Revenue Tax Briefing Issue 42 (part 2), 2000

Town Renewal Scheme Tax Incentives

Introduction

The Town Renewal Scheme provides tax incentives for certain towns with a population of between 500 and 6,000. The scheme is being introduced in two phases. The residential tax incentives apply with effect from 24 July 2000 and the commercial incentives will be introduced following approval by the EU. This article sets out details of the tax incentives available under both phases of the scheme.

A list of the 100 towns that will benefit under the scheme is included at the end of this article. The areas designated and the type of incentive available are in line with the recommendations made by a special Expert Advisory Panel appointed by the Minister for the Environment and Local Government and are based on Town Renewal Plans prepared by Local Authorities. A document titled “Incentives Recommended by the Expert Advisory Panel on Town Renewal” is available from the local authority involved. This document indicates which incentive is available in respect of each area within the Town Renewal Plan area. Copies of the maps of each area are available from the local authority involved.

Tax Incentives Available

The scheme provides for income tax and corporation tax reliefs for expenditure on certain residential and commercial/industrial developments. To qualify for relief the work must be carried out during the “qualifying period”. The “qualifying period” for the residential part of the scheme commenced on 24 July 2000 and ends on 31 March 2003. The commercial part of the scheme has not yet commenced as EU approval is awaited.

The local authority which prepared a Town Renewal Plan must certify in writing that the construction, refurbishment or conversion work carried out is consistent with the objectives of the plan. Queries regarding this certificate should be addressed to the relevant local authority. (This certificate is referred to as a “Letter of Certification” throughout this article).

A summary of the tax reliefs available for the two separate categories is as follows:

Residential Developments

The reliefs available under this category are:

Owner-occupier relief - where an individual is allowed the cost of all or part of the expenditure on his/her main residence as an additional tax-free allowance.
Rented residential accommodation relief - where the owner is allowed deduct all or part of the expenditure on a rented property in calculating his/her rental income.

Certificate of Compliance and Certificate of Reasonable Cost

Except where the work carried out is the refurbishment of a facade, the claimant must have a Certificate of Compliance or a Certificate of Reasonable Cost.

A Certificate of Compliance is required where a newly constructed, refurbished or converted property is purchased from a builder.

A Certificate of Reasonable Cost is required where a newly constructed, refurbished property is to be lived in or let by the person who carried out the work or who had it carried out.

An application for a certificate can be made by the builder/developer or the purchaser to:

Department of the Environment and Local Government,
Housing Grants Section,
Room F9/10,
Government Offices,
Ballina,
Co Mayo.

Telephone 096-24200
LoCall 1890 20 20 21

Refurbishment

Refurbishment in a residential context means the carrying out of works that are certified to have been necessary to ensure the suitability of the property as a dwelling. This certificate is contained in the Certificate of Compliance/Certificate of Reasonable Cost. Refurbishment includes the provision or improvement of water, sewerage or heating facilities.

An application for a certificate in respect of refurbishment projects should be made to the Department of the Environment and Local Government before commencement of work so that a prior inspection of the building can be carried out.

Refurbishment of a facade means works carried out in the course of restoration of the facade.

Owner-Occupier Relief

This relief is available to owner-occupiers of newly constructed, refurbished or converted residential properties and to owner-occupiers of residential properties where the facade has been refurbished.

To qualify, the property must be:

Not less than 38 sq. metres and not greater than 125 sq. metres in floor area
Situated within an area designated for the relief
Occupied by the individual after the expenditure is incurred as his/her sole or main residence, and
Occupied by the individual as his/her sole or main residence for each year of claim.

The relief available is as follows:

in the case of new construction, 50% of the allowable expenditure at the rate of 5% p.a. for each of the first 10 years
in the case of refurbishment or conversion expenditure, 100% of the allowable expenditure at the rate of 10% p.a. for each of the first 10 years.

The cost of the site does not qualify for relief. Grants are deducted in arriving at the amount of the expenditure that qualifies.

Where a property is purchased from a builder the expenditure that qualifies for relief is the proportion of the purchase price that relates to the construction expenditure. This amount is arrived at by applying the following formula to the price paid to the builder:

B + C

where

A =	the expenditure on construction/refurbishment/conversion which was incurred in the qualifying period
B =	the total expenditure on construction/refurbishment/conversion
C =	the expenditure on site acquisition (including in the case of refurbishment/conversion the cost of the building which was refurbished or converted)

How relief is granted

Relief is granted at the individual’s highest rate of tax. It can be given either by increasing an individual’s tax-free allowance during the year or by repayment of tax at the end of the tax year. Where the individual is self-employed the tax relief is given in the annual tax assessment.

No relief is due in a year where the individual does not use the property as his/her sole or main residence. If the property is sold any relief granted is not withdrawn. A subsequent purchaser is not entitled to the relief.

Rented Residential Accommodation Relief

Often referred to as “Section 23 Relief ”, this relief is available to individuals and companies who lease newly constructed, refurbished or converted residential properties and to lessors of residential properties where the facade has been refurbished.

To qualify, the property must be:

Not less than 38 sq. metres and not greater than 125 sq. metres in floor area
Situated within an area designated for the relief, and
Let under a qualifying lease after the expenditure is incurred without being otherwise used.

The relief available is as follows:

The actual cost of construction, refurbishment or conversion which is carried out during the qualifying period (excluding site cost and grants, as appropriate)

B + C

where

A =	the expenditure on construction/refurbishment/conversion which was incurred in the qualifying period
B =	the total expenditure on construction/refurbishment/conversion
C =	the expenditure on site acquisition (including in the case of refurbishment/conversion the cost of the building which was refurbished or converted)

How relief is granted

The amount of the expenditure that qualifies for relief is deducted in full from the rental income from the property. If this deduction exceeds the rental income in the first year from the property, the excess can be deducted from other rental income arising in the State for that year. Any rental loss created in the first year can be carried forward against rental income of succeeding tax years until the relief is exhausted.

If the property is sold within a period of 10 years of its first letting any relief granted is withdrawn. A subsequent purchaser of the property within the 10 year period is entitled to the relief.

How to claim the residential reliefs

A claim for the relief should be made to the person’s tax office. A person who makes a tax return under self-assessment should claim the relief on the tax return for the appropriate year.

The following documents, as appropriate, are required in support of a claim. They should be retained and forwarded to the tax office if requested:

Letter of Certification issued by the local authority
A Certificate of Compliance or a Certificate of Reasonable Cost issued by the Department of the Environment and Local Government. (Production of the appropriate certificate will provide the necessary evidence that the property meets the floor area requirement and standards for construction and improvement).
In the case of a purchase, a copy of the memorandum of agreement between the parties showing the purchase price.
Where a property is newly constructed, a statement of the total cost of the work. If any of the work was carried out outside the qualifying period, details of the cost of work carried out between 24 July 2000 and 31 March 2003 should be shown separately. In the case of the purchase of a new property the cost of the site should also be provided.
Where a building is newly refurbished or converted, a statement of the total cost of the work. If any of the work was carried out outside the qualifying period, the cost of the work carried out between 24 July 2000 and 31 March 2003 should be shown separately. In the case of the purchase of newly refurbished or converted property, the site cost and the market value of the building before refurbishment or conversion should also be provided.
Where the property is let, a copy of the lease(s).

Commercial Developments

The tax incentives for industrial/commercial developments take the form of capital allowances. These allowances are available to individuals and companies for expenditure incurred on the construction or refurbishment of certain industrial and commercial buildings. However, this part of the scheme has not commenced as EU approval for the allowances is awaited.

The date of commencement of the qualifying period for the purposes of the commercial tax allowances will be announced when EU approval is received.

The allowances are not available to property developers in certain circumstances, to owner-occupiers of buildings in use in certain sectors and industries and for buildings provided for certain large scale projects. Further details regarding these exclusions are included in Tax Briefing, Issue 41 - September 2000 which is available on our website - www.revenue.ie

The type of buildings qualifying are:

Industrial - Mills, factories and similar premises and certain laboratories
Commercial - e.g. offices, shops etc.

Expenditure on any part of a building in use as (or as part of) a dwelling house does not qualify for relief.

Refurbishment

Refurbishment in the case of commercial and industrial development means works carried out in the course of restoration of a building.

The relief

The amount of the allowances available are calculated by multiplying the qualifying expenditure by a rate from the following table:

COMMERCIAL/INDUSTRIAL DEVELOPMENT
Owner-Occupier	50% initial allowance in Year 1 with 4% annual allowance thereafter until the balance of the qualifying expenditure has been written off or For those who do not wish to claim 50% of the expenditure in year 1, the annual allowance (4%) may be increased up to 50% in any year (known as free depreciation) with 4% annual allowance for other years until the qualifying expenditure has been written off. The free deprecation may be taken in year 1 or over a number of years but the maximum amount on which the increased rate may be claimed is limited to 50% of the qualifying expenditure.
Investor/Lessor	50% initial allowance in Year 1 and a 4% annual allowance thereafter until the balance of the qualifying expenditure has been written off.

How relief is granted

Owner-occupiers

The allowances are given in taxing the individual/company’s trade and are available for relief at the individual’s highest rate of tax.

An initial allowance and an annual allowance may not be claimed in respect of the same expenditure in the same tax year.

Lessors

The allowances are available primarily against rental income from all sources within the State. Where the allowance is greater than that income the excess can be deducted from the person’s other income. The amount that can be offset against non-rental income is limited to £25,000 in the case of individuals.

Lessors are not entitled to claim free depreciation.

Withdrawal of Relief

Tax allowances granted for expenditure on these industrial or commercial buildings may be withdrawn in whole or in part if the premises is sold within 13 years.

How to claim the relief

A claim for the relief should be made to the person’s tax office. A person who makes a tax return under self-assessment should claim the relief on the tax return for the appropriate year.

The following documents, as appropriate, are required in support of a claim. They should be retained and forwarded to the tax office if requested:

Letter of Certification issued by the local authority
In the case of a purchase, a copy of the memorandum of agreement between the parties showing the sale price
Where a building is newly constructed, a statement of the total cost of the work. If any of the work was carried out outside the qualifying period, details of the cost of work carried out during the qualifying period should be shown separately. In the case of the purchase of a new building the cost of the site should be provided.
Where a building is newly refurbished or converted, a statement of the total cost of the work. If any of the work was carried out outside the qualifying period, the cost of the work carried out during the qualifying period should be shown separately. In the case of the purchase of a newly refurbished or newly converted building, the site cost and the cost of the building before refurbishment or conversion should be provided.
Where the building is let, a copy of the lease(s).

TOWNS RECOMMENDED FOR DESIGNATION
COUNTY	TOWNS SELECTED
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 Monasterevan	Castledermot Kilcock
Kilkenny	Callan Thomastown Pilltown	Castlecomer Urlingford
Laois	Mountrath Portarlington	Rathdowney Mountmellick

TOWNS RECOMMENDED FOR DESIGNATION
COUNTY	TOWNS SELECTED
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 N.R.	Nenagh Borrisokane	Templemore Littleton
Tipperary S.R.	Cashel Cahir	Killenaule Fethard
Waterford	Cappoquin Kilmacthomas	Portlaw Tallow
Westmeath	Kilbeggan Moate	Castlepollard
Wexford	Ferns Taghmon	Bunclody Gorey
Wicklow	Dunlavin Carnew Tinahely	Rathdrum Baltinglass