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Revenue e-Brief No. 55/2006

Property-based incentive schemes ‘15%’ test – payments to local authorities

The Finance Act 2006 introduced a new condition for property projects seeking to avail of the extended 31 July 2008 deadline for the various property incentive schemes. The new condition requires that work to the value of at least 15% of the actual construction costs of a particular building or development must have been carried out on or before 31 December 2006.

Issue 65 of Tax Briefing contains an article on the new ‘15%’ test. In this article it has been pointed out that the test relates to the degree to “which ”work is carried out as opposed to expenditure incurred. For instance, no account can be taken of any advance payments made for work that has not yet been carried out. The position is the same for any off-site work which has not yet been integrated into a particular building. Construction costs for raw materials and labour used, equipment hire and architects fees etc. can be taken into account in establishing the value of the work carried out where these are directly attributable to work actually carried out on the building. Visible and tangible construction work has to have been carried out and this work has to be manifested as an integral part of the building or development by 31 December 2006.

However, it appears that some practitioners and others involved in property development are continuing to focus on the amount of the expenditure incurred by 31 December 2006. The purpose of this e-Brief is to draw the attention of all concerned to the strict requirements for meeting the 15% test as set out in Issue 65 of Tax Briefing. In this context, it should also be noted that levies or contributions paid to a local authority by a developer are not to be taken into account for the purposes of the 15% test. The fact that such payments may be compulsory or that planning permission or commencement of construction may be dependent on them does not alter this position. The 15% test is to be based solely on the value of actual work carried out to a particular building or development by 31 December 2006.