405 Restriction on use of capital allowances on holiday cottages

Summary

This section provides restrictions on the manner in which capital allowances on holiday cottages may be set off against income.

Details

(1) Under section 305(1)(b) the excess of capital allowances over the income arising from the letting of an industrial building or structure may be set against the total income of an individual taxpayer. Where the taxpayer is carrying on a trade, the capital allowances may be taken into account under section 392 to create or augment a loss in that trade for set-off against the taxpayer’s total income. Where the taxpayer is a company, sections 308(4) and 396 provide for the set-off of the capital allowances in a similar manner. Section 420(2) provides for group relief in respect of trading losses in respect of capital allowances; and section 381 provides for relief for any individual carrying out a trade or profession who sustains a loss in relation to that trade or profession.

This section provides, however, that, subject to subsections (2) and (3), sections 305(1)(b) and 308(4) and 420(2) will not apply in relation to any capital allowance given in respect of capital expenditure incurred on or after 24 April 1992 on a building or structure which is an industrial building or structure by virtue of being a holiday cottage. In addition, sections 381 and 396(2) will not apply as respects the whole or part of any loss which would not have arisen but for any such capital allowance. If an amount of loss would arise without taking account of the capital allowances the section does not prevent the set-off of that amount of the loss.

(2) The restrictions in this section do not apply to capital allowances in respect of expenditure incurred in the period up to and including 5 April 1993 on a holiday cottage (within the meaning of section 268) where either —

• a binding contract in writing for the construction of the holiday cottage had been entered into before 24 April 1992, or
• both a binding contract in writing had been entered into before 24 April 1992 for the purchase or lease of land for the purposes of constructing a holiday cottage and a planning application for the construction of the holiday cottage had been received by a planning authority before that date.

(3) Also, in addition to the above, the restrictions in this section do not apply to capital allowances in respect of expenditure incurred on a building used as a holiday cottage which is comprised in premises first registered on or after 6 April 2001 in a register of approved holiday cottages established by the National Tourism Development Authority (trading as Fáilte Ireland) under Part III of the Tourist Traffic Act, 1939, where prior to the premises becoming so registered —

• the building was a qualifying premises within the meaning of section 353, by virtue of being a listed holiday cottage under section 9 of the Tourist Traffic Act, 1957, and
• the provisions of section 355(4) did not apply to restrict allowances for the expenditure incurred on the acquisition, construction or refurbishment of that building or structure, by virtue of section 355(5) (section 355(4) ring fences capital allowances in respect of buildings or structures covered by that section but section 355(5) sets this aside in certain circumstances).

Relevant Date: Finance Act 2021