Tax

Finance Bill 2023: Real Estate Sector

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Finance (No.2) Bill 2023 (the Bill) contains the legislative provisions to implement many of the Budget Day announcements as well as a number of other measures not already announced. 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 2025.

The Bill amends the definition of loan-to-value ratio so as to include the affordable dwelling contribution received under the Local Authority Affordable Purchase Scheme.

Rent Tax Credit

The Bill introduces amendments to the annual income tax credit for renters introduced in Finance Act 2022.

The credit is due to increase from €500 to €750 for an individual and from €1,000 to €1,500 per couple jointly assessed. These increases apply for the 2024 and 2025 tax years.

The Bill amends the legislation to extend the credit to parents who cover the costs of their student children living in ‘digs’ or rent-a-room accommodation. This will apply to the 2024 and 2025 tax years and retrospectively to 2022 and 2023.

Rented Residential Relief

Budget 2024 announced a new income tax relief for individual landlords of rented residential property. The Bill introduces the related legislative provisions.

The relief will apply at the standard 20% rate of income tax and will reduce the income tax due by: €600 in 2024, €800 in 2025 and €1,000 in 2026 and 2027. Properties must be rented or marketed to rent at the end of the year in which the claim is made and landlords must have tax clearance and be in compliance with their Local Property Tax (LPT) and Residential Tenancies Board (RTB) requirements. The relief will be clawed back in full if any of the landlord’s properties are sold or removed from the rental market.

Rent Payable to Non-resident Landlords

Technical amendments have been made to the Non-Resident Landlord Withholding tax system which came into effect on 1 July 2023.

The changes clarify that, where a tenant pays rent to a collection agent for the non-resident landlord, the tenant is not obliged to deduct and remit withholding tax to Revenue. In these scenarios, the collection agent may either deduct and remit the withholding tax to Revenue, or may remain assessable and chargeable to tax for the rental income of the non-resident landlord.

Retrofitting by Landlords

The Bill extends the current deduction for certain retrofitting costs incurred by residential landlords to landlords whose properties were previously subject to rent controls.

Capital Allowances on Certain Energy-Efficient Equipment

The Bill extends the acceleration of wear and tear allowances for certain energy-efficient equipment by two years until 31 December 2025.

Mortgage Interest Relief

The Bill confirms the temporary mortgage interest relief measure announced in Budget 2024.

Relief will be available as a tax credit based on the increase in interest paid between 2022 and compared to 2023 and will apply for the tax year 2023, subject to conditions:

  • the loan relates to a taxpayer’s principal private residence in Ireland;
  • the taxpayer is LPT compliant; and
  • the outstanding loan balance was between €80,000 and €500,000 on 31 December 2022

The amount of the increased interest is capped at €6,250 and, therefore, the maximum relief available is €1,250 (20% of €6,250). Taxpayers must file a return with Revenue and provide the requisite details in order to claim this relief.

Vacant Homes Tax (VHT)

The Bill provides for an increase in the Vacant Homes Tax from three times to five times the property’s existing Local Property Tax liability. This increase is set to take effect from the next chargeable period, commencing 1 November 2023.

The VHT applies to residential properties which are occupied for less than 30 days in a 12-month period. A number of exemptions apply.

The first chargeable period ends on 31 October 2023. It is worth noting that the filing date for VHT returns is 7 November 2023 and the due date for payment is 1 January 2024. 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 defers the first liability date for RZLT by one year, to 1 February 2025, for land which met the relevant criteria on 1 January 2022.

Other changes include:

  • Providing landowners whose land will appear on the draft revised final map to be published on 1 February 2024 the opportunity to request the rezoning of such land.
  • Excluding from the scope of RZLT land which, while zoned for residential purposes, is subject to land management objectives in the relevant local authority development plan for phased, and not immediate, development.

Defective Concrete Products Levy (DCPL)

The Bill provides that ready-to-pour concrete used in the manufacture of precast concrete products will be removed from the scope of the levy with effect from 1 January 2024. This confirms a move signalled by the Minister for Finance in September. There will be an onus on both suppliers and purchasers of ready-to-pour concrete for precast concrete products to maintain appropriate records and penalties may be applied in circumstances where this amendment is misused.

There will be a refund scheme established in respect of the levy paid on such ready-to-pour concrete between the levy’s coming into effect on 1 September 2023 and 31 December 2023.

Capital Gains Tax Exemption – Disposals of Certain Lands and Buildings

A Capital Gains Tax relief currently applies on the disposal of certain properties acquired between 7 December 2011 and 31 December 2014.

The Bill amends the wording of the legislation, replacing the word ‘acquired’ with ‘purchased’ such that the relief is only available on property that was purchased for full market value or purchased from a relative for at least 75% of market value.

The amendment will be deemed to take effect in relation to all disposals made on or after 1 January 2018.

Properties owned by Retirement Benefit Schemes

The Bill introduces a measure ensuring the exemption from income tax of rental income derived from properties owned by retirement benefit schemes and approved retirement funds is dependent on the tenancies being registered with the Residential Tenancies Board.

This is with effect from 1 January 2024. 

Stamp Duty Exemption on Short-Term Leases

The Bill provides for an increase in the stamp duty exemption that applies on certain short term leases of residential property. 

The annual rent threshold applying to exempt leases of houses and apartments where the term of the lease is less than 35 years, or for an indefinite term will be raised from €40,000 to €50,000.

Contact us

For additional information, contact a member of the Real Estate Tax Advisory team or your usual Grant Thornton contact.

 

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