Tax Relief :

This article details the tax relief available in certain areas/regions of the country.

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 ?
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. 

Section 50 relief operates in the same manner as Section 23 relief but relates to qualifying student accommodation.

How is it calculated?
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.

How can it be used?
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.

How is it calculated?
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.
First time buyers grants (if applicable) are also excluded from the relief. 5% of qualifying construction expenditure or 10% of qualifying refurbishment expenditure is allowed annually as a personal allowance for 10 years (and provides relief at the top rate) in computing the individual's taxable income, commencing in the tax year in which the newly constructed house is first used as the taxpayer's principal private residence.

How can it be used?
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.

This information is for guideline purposes only.