Revenue Tax Briefing

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Revenue Tax Briefing Issue 42 (part 2), 2000

Town Renewal Scheme Tax Incentives

Introduction

The Town Renewal Scheme provides tax incentives for certain towns with a population of between 500 and 6,000. The scheme is being introduced in two phases. The residential tax incentives apply with effect from 24 July 2000 and the commercial incentives will be introduced following approval by the EU. This article sets out details of the tax incentives available under both phases of the scheme.

A list of the 100 towns that will benefit under the scheme is included at the end of this article. The areas designated and the type of incentive available are in line with the recommendations made by a special Expert Advisory Panel appointed by the Minister for the Environment and Local Government and are based on Town Renewal Plans prepared by Local Authorities. A document titled “Incentives Recommended by the Expert Advisory Panel on Town Renewal” is available from the local authority involved. This document indicates which incentive is available in respect of each area within the Town Renewal Plan area. Copies of the maps of each area are available from the local authority involved.

Tax Incentives Available

The scheme provides for income tax and corporation tax reliefs for expenditure on certain residential and commercial/industrial developments. To qualify for relief the work must be carried out during the “qualifying period”. The “qualifying period” for the residential part of the scheme commenced on 24 July 2000 and ends on 31 March 2003. The commercial part of the scheme has not yet commenced as EU approval is awaited.

The local authority which prepared a Town Renewal Plan must certify in writing that the construction, refurbishment or conversion work carried out is consistent with the objectives of the plan. Queries regarding this certificate should be addressed to the relevant local authority. (This certificate is referred to as a “Letter of Certification” throughout this article).

A summary of the tax reliefs available for the two separate categories is as follows:

Residential Developments

The reliefs available under this category are:

  • Owner-occupier relief - where an individual is allowed the cost of all or part of the expenditure on his/her main residence as an additional tax-free allowance.
  • Rented residential accommodation relief - where the owner is allowed deduct all or part of the expenditure on a rented property in calculating his/her rental income.

Certificate of Compliance and Certificate of Reasonable Cost

Except where the work carried out is the refurbishment of a facade, the claimant must have a Certificate of Compliance or a Certificate of Reasonable Cost.

A Certificate of Compliance is required where a newly constructed, refurbished or converted property is purchased from a builder.

A Certificate of Reasonable Cost is required where a newly constructed, refurbished property is to be lived in or let by the person who carried out the work or who had it carried out.

An application for a certificate can be made by the builder/developer or the purchaser to:

Department of the Environment and Local Government,
Housing Grants Section,
Room F9/10,
Government Offices,
Ballina,
Co Mayo.

Telephone 096-24200
LoCall 1890 20 20 21

Refurbishment

Refurbishment in a residential context means the carrying out of works that are certified to have been necessary to ensure the suitability of the property as a dwelling. This certificate is contained in the Certificate of Compliance/Certificate of Reasonable Cost. Refurbishment includes the provision or improvement of water, sewerage or heating facilities.

An application for a certificate in respect of refurbishment projects should be made to the Department of the Environment and Local Government before commencement of work so that a prior inspection of the building can be carried out.

Refurbishment of a facade means works carried out in the course of restoration of the facade.

Owner-Occupier Relief

This relief is available to owner-occupiers of newly constructed, refurbished or converted residential properties and to owner-occupiers of residential properties where the facade has been refurbished.

To qualify, the property must be:

  • Not less than 38 sq. metres and not greater than 125 sq. metres in floor area
  • Situated within an area designated for the relief
  • Occupied by the individual after the expenditure is incurred as his/her sole or main residence, and
  • Occupied by the individual as his/her sole or main residence for each year of claim.

The relief available is as follows:

  • in the case of new construction, 50% of the allowable expenditure at the rate of 5% p.a. for each of the first 10 years
  • in the case of refurbishment or conversion expenditure, 100% of the allowable expenditure at the rate of 10% p.a. for each of the first 10 years.

The cost of the site does not qualify for relief. Grants are deducted in arriving at the amount of the expenditure that qualifies.

Where a property is purchased from a builder the expenditure that qualifies for relief is the proportion of the purchase price that relates to the construction expenditure. This amount is arrived at by applying the following formula to the price paid to the builder:

A


B + C

where

A =

the expenditure on construction/refurbishment/conversion which was incurred in the qualifying period

B =

the total expenditure on construction/refurbishment/conversion

C =

the expenditure on site acquisition (including in the case of refurbishment/conversion the cost of the building which was refurbished or converted)

How relief is granted

Relief is granted at the individual’s highest rate of tax. It can be given either by increasing an individual’s tax-free allowance during the year or by repayment of tax at the end of the tax year. Where the individual is self-employed the tax relief is given in the annual tax assessment.

No relief is due in a year where the individual does not use the property as his/her sole or main residence. If the property is sold any relief granted is not withdrawn. A subsequent purchaser is not entitled to the relief.

Rented Residential Accommodation Relief

Often referred to as “Section 23 Relief ”, this relief is available to individuals and companies who lease newly constructed, refurbished or converted residential properties and to lessors of residential properties where the facade has been refurbished.

To qualify, the property must be:

  • Not less than 38 sq. metres and not greater than 125 sq. metres in floor area
  • Situated within an area designated for the relief, and
  • Let under a qualifying lease after the expenditure is incurred without being otherwise used.

The relief available is as follows:

The actual cost of construction, refurbishment or conversion which is carried out during the qualifying period (excluding site cost and grants, as appropriate)

Where a property is purchased from a builder the expenditure that qualifies for relief is the proportion of the purchase price that relates to the construction expenditure. This amount is arrived at by applying the following formula to the price paid to the builder:

A


B + C

where

A =

the expenditure on construction/refurbishment/conversion which was incurred in the qualifying period

B =

the total expenditure on construction/refurbishment/conversion

C =

the expenditure on site acquisition (including in the case of refurbishment/conversion the cost of the building which was refurbished or converted)

How relief is granted

The amount of the expenditure that qualifies for relief is deducted in full from the rental income from the property. If this deduction exceeds the rental income in the first year from the property, the excess can be deducted from other rental income arising in the State for that year. Any rental loss created in the first year can be carried forward against rental income of succeeding tax years until the relief is exhausted.

If the property is sold within a period of 10 years of its first letting any relief granted is withdrawn. A subsequent purchaser of the property within the 10 year period is entitled to the relief.

How to claim the residential reliefs

A claim for the relief should be made to the person’s tax office. A person who makes a tax return under self-assessment should claim the relief on the tax return for the appropriate year.

The following documents, as appropriate, are required in support of a claim. They should be retained and forwarded to the tax office if requested:

  • Letter of Certification issued by the local authority
  • A Certificate of Compliance or a Certificate of Reasonable Cost issued by the Department of the Environment and Local Government. (Production of the appropriate certificate will provide the necessary evidence that the property meets the floor area requirement and standards for construction and improvement).
  • In the case of a purchase, a copy of the memorandum of agreement between the parties showing the purchase price.
  • Where a property is newly constructed, a statement of the total cost of the work. If any of the work was carried out outside the qualifying period, details of the cost of work carried out between 24 July 2000 and 31 March 2003 should be shown separately. In the case of the purchase of a new property the cost of the site should also be provided.
  • Where a building is newly refurbished or converted, a statement of the total cost of the work. If any of the work was carried out outside the qualifying period, the cost of the work carried out between 24 July 2000 and 31 March 2003 should be shown separately. In the case of the purchase of newly refurbished or converted property, the site cost and the market value of the building before refurbishment or conversion should also be provided.
  • Where the property is let, a copy of the lease(s).

Commercial Developments

The tax incentives for industrial/commercial developments take the form of capital allowances. These allowances are available to individuals and companies for expenditure incurred on the construction or refurbishment of certain industrial and commercial buildings. However, this part of the scheme has not commenced as EU approval for the allowances is awaited.

The date of commencement of the qualifying period for the purposes of the commercial tax allowances will be announced when EU approval is received.

The allowances are not available to property developers in certain circumstances, to owner-occupiers of buildings in use in certain sectors and industries and for buildings provided for certain large scale projects. Further details regarding these exclusions are included in Tax Briefing, Issue 41 - September 2000 which is available on our website - www.revenue.ie

The type of buildings qualifying are:

  • Industrial - Mills, factories and similar premises and certain laboratories
  • Commercial - e.g. offices, shops etc.

Expenditure on any part of a building in use as (or as part of) a dwelling house does not qualify for relief.

Refurbishment

Refurbishment in the case of commercial and industrial development means works carried out in the course of restoration of a building.

The relief

The amount of the allowances available are calculated by multiplying the qualifying expenditure by a rate from the following table:

COMMERCIAL/INDUSTRIAL DEVELOPMENT

Owner-Occupier

50% initial allowance in Year 1 with 4% annual allowance thereafter until the balance of the qualifying expenditure has been written off
or
For those who do not wish to claim 50% of the expenditure in year 1, the annual allowance (4%) may be increased up to 50% in any year (known as free depreciation) with 4% annual allowance for other years until the qualifying expenditure has been written off. The free deprecation may be taken in year 1 or over a number of years but the maximum amount on which the increased rate may be claimed is limited to 50% of the qualifying expenditure.

Investor/Lessor

50% initial allowance in Year 1 and a 4% annual allowance thereafter until the balance of the qualifying expenditure has been written off.

How relief is granted

Owner-occupiers

The allowances are given in taxing the individual/company’s trade and are available for relief at the individual’s highest rate of tax.

An initial allowance and an annual allowance may not be claimed in respect of the same expenditure in the same tax year.

Lessors

The allowances are available primarily against rental income from all sources within the State. Where the allowance is greater than that income the excess can be deducted from the person’s other income. The amount that can be offset against non-rental income is limited to £25,000 in the case of individuals.

Lessors are not entitled to claim free depreciation.

Withdrawal of Relief

Tax allowances granted for expenditure on these industrial or commercial buildings may be withdrawn in whole or in part if the premises is sold within 13 years.

How to claim the relief

A claim for the relief should be made to the person’s tax office. A person who makes a tax return under self-assessment should claim the relief on the tax return for the appropriate year.

The following documents, as appropriate, are required in support of a claim. They should be retained and forwarded to the tax office if requested:

  • Letter of Certification issued by the local authority
  • In the case of a purchase, a copy of the memorandum of agreement between the parties showing the sale price
  • Where a building is newly constructed, a statement of the total cost of the work. If any of the work was carried out outside the qualifying period, details of the cost of work carried out during the qualifying period should be shown separately. In the case of the purchase of a new building the cost of the site should be provided.
  • Where a building is newly refurbished or converted, a statement of the total cost of the work. If any of the work was carried out outside the qualifying period, the cost of the work carried out during the qualifying period should be shown separately. In the case of the purchase of a newly refurbished or newly converted building, the site cost and the cost of the building before refurbishment or conversion should be provided.
  • Where the building is let, a copy of the lease(s).

TOWNS RECOMMENDED FOR DESIGNATION

COUNTY

TOWNS SELECTED

Carlow

Hacketstown
Tullow

Muinbheag
Tinnahinch/Graiguenamanagh

Cavan

Cavan
Baileborough

Cootehill
Ballyjamesduff

Clare

Scarriff
Kilrush
Ennistymon

Sixmilebridge
Miltown Malbay

Cork

Cloyne
Charleville (Rathluirc)
Kanturk
Fermoy

Skibbereen
Doneraile
Bantry

Donegal

Moville
Ramelton
Ballybofey - Stranorlar

Ardara
Ballyshannon

Galway

Portumna
Loughrea
Ballygar

Headford
Clifden

Kerry

Listowel
Killorglin

Castleisland
Caherciveen

Kildare

Kilcullen
Rathangan
Monasterevan

Castledermot
Kilcock

Kilkenny

Callan
Thomastown
Pilltown

Castlecomer
Urlingford

Laois

Mountrath
Portarlington

Rathdowney
Mountmellick

TOWNS RECOMMENDED FOR DESIGNATION

COUNTY

TOWNS SELECTED

Limerick

Abbeyfeale
Croom
Rathkeale

Castleconnell
Kilmallock

Louth

Carlingford
Dunleer

Ardee
Castlebellingham

Mayo

Ballinrobe
Claremorris
Newport

Belmullet
Foxford

Meath

Oldcastle
Kells

Duleek
Trim

Monaghan

Clones
Ballybay

Castleblayney

Offaly

Clara
Edenderry

Ferbane
Banagher

Roscommon

Roscommon

Sligo

Rosses Point

Bellaghy-Charlestown

Tipperary N.R.

Nenagh
Borrisokane

Templemore
Littleton

Tipperary S.R.

Cashel
Cahir

Killenaule
Fethard

Waterford

Cappoquin
Kilmacthomas

Portlaw
Tallow

Westmeath

Kilbeggan
Moate

Castlepollard

Wexford

Ferns
Taghmon

Bunclody
Gorey

Wicklow

Dunlavin
Carnew
Tinahely

Rathdrum
Baltinglass