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In this article, we outline the key measures, which relate to the Irish real estate sector and how they will likely impact taxpayers operating within the sector.
Help to Buy Scheme
The Help to Buy Scheme (first introduced in Finance Act 2016) has been extended further in its current form to 31 December 2024. It is worth noting that the Minister for Finance commissioned an independent review of Help-to-Buy, which was published in September 2022. The Minister has indicated that the government will consider a number of recommendations within that report for future budgets.
Rent Tax Credit
The Bill introduces an annual income tax credit for renters in respect of rental payments made in relation to an individual’s principal private residence as well as for parents paying rent on behalf of their children who are enrolled in a college course that qualifies for tax relief on tuition fees.
This credit applies in relation to the 2022 to 2025 years of assessment, is subject to a claim made by the individual to Revenue, and is capped at €500 for an individual and €1,000 per couple jointly assessed. The tenancy must also be registered with the Residential Tenancies Board.
Living City Initiative
The Living City Initiative which is a tax incentive scheme for refurbishing or converting residential or commercial properties in Special Regeneration Areas in Cork, Dublin, Galway, Kilkenny, Limerick and Waterford, has been extended by 5 years to 31 December 2027. There are other technical amendments, which included the acceleration of relief claims for owner-occupiers as well as provision for carried forward relief, which can now be utilised after the relevant periods have expired.
Certain expenses incurred on a vacant residential property prior to it first being let after a period of non-occupancy (‘pre-letting expenses’) are allowable as a deduction against rental income of that premises so long as the property is let as a residential property on or before 31 December 2024. The Bill has increased the cap on the allowable amount of €5,000 to €10,000 and also reduces the minimum time period for which the property has to be vacant for from 12 to 6 months. These provisions will apply to lettings that occur on or after 1 January 2023.
Exempt Unit Trusts (EUTs), Common Contractual Funds (CCFs) and Investment Limited Partnerships (ILPs)
The Bill introduces additional administrative requirements for EUTs, CCFs and ILPs (vehicles commonly used for large scale property investment). These new requirements include the making of an annual statement to the Revenue Commissioners with certain information relating to the assets and business activity. Provision has also been made for a €3,000 penalty where relevant taxpayers fail to submit the new annual statement of submit an incomplete or incorrect one.
Interest Limitation Rules (ILR) – Residential Developments
Existing legislation provides that for ILR purposes, no account is to be taken of any income or expenses directly connected with a “qualifying long-term infrastructure project”. The Bill extends this definition to include the provision, upgrade, operation or maintenance of a large-scale residential development (LRD) as defined under certain planning acts. This new provision is applicable for accounting periods commencing on or after 1 January 2023.
Rent Payable to Non-resident Landlords
Under existing legislation, tenants making rental payments directly to non-resident landlords are obliged to deduct a sum equal to income tax at the standard rate (currently 20%) and pay this over to the Revenue.
The Bill provides for a two-part amendment to the legislation that provides for the taxation procedure of rental income payable to non-resident landlords (section 1041 TCA 1997). The first part provides that a tenant making a payment to a non-resident landlord will be required to provide certain additional information to Revenue concerning the rental income from which the tax is being withheld and the landlord.
The second part relates to “collection agents” (resident persons acting on behalf of the non-Irish resident person) who are chargeable and assessable for the income of the non-resident person. Under the proposed amendment, collection agents will be relieved of the obligation of being chargeable and assessable for the rental income of a non-resident landlord, if the collection agent deducts withholding tax from rental payments and remits that tax to Revenue. The collecting agent must also provide certain information relating to the rental income and landlord similar to that as referenced above for tenants.
This amendment is subject to a Commencement Order.
Vacant Homes Tax (VHT)
The Bill introduces a VHT. The new tax will apply to residential properties which are occupied for less than 30 days in a 12-month period. The tax will apply to properties which are residential properties for the purposes of local property tax (LPT). Therefore, as with LPT, VHT will only apply to habitable residential properties i.e. it will not apply to derelict or uninhabitable properties.
Each chargeable period will commence on 1 November and end on 31 October of the following year. The first chargeable period commences on 1 November 2022.
The amount of VHT payable for a chargeable period will be three times the base amount of LPT payable in respect of the property for the year in which the chargeable period ends. The liability to VHT will not be adjusted by the local adjustment factor as decided by local authorities.
There are a number of exemptions to the VHT, for example:
- VHT will not be charged on properties where no LPT was payable in respect of the year in which the chargeable period ends;
- VHT will not be charged on properties that were sold during the chargeable period; or
- VHT will not be charged on properties that were subject to a bona fide tenancy lasting at least 30 days during the chargeable period,
- Where the property is actively being marketed for rent / sale during the chargeable period, and
- Where the property was undergoing structural works, substantial repairs or significant refurbishment during the chargeable period.
The filing date for VHT returns will be 7 November after the end of the chargeable period and the payment date for tax will be 1 January of the following year. The tax will operate on a self-assessment basis. This means that property owners have the obligation to determine whether they are liable for VHT for a chargeable period and to satisfy their pay and file obligations. No tax deduction is allowable for VHT.
The legislation provides for penalties, interest and a late filing surcharge for cases of non-compliance and also provides that Revenue will establish a register of vacant homes and their associated chargeable persons as well as the powers to exchange this information with other bodies such as local authorities.
Residential Zoned Land Tax (RZLT)
The Bill makes a number of amendments to the legislation for the RZLT introduced in Finance Bill 2021 in order to support the efficient administration of the tax. RZLT will apply to owners of serviced and undeveloped land that has been zoned for residential use. For land that is within the scope of RZLT, an annual 3% tax will apply based on the market value of the land at the valuation date with the first RZLT charge payable in 2024.
Some of these legislative amendments include the following:
- The introduction of a penalty of €3,000 for failure to register for RZLT.
- The introduction of a deferral of the RZLT on land which is currently subject to unauthorised use, but where all other conditions for exclusion from the tax have been met. This deferral applies where a person has applied for retrospective authorisation of the development pending the decision of the local planning authority.
- The introduction of a deferral of the RZLT where a landowner brings an appeal or judicial review against a refusal of retrospective authorisation of a development, pending the determination of same.
- The introduction of an exemption from the RZLT in circumstances where landowners are precluded from developing land within the scope of the tax due to contractual obligations entered into prior to 1 January 2022. The exemption applies for the duration of the contractual obligations which existed prior to 1 January 2022.
- RZLT is currently not deductible in relation to income tax, corporation tax and capital gains tax. The Bill further restricts the deductibility of RZLT in relation to the universal social charge and the domicile levy.
It is worth noting that the Minister did indicate in his budget speech that the maps which identify zoned land within the scope of the tax are currently being prepared by Local Authorities who will publish their first draft maps on 1 November this year. Following the publication of the maps, any person will have the opportunity to apply to their Local Authority to have the zoning status of their land amended as part of a variation process.
Defective Concrete Products Levy (DCPL)
The Bill introduces a new DCPL and comes into effect from 1 September 2023. The intention of the levy is to raise revenue to contribute towards the funding of the Defective Concrete Blocks Grant Scheme which was introduced by the Minister for Housing, Local Government and Heritage.
The new legislation provides for a levy on the first supply of a defined list of certain concrete products calculated at 5% of the open market value of the products.
A person in the State making the first supply of a concrete product will be a chargeable person in respect of the levy and will be accountable for and liable to pay the levy and to make returns to Revenue. The legislation requires chargeable persons to register with Revenue for the levy, prior to their first supply of a concrete product after the commencement of the legislation.
Each chargeable person will be required to file a self –assessed return electronically within 23 days from the end of an accounting period. While the first accounting period will run from 1 September 2023 to 31 December 2023, subsequent accounting periods will be for a duration of six months.
A higher rate of stamp duty of 10% is charged where a person acquires 10 or more residential units (excluding apartments) in any 12-month period (section 31E of the Stamp Duties Consolidation Act 1999 (Stamp Duty legislation). The Bill introduces amendments to clarify that acquisitions of a partial interest (expressed as a fraction) in a unit is taken into account for the purposes of determining whether the 10-unit threshold has been met.
The Residential Development Refund Scheme allows for a partial repayment of stamp duty (up to 5.5% currently) where Stamp Duty is initially paid at non-residential rates (currently 7.5%) but subsequent to acquisition, residential units are developed. The scheme results in a net effective 2% rate of stamp duty for such qualifying residential developments. The Bill extends the availability of relief by extending the final date by which construction must be commenced to qualify for a refund to 31 December 2025.
The Bill also provides for two new refund provisions. Firstly a full repayment mechanism by inserting a new section 83DA into the Stamp Duty legislation. Where a residential property is acquired (with either 1%, 2% or 10% Stamp Duty paid on acquisition) and then is subsequently sold within 12 months of acquisition for the purposes of affordable home arrangements under the Affordable Housing Act 2021, a full repayment of stamp duty may be claimed subject to satisfying certain conditions.
A second new refund provision is introduced by the insertion of a new section 83DB into the Stamp Duty legislation. A partial repayment of stamp duty may be available, if certain conditions are satisfied, in respect of properties that have been:
- let to a housing authority or an approved housing body for social housing purposes, or
- designated as cost rental dwellings under the Affordable Housing Act 2021, or
- registered as designated centres under the Health Act 2007, which provide care in the community for those with special needs, or
- registered as children’s residential centres under the Child Care Act 1991, which provide homes for children in care.
Two pieces of current legislation are repealed, as they will be made redundant by the insertion of these two new refund provisions.
Property structures & other property tax matters
Interestingly, while the Bill does not contain and significant amendments to specific property holding regimes, the Minister did state in the budget speech that he is committed to commencing a review of the Real Estate Investment Trust (‘REIT’) and Irish Real Estate Funds (‘IREF’) regimes. It is well documented that institutional investment has played a key role in the provision of housing in Ireland recent years and the purpose of the review will consider these structures and how best they can continue to support the Government’s housing policy objectives.
For additional information, contact a member of the Real Estate Tax Advisory team or your usual Grant Thornton contact.