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Budget 2015 – Property Measures

By Niall Cogan

By Niall Cogan

Niall Cogan reviews the key measures aimed at addressing the issues in the construction and housing sectors.

The Government announced a new Construction 2020 strategy for Ireland in May of this year. The main objective of the Construction 2020 strategy was to create a strong and sustainable construction sector in Ireland. In addition, a lack of supply of suitable housing in the country is widely regarded as an issue which needs urgent attention.

Budget 2015 has sought to address some of these issues by introducing a number of new measures focused specifically on the construction and housing sectors.

Windfall Tax

The National Assets Management Agency Act introduced a “windfall tax” which provided for an 80% rate of income tax on profits from certain land rezonings and an 80% rate of capital gains tax on gains from the disposal of land subject to these rezonings.

Section 27 of Finance Bill 2014, as initiated, removes the 80% rate and with effect from 1 January 2015 the normal rates will apply to such profits or gains.

Minister Noonan did acknowledge that there was a view held that “owners of zoned and serviced land are waiting for higher prices and that is why they are not taking steps to develop their land or sell to others who will”. On foot of this, he indicated that a public consultation would be launched to ascertain whether this situation did exist and to examine whether certain taxation measures could be introduced to influence the behaviour of the land owners. We await with interest the outcome of this public consultation process.

Capital Gains Tax Relief

Minister Noonan, in his 2012 Budget speech, introduced a reduction in Stamp Duty rate to a flat 2% for all non-residential property. In addition to this, and probably of more significance, was the introduction of Section 604A TCA 1997 which introduced a Capital Gains Tax relief on disposals of land or buildings acquired in the period commencing on 7 December 2011 and ending on 31 December 2013. Section 44, Finance Act (No. 2) 2013 extended the period within which the lands or buildings may be acquired, for the purposes of the relief, to 31 December 2014.

Land or buildings, for the purposes of the relief, includes any land or buildings in the State or in any State in the European Economic Area (“EEA”).

Land or buildings acquired in the period 7 December 2011 to 31 December 2014 will, if held for a period of 7 years, qualify for relief on any gain arising on disposal. Where the land or buildings are held for longer than 7 years, relief will be available on a time apportioned basis.

The relief has certainly contributed to the level of activity in the property investment market since its introduction, especially in the case of commercial property.

Minister Noonan has signalled, in his recent Budget Speech, that the exemption will not be continued beyond 31 December 2014.

The Home Renovation Incentive (HRI)

The HRI was introduced to provide tax relief to homeowners by way of an income tax credit at 13.5% of qualifying expenditure on repair, renovation and improvement works carried out on the homeowner’s main residence.

Minister Noonan, in his budget speech, acknowledged the success of this incentive to date with just under 9,000 homes registered on the HRI online system representing nearly €190 million worth of works involving some 3,000 contractors.

Up to now the incentive was only available to works carried out on a homeowner’s only or main residence.

Section 11 of Finance Bill 2014, as initiated, proposes to extend the definition of qualifying residence, for the purposes of the incentive, to include residential premises situated in the State which are owned by an individual and occupied, or intended to be occupied, by a tenant under a tenancy for which registration under the Residential Tenancies Act 2004 is required.

The revised relief shall apply to qualifying expenditure on rental properties, as defined, incurred in the period 15 October 2014 to 31 December 2015.

The objective of the HRI extension is to support legitimate operators in the rental and construction sectors and to help upgrade the quality of private rental stock.

Rent-a-room scheme

The threshold for exempt income under the rent-a-room scheme, which applies to sums arising where a person rents out a room or rooms in his or her principal private residence, is being increased from €10,000 to €12,000 per annum.

This obviously takes account of the significant recovery in residential rents in many parts of the country.

Living city initiative

This initiative, first announced in Budget 2013, was designed to bring families back into the city centres and to maximise the use of existing pre-1914 buildings by transforming them into modern homes.

As part of his speech, the Minister confirmed that the living city initiative is due to be rolled out in early 2015 following the receipt of final proposals for each city.

The initiative provides for tax relief in two separate measures as follows:

Owner–Occupier Relief

Section 372 AAB TCA 1997 provides relief for owner–occupiers where qualifying expenditure is incurred on the conversion and refurbishment of Georgian houses. Where the relevant conditions are met, the initiative provides for a tax deduction for 10% per annum of the qualifying expenditure for a maximum of 10 years against an individual’s total income.

Capital Allowances for commercial premises

Section 372 AAC TCA 1997 provides for capital allowances to be available in respect of qualifying expenditure (i.e. capital expenditure incurred on the refurbishment or conversion of a building) in a qualifying area. Allowances will be available at 15% for years 1–6 and 10% in year 7.

The relief is not available to property developers or persons connected with property developers.

In both cases, the minimum spend must be at least 10% of the market value of the property prior to the conversion/refurbishment.

First time buyers-DIRT relief

Section 20 of Finance Bill 2014, as initiated, introduces a refund of DIRT on savings to support first time buyers saving for their first home.

“Relevant savings” as defined in the draft legislation, means deposits held as does not exceed 20% of the amount of the consideration paid for the residence. The relief provides that any tax withheld on interest paid in respect of the savings in the period of 48 months ending on the date of purchase shall be refunded to the first time purchaser on making a claim.

This relief shall apply to purchases completed on or after 14 October 2014 and prior to 31 December 2017.

It will be interesting to see how this relief, once introduced, will sit in the context of the new mortgage lending restrictions being proposed by the Central Bank and particularly the loan to value restrictions currently being discussed.

Conclusion

Only time will tell whether the Government has done enough in Budget 2015 to achieve the objectives set out in their Construction 2020 strategy, but the steps taken are a positive indication that they are on the right track.

Niall Cogan is a Senior Manager in PwC’s Real Estate Group

Email: niall.j.cogan@ie.pwc.com