Residential housing, rental income, Living City incentive, Home Renovation Incentive, Rent-a-Room scheme, Section 110.
As mooted in the Action Plan for Housing and Homelessness announced in July 2016, the minister has now formally introduced a Help-to-Buy Scheme designed to assist first-time buyers struggling to fund the deposit required to be eligible for a mortgage under the Central Bank’s macro-prudential rules.
The objective of the new scheme is to create additional demand for houses, given market trends suggest that with increased demand, increased supply will follow. We think this is correct and that the measure will increase supply.
The scheme will take the form of a rebate of income tax paid over the previous four tax years which will act as a contribution to the deposit needed to fund the purchase of a new home. The maximum rebate available will be 5% of the purchase price of the new home up to a maximum of €20,000.
The key elements of the scheme are:
The practical application of the scheme needs to be clarified as it is not clear how individuals will fund the shortfall in the deposit pending the rebate from the Revenue Commissioners.
Following the relaxation of interest deduction restrictions in Finance Act 2015 for certain properties let to either individuals in receipt of rent supplement/housing assistance payment or to local authorities, the minister has announced that he will restore full interest deductibility for landlords of other residential properties on a phased basis starting in 2017. From 2017 the deduction available for interest on borrowings used by a landlord to fund the purchase, improvement or repair of a residential property will increase from 75% to 80%. The amount which will be deductible will increase by instalments of 5% per year thereafter until the 100% deduction is restored. It will be 2021 before a deduction for 100% of interest expense will be available.
The Living City Initiative is aimed at the regeneration of retail and commercial districts and at encouraging families to live in historic buildings in the centres of Dublin, Cork, Limerick, Waterford, Galway and Kilkenny. The scheme originally only provided relief for an owner-occupier of a residential premises. The minister announced the extension of the relief to include landlords and the removal of the limit on the floor size of a qualifying property.
The relief is intended to promote regeneration works on residential buildings built prior to 1915 but because of the significant costs associated with refurbishing old buildings, the take up to date has been low. The inclusion of residential landlords in the relief will hopefully change this. However, the fact that the relief remains subject to the higher earners’ restriction is unhelpful. The capping of relief at €200,000 per project (irrespective of the number of investors) for commercial premises in order to comply with EU state aid rules is also an issue in practice.
The Home Renovation Incentive Scheme seeks to incentivise individuals to upgrade their homes using tax compliant contractors. The relief was due to expire on 31 December 2016. Acknowledging that the Help-to-Buy Scheme is targeted at new homes, the minister has extended the HRI which is available for upgrades to second hand homes by two years to 2018. This is welcome given the popularity of the scheme in allowing relief for refurbishments for individuals who renovate or improve their homes and for rental properties owned by landlords.
The threshold for exempt income under the Rent-a-Room Scheme is being increased to €14,000 per annum from the current amount of €12,000.
The minister indicated that following the publication of draft amendments to Section 110 legislation, further amendments are necessary to address other issues arising in relation to Funds and property.
These changes are discussed further in the Business Tax section of Taxing Times.
Budget 2017 is the second budget in a row where the choices have been about how to distribute benefits; read our professional tax analysis.