355 Disclaimer of capital allowances on holiday cottages, holiday apartments, etc

Summary

This section provides, subject to certain exceptions, that holiday cottages, holiday apartments and other self-catering accommodation in the qualifying resort areas may not be qualifying premises for the purposes of section 354 (double rent allowance). If one of any of these types of buildings is to be such a qualifying premises then the person entitled to the capital allowances in respect of the expenditure incurred on its construction or refurbishment must elect to disclaim those allowances. [The double rent allowance itself under section 354 is available only where the premises is occupied by the person for the purposes of a trade or profession.]

The section also provides, subject to exceptions, that where capital allowances are claimed in respect of capital expenditure incurred on the construction or refurbishment of apartments and other self-catering accommodation in qualifying resort areas, those allowances may only be offset against rental income (including rental income from other sources) or other income, if any, arising from the letting/operation of the apartments or other self-catering accommodation.

[While this second provision applies only to apartments and other self-catering accommodation in the qualifying resort areas, it should be noted that, by virtue of section 405, the effective ring-fencing of the capital allowances also applies in the case of Bord Fáilte registered holiday cottages wherever situated. That section provides that where expenditure is incurred on or after 24 April, 1992 on the acquisition or construction of a holiday cottage, the capital allowances attaching to the holiday cottage are not available for offset against income of the taxpayer other than the income arising from the letting/operation of the holiday cottage.]

Details

Application

(1) The section applies to —

• Bord Fáilte registered holiday cottages which are situated in a qualifying resort area, and
• buildings or structures which are qualifying premises within the meaning of section 353 by virtue of being a holiday apartment or other self-catering accommodation (for example, houses, unregistered cottages, apartments, villas) listed under the Tourist Traffic Acts.

Eligibility as qualifying premises for double rent allowance contingent on disclaimer of capital allowances

(2)(a) Subject to certain exceptions (see subsection (5)), a building or structure to which this section applies may not be a qualifying premises for the purposes of the double rent allowance under section 354 unless the person who would be entitled to claim the capital allowances in respect of the expenditure incurred in the qualifying period on the construction or refurbishment of the building or structure makes an election in writing to the inspector to disclaim all such allowances in respect of that expenditure.

(2)(b) Such an election must be included in the return of income required to be made by the person concerned for the first year of assessment or, in the case of a company, accounting period for which capital allowances would otherwise have been available in respect of that expenditure.

(2)(c) An election to disclaim the capital allowances is irrevocable.

(2)(d) A person who has made such an election must furnish a copy of that election to any tenant to whom a qualifying lease in respect of the building or structure is granted. The tenant, in turn, must include the copy in the return of income required to be made by the tenant for the year of assessment or, in the case of a company, accounting period in which rent is first payable by the tenant under the qualifying lease.

(3) Where a person who has incurred capital expenditure in the qualifying period on the construction or refurbishment of a building or structure to which this section applies makes an election to disclaim the capital allowances in respect of that expenditure —

• no capital allowances will be made to that person in respect of that expenditure,
• on the occurrence of any event in relation to the building or structure which triggers a balancing allowance or charge, the residue of that expenditure will be deemed to be nil (this ensures that successors in title to the building or structure will have no entitlement to capital allowances in respect of that expenditure), and
• section 279 will not apply in relation to any person who purchases the relevant interest in the building or structure (this puts beyond doubt that any person who buys the building or structure unused or within one year of it commencing to be used will also have no entitlement to capital allowances, despite that the person who incurred the capital expenditure in the qualifying period on the construction or refurbishment of the building or structure would have disclaimed the capital allowances in respect of that expenditure.).

Ring-fencing of capital allowances

(4) This provision ring fences capital allowances in respect of buildings or structures to which the section applies other than Bord Fáilte registered holiday cottages. [Capital allowances in respect of such cottages are ring-fenced by section 405 which provides that where expenditure is incurred on or after 24 April, 1992 on the acquisition or construction of a holiday cottage, the capital allowances attaching to the holiday cottage are not available for offset against income of the taxpayer other than the income arising from the letting/operation of the holiday cottage.]

Where a person incurs capital expenditure on the acquisition, construction or refurbishment of a building or structure to which this section applies, other than a Bord Fáilte registered cottage, and an industrial building (initial) allowance or writing-down allowance is to be made in respect of that expenditure, the following rules apply.

(4)(a) Firstly, neither section 305(1)(b) nor section 308(4) applies as respects the allowance. In effect, therefore, the allowance may be set off for income tax or corporation tax purposes only against income from the letting of the building or structure. It cannot be set off against other income.

(4)(b) Secondly, neither section 381 nor section 396(2) applies as respects the whole or part of any loss which would not have arisen but for the making of the allowance. [This provision is applicable only if trading income arises.] In effect, therefore, any such loss may only be set off for income tax or corporation tax purposes against trading income (if any) arising from the apartment, self-catering accommodation, etc. The allowance cannot be used to create or augment a loss for set-off against other income.

Exceptions

(5) The restrictions imposed by the section on the possibility of the dual availability of the double rent allowance and capital allowances (subsections (2) and (3)) and on the set-off of capital allowances (subsection (4)) do not apply in certain circumstances.

(5)(a) Those restrictions do not apply where before 5 April, 1996 —

• a binding contract in writing had been entered into for the acquisition or construction of the building or structure,
• an application for planning permission for the construction of the building or structure had been received by a planning authority, or
• an opinion in writing had been issued by the Revenue Commissioners to the effect that section 408 (restriction on tax incentives on certain property) would not apply in relation to capital allowances to be made in respect of expenditure incurred on the building or structure.

(5)(b) Also, the restrictions do not apply where before 5 April, 1996 the person who incurred the expenditure on the construction or refurbishment of the building or structure had incurred expenditure on the acquisition of the land on which the building or structure was to be constructed or refurbished or had entered into a binding contract in writing for the acquisition of that land. However, this is conditional on the person being able to demonstrate that plans had been prepared and that discussions had taken place with a planning authority between 8 February, 1995 and 5 April, 1996 and that the planning authority can give an affidavit to this effect.

Relevant Date: Finance Act 2021