary - Roscrea, Thurles, Carrick-on-Suir, Tipperary
Waterford - Dungarvan
Westmeath - Athlone, Mullingar
Wexford - Gorey, New Ross
Wicklow - Arklow, Bray, Wicklow
(ii) Rural Renewal Schemes
Once again, the residential reliefs available under this scheme are: (1) Section 23 Type Relief and (2) Owner-Occupier Relief.
The areas qualifying under the Rural Renewal Scheme are specifically defined in the legislation and are listed below: Cavan (certain electoral districts) Leitrim Longford Roscommon (certain electoral districts) Sligo (certain electoral districts) Unlike the Urban Renewal Schemes, the rural schemes are not subject to the same restrictions relating to the deductibility of interest on borrowed capital. These restrictions relate solely to rented properties and were introduced in the first Bacon Report. Thus, an individual who purchases a property in an approved rural area can offset the interest paid on capital borrowed against any rental income received from that property.
(iii) Living Over The Shop (LOTS) Scheme This scheme was introduced by the Minister for Housing and Urban Renewal to boost the supply of residential accommodation in the five county boroughs of Dublin, Cork, Galway, Limerick and Waterford. It introduced tax incentives for the conversion of vacant space situated over commercial premises into residential accommodation. A list of designated premises is available from the Department of Environment website.
(iv) Town Renewal Schemes The Town Renewal Scheme was introduced with the aim to provide tax incentives/reliefs in certain towns (with a population of between 500 and 6,000) that fell outside the criteria of the Urban Renewal Scheme. The residential reliefs available are: (1) Section 23 Type relief. (2) Owner-Occupier Relief.
A total of 102 Town Renewal Plans (TRPs) were submitted to the Department of the Environment of which 100 were approved and are listed below:
County Towns recommended for designation
Carlow
Hacketstown, Tullow, Muinbheag, Tinnahinch/Graiguenamanagh
Cavan
Cavan, Baileborough, Cootehill, Ballyjamesduff
Clare
Scarriff, Kilrush, Ennistymon, Sixmilebridge, Miltown Malbay
Cork
Cloyne, Charleville (Rathluirc), Kanturk, Fermoy, Skibbereen, Doneraile, Bantry
Donegal
Moville, Ramelton, Ballybofey/Stranorlar, Ardara, Ballyshannon
Galway
Portumna, Loughrea, Ballygar, Headford, Clifden
Kerry
Listowel, Killorglin, Castleisland, Caherciveen
Kildare
Kilcullen, Rathangan, Monasterevin, Castledermot, Kilcock
Kilkenny
Callan, Thomastown, Pilltown, Castlecomer, Urlingford
Laois
Mountrath, Portarlington, Rathdowney, Mountmellick
Limerick
Abbeyfeale, Croom, Rathkeale, Castleconnell, Kilmallock
Louth
Carlingford, Dunleer, Ardee, Castlebellingham
Mayo
Ballinrobe, Claremorris, Newport, Belmullet, Foxford
Meath
Oldcastle, Kells, Duleek, Trim
Monaghan
Clones, Ballybay, Castleblayney
Offaly
Clara, Edenderry, Ferbane, Banagher
Roscommon
Roscommon
Sligo
Rosses Point, Bellaghy/Charlestown
Tipperary
Nenagh, Borrisokane, Templemore, Littleton, Cashel, Cahir, Killenaule, Fethard
Waterford
Cappoquin, Kilmacthomas, Portlaw, Tallow
Westmeath
Kilbeggan, Moate, Castlepollard
Wexford
Ferns, Taghmon, Bunclody, Gorey
Wicklow
Dunlavin, Carnew, Tinahely, Rathdrum, Baltinglass
The areas designated and the type of incentive available are in line with recommendations made by an expert panel and these plans, together with maps, can be obtained from the relevant local authorities.
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