409C Income tax: restriction on use of losses on approved buildings

Summary

This section restricts the use by passive investors of relief under section 482.

Relief under section 482 is available in respect of expenditure on the repair, maintenance or restoration of certain buildings by the owner or occupier of such buildings. The buildings concerned are those which have been determined by the Minister for the Environment and Local Government (previously the Minister for Arts, Heritage, Gaeltacht and the Islands) to be of significant scientific, historical, architectural or aesthetic interest and determined by the Revenue Commissioners to have reasonable public access. Relief is given by treating the amount of such expenditure as an amount of loss in a trade which, under the Tax Acts, can be used to reduce a person’s income liable to income tax. Up until 2009 an individual participating in a passive investment scheme could claim relief limited to €31,750 under section 482 as owner of such a building. Broadly, a passive investment scheme is defined as a scheme under which:

• a person (who will make a claim under section 482 as owner) takes an interest in a building from its then owner;
• at that time, or in the next 5 years, the building is determined to be an approved building for the purposes of section 482; and
• the arrangements are such that the original owner has influence over how expenditure on the building is to be incurred; or, the original owner is entitled to participate in the tax benefits; or the original owner may reacquire the interest.

From the tax year 2010, no relief is available to passive investors, except for the years 2010 and 2011 in respect of work which was underway on or before 4 February 2010 and in respect of work which begins after that date, where such work is carried out under a written contract which was entered into before that date.

Details

(1) “approved building”, “the Minister” and “qualifying expenditure” have the meaning assigned to those terms in section 482(1)(a) as set out below.

An “approved building” is a building that has been determined by the Minister to be of significant scientific, historical, architectural or aesthetic interest and is determined by the Revenue Commissioners to have reasonable public access.

“the Minister” means the Minister for the Environment and Local Government (previously the Minister for Arts, Heritage, Gaeltacht and the Islands).

The term “qualifying expenditure” means expenditure on an approved building and covers expenditure on the repair, maintenance or restoration of the building and includes expenditure on the maintenance or restoration of any land occupied or enjoyed with the building as part of its gardens or grounds of an ornamental nature. In addition, qualifying expenditure includes expenditure of up to €6,350 per chargeable period in respect of—

• the repair, maintenance or restoration of an approved object in the approved building,
• the installation, maintenance or replacement of a security alarm system in the approved building, and
• public liability insurance for the approved building.

The expenditure must be incurred by the person who owns or occupies the approved building.

“the claimant” has the meaning assigned to it by section 482(2)(a) (i.e. the claimant is the person who makes a claim for relief under section 482(2)).

“eligible charity” has the meaning given to that term in paragraph 1 of Part 3 of Schedule 26A. It means any body in the State that is the holder of an authorisation under that Part that is in force. Under paragraph 2 of Part 3 of Schedule 26A, the Revenue Commissioners may issue an authorisation to a body stating that it is an eligible charity if that body makes an application to them and furnishes such information as they may reasonably require.

“ownership interest”, in relation to a building, means an estate or interest in a building which would entitle the person, who holds it, to make a claim under section 482, as owner of the building.

“relevant determinations”, in relation to a building, means the determinations made by the Minister and the Revenue Commissioners, respectively, in accordance with section 482(5)(a). The determinations are those that are issued by the Minister for the Environment and Local Government (previously the Minister for Arts, Heritage, Gaeltacht and the Islands) to the effect that a building is of significant scientific, historical, architectural or aesthetic interest and by the Revenue Commissioners to the effect that reasonable access is afforded to members of the public.

(2) The term “passive investment scheme” is defined as a scheme under which —

• a person (a “transferee”) who will make a claim under section 482, as owner of a building, takes an interest in a building from its then owner (the “transferor”);
• at that time, or in the next 5 years, the building is determined to be an approved building for the purposes of section 482; and
• arrangements are such that the original owner has influence over how expenditure on the building is to be incurred, or the original owner is entitled to participate in the tax benefits arising as a result of entering into the scheme or the original owner may re-acquire his or her interest in the building.

(3) The section applies where —

• by virtue of section 482(2) qualifying expenditure in relation to an approved building is treated as a loss sustained in a trade carried on by a claimant, as owner of the building, in a chargeable period,
• the claimant is an individual who is a transferee in relation to a passive investment scheme (the section does not apply to companies), and
• relief is claimed under section 381 in respect of that loss.

(4) Where the section applies, the amount of the loss which can be treated as reducing income for a year of assessment under section 381(1) shall be —

• the full amount of the loss, or
• €31,750,

whichever is the lesser amount.

(4A)(a) This subsection reduces to nil the amount of loss relief which a passive investor can claim as a deduction under section 381(1) thereby eliminating loss relief entirely from the tax year 2010 for such individuals.

(b) However, transitional arrangements ensure that relief will continue to be given for the tax years 2010 and 2011 in the following circumstances:

1. where work was completed prior to 4 February 2010:
   • relief will be available in respect of qualifying expenditure in 2010 (i.e. between 1 January 2010 and 3 February 2010). In addition, the carry forward provisions in section 482(3) will apply, as appropriate, for 2010 and 2011 in respect of qualifying work in 2008, 2009 and 2010.
2. where work is underway on 4 February 2010:
   • relief will be available in respect of qualifying expenditure in 2010 and 2011. In addition, the carry forward provisions in section 482(3) will apply, as appropriate, for 2010 and 2011 in respect of qualifying work in 2008, 2009 and 2010.
3. where work begins after 4 February 2010, but only where that work is carried out under written contract entered into before 4 February 2010:
   • relief will be available in respect of qualifying expenditure in 2010 and 2011. In addition, the carry forward provisions in section 482(3) will apply, as appropriate, for 2011 in respect of qualifying work in 2010.

(5) Where, as a result of this restriction, relief cannot be given for a year of assessment for part of the loss, then, for the purposes of section 482(3), that part of the loss will be treated as not being given owing to an insufficiency of income and thereby it may be carried forward to the next chargeable period and, if still not fully utilised in that period, it may be carried forward to the next subsequent chargeable period, but no further. The amount carried forward in each such case is treated as a loss in a separate trade carried on by the claimant in the chargeable period into which the loss is carried forward. The net effect of the creation of separate trades, in each of the chargeable periods into which the unrelieved expenditure is carried forward, is to ensure that the unrelieved loss may only be set against other income of the person arising in each of those chargeable periods. Any residue cannot be brought forward to offset against any other income arising in chargeable periods subsequent to those 2 chargeable periods.

Any unutilised loss carried forward to a chargeable period must be utilised in priority to any relief due in that chargeable period. Relief carried forward from an earlier period must also be utilised in priority to relief carried forward from a later period.

(6) Transitional provisions ensure that the section will not apply —

• to qualifying expenditure in relation to an approved building, incurred before 5 December 2001 (i.e. Budget Day),
• to qualifying expenditure, in relation to an approved building, incurred on or after 5 December 2001 and before 31 December 2003, where the relevant determinations have been made in relation to that building before 5 December 2001,
• to qualifying expenditure, incurred before 31 December 2003, in relation to a building, in respect of which —
  • the Revenue Commissioners have, before 5 December 2001, indicated in writing, that proposals made to them are broadly acceptable, so as to enable them to make a determination under section 482(5)(a), and
  • an officer of the Department of Environment and Local Government (previously the Department of Arts, Heritage, Gaeltacht and the Islands) has indicated, before 5 December 2001, that, having inspected the building, the officer is satisfied that, if required, the officer would recommend to the Minister that a determination under section 482(5)(a) be made by the Minister, or
• to qualifying expenditure, incurred before 31 December 2003, in relation to a building where —
  • the Minister has made a determination under section 482(5)(a) before 5 December, 2001, in relation to the building, and
  • the claimant has undertaken to gift, whether directly or indirectly, to the transferor (i.e. the person from whom the claimant obtained ownership of the building) who is an eligible charity, the full value of the relief to which the individual is entitled under section 381, by virtue of making a claim under section 482(2) and the individual actually does so.

Relevant Date: Finance Act 2021