The key real estate measures introduced in Finance Bill 2022 are as follows:
The Finance Bill has introduced a number of changes in relation to the Irish real estate sector.
The Help to Buy Scheme has been extended in its current form for a further two years to the end of 2024.
The Living Cities Initiative has been extended until 2027.
The threshold in relation to deductible pre-letting expenses for landlords has been increased to €10,000. The premises must now only be vacant for a period of six months to qualify (reduced from 12 months).
The exemptions from the application of the Interest Limitation rules have been expanded to include certain large-scale residential developments.
Amendments to the provisions applying to the taxation of non-resident landlords have been introduced. They require additional information to be returned to Revenue by tenants and collection agents in respect of tax that has been withheld on rental payments made to non-resident landlords.
A Vacant Homes Tax (VHT) has been introduced, which will apply to residential properties occupied for less than 30 days in a 12-month period.
Amendments have been made to the Residential Zoned Land Tax, which was introduced in last year’s Finance Act. They will come into effect in 2024 for land that is within scope.
A 5% levy will be applied to certain concrete products from September 2023.
Changes to the Residential Stamp Duty Rebate scheme have been introduced, along with additional measures relating to the transfer of residential properties.
An annual tax credit has been introduced for individuals/couples paying rent on their principal private residence. Further details on the precise measures introduced are contained in our employment, personal and business taxes insight.
Help to Buy Scheme (section five)
The enhanced Help to Buy relief, first introduced in July 2020, has been extended in its current form for a further two years to 31 December 2024.
The scheme provides relief to first-time buyers in the form of a rebate of income tax, including DIRT, paid over the previous four tax years. The maximum rebate available is the lower of:
the amount of income tax and DIRT paid in the previous four years, or
10% of the purchase price or valuation of a self-build.
Relief is capped at €30,000, a maximum house price of €500,000 and a minimum loan-to-value of 70%.
Living City Initiative (section 21)
The Living City Initiative has been extended for a further five years to the end of 2027. The Living City Initiative provides tax relief for money spent on refurbishing or converting residential or commercial properties in the six designated special regeneration areas within Cork, Dublin, Galway, Kilkenny, Limerick and Waterford. Qualifying expenditure incurred on refurbishment or conversion work carried out up to the extended termination date of 31 December 2027 may qualify for tax relief under the scheme.
In addition, the relief available to owner-occupiers will be accelerated so that it can be claimed as a deduction from total income of 15% of the total eligible expenditure in each of the first six years and 10% for the seventh year rather than the current rate of 10% each year for ten years. It is also proposed to allow carry-forward of any excess relief available to owner-occupiers where it cannot be absorbed in a year up to a maximum of ten years after the expenditure is incurred.
Pre-letting expenditure on rented residential property (section 25)
Finance Act 2017 introduced a deduction for certain pre-letting expenditure incurred in respect of previously vacant residential premises. As announced on Budget Day, Finance Bill 2022 increases the tax deduction available to landlords to €10,000 (up from €5,000) and reduces the period during which a premises is required to be vacant in order to qualify for the relief to six months (previously 12 months). The updated provisions will apply to lettings that occur on or after 1 January 2023.
The aim of these provisions is to encourage owners of vacant residential property to bring that property into the rental market.
Interest Limitation (section 32)
The Bill proposes to update the definition of “long-term infrastructure project” to include the provision, upgrade, operation or maintenance of a large-scale residential development. A large-scale residential development is broadly defined as follows:
The development of 100 or more dwellings (adding additional student accommodation does not “taint” this condition).
The development of student accommodation that includes 200 or more bed spaces (adding additional non-student accommodation dwellings does not “taint” this condition).
At least 70% of the floor space used for the development must be taken up by dwellings or student accommodation, as applicable. The development must also be approved by the relevant planning authority.
This is a very welcome amendment, which should help mitigate the potential negative impacts of the interest limitation rules on the construction of residential developments.
Rents payable to non-residents (section 81)
Section 81 amends section 1041 of the Taxes Consolidation Act (TCA) 1997, which provides the taxation procedure that applies to rental income and other lease income received by a non-Irish resident person in respect of property located in the State. A tenant making a payment to a non-resident landlord is required to deduct a sum equal to income tax at the standard rate (currently 20%) and remit that amount to the Revenue Commissioners using a R185 form.
The first part of the proposed amendment provides that the person making the payments will also be required to give certain information as required by Revenue, including:
the name and address of the non-resident person and the address of the property in respect of which the payment is made;
the unique identification number assigned to the property for the purposes of Local Property Tax (LPT);
the date the payment is made to the non-resident person and the gross amount of the payment; and
the amount withheld from the payment.
The second amendment relates to “collection agents”, (resident persons acting on behalf of the non-Irish resident person) who are chargeable and assessable for the income of the non-Irish resident person by virtue of section 1034 TCA 1997. Under the proposed amendment, collection agents will be relieved of the obligation of being chargeable and assessable for the income of a non-resident landlord if the collection agent deducts withholding tax from rental payments and remits that tax to Revenue, and gives Revenue certain information related to the payments similar to that outlined in the bullet points above.
The amendment is subject to a Commencement Order.
Vacant Homes Tax (section 84)
Section 84 introduces a VHT, which will apply to residential properties occupied as a dwelling for less than 30 days in a chargeable (12-month) period. Each chargeable period will commence on 1 November and end on 31 October of the following year. The first chargeable period commences on 1 November 2022.
The tax will apply to properties that are residential properties for the purposes of the Local Property Tax. In other words, the VHT will apply only to habitable residential properties. It should not apply to derelict or uninhabitable properties.
The amount of VHT payable for a chargeable period will be three times the base amount of LPT payable in respect of the property for the year in which the chargeable period ends. The liability to VHT will not be adjusted by the local adjustment factor as decided by local authorities.
A number of exemptions are catered for in the legislation. Excluded from the application of the tax are properties that, for example, are actively being marketed for sale or rent, are undergoing structural works or refurbishment, or in respect of which the occupant is recently deceased.
A VHT return will be required to be filed on or before 7 November after the end of the chargeable period. The payment date for VHT will be the following 1 January. No tax deduction is allowable for the VHT.
The tax will operate on a self-assessment basis with property owners obliged to determine whether they are liable for VHT for a chargeable period and to satisfy their pay and file obligations. The draft legislation provides for penalties, interest and a late filing surcharge to be applied in cases of non-compliance. Where more than one person is a chargeable person in relation to a residential property on the relevant date, those persons shall be jointly and severally liable for the vacant homes tax payable in relation to the property.
Residential Zoned Land Tax (section 85)
The Residential Zoned Land Tax (RZLT) was introduced in Finance Act 2021 and will apply to owners of serviced and undeveloped land that has been zoned for residential use. For land that is within the scope of the regime, an annual 3% tax will apply based on the market value of the land at the valuation date. The first valuation date is 1 February 2024 and will apply to land that was zoned for residential use and serviced prior to 1 January 2022. For land that is zoned for residential use and serviced on or after 1 January 2022, the RZLT will be first due in the third year after it comes within scope. The tax will continue to be payable each year in respect of the land unless a deferral of the tax applies or the land ceases to be liable to the tax.
The Finance Bill has introduced a number of operational and administrative amendments to the RZLT provisions, including:
a deferral of RZLT arising on land that is currently subject to certain unauthorised non-residential uses (e.g. being used to carry out a trade or profession and is not considered vacant or idle), but an application has been made for retrospective authorisation of the development for that use pending the decision of the relevant planning authority;
a deferral of RZLT where a landowner brings an appeal or judicial review against a refusal of retrospective authorisation of a development, pending the determination of same;
an exemption from RZLT where landowners are precluded from developing land within the scope of the tax due to contractual obligations entered into prior to 1 January 2022. The exemption applies for the duration of the contractual obligations that existed prior to 1 January 2022;
the introduction of a €3,000 penalty for failing to register for RZLT; and
a restriction in the deductibility of RZLT for the purposes of the universal social charge and the domicile levy. Existing provisions mean that RZLT is currently not deductible in relation to income tax, corporation tax and capital gains tax.
Concrete Products Levy (section 86)
Section 86 introduces a defective concrete products levy, which will come into effect from 1 September 2023. The levy will apply to a defined list of certain concrete products that are used for any purpose (i.e. residential or commercial development). The levy will be calculated at 5% of the open market value of the concrete products.
Prior to making the first supply of a concrete product, chargeable persons will be required to register with Revenue and will be required to file a return within 23 days from the end of an accounting period (for example, the return for the six months ended 30 June 2024 would be due on 23 July 2024). While the first accounting period will run from 1 September 2023 to 31 December 2023, subsequent accounting periods will be for a duration of six months.
As announced in the Budget, the 11/15 stamp duty rebate scheme that is available where non-residential land is acquired and then developed residentially is to be extended by three years. It will now be available where construction commences, subject to a commencement order or seven-day notice, on or before 31 December 2025 (and subject to the other conditions of the rebate).
The Bill contains a new provision for a full repayment of stamp duty where a residential unit is acquired, with either the standard 1% or 2% duty or the 10% duty being paid on the acquisition, and the unit is then sold under a “direct sales agreement” to an eligible applicant nominated by a housing authority in accordance with the Affordable Housing Act 2021. The sale/conveyance of the property must take place within the 12-month period commencing on the day after the acquisition of the property.
The Bill provides for the repeal of the existing Sections 83E and 83F of the Stamp Duty Consolidation Act 1999, which provide for rebates of the greater part of the 10% stamp duty paid on bulk residential property acquisitions where the units are either subsequently leased to a housing authority or approved housing body, or where the units are put to use as cost rental dwellings. These sections are being repealed as their provisions will be contained in the new Section 83DB, along with some additional rebate provisions in respect of the 10% stamp duty provisions.
We are here to help you
PwC continues to be at the forefront of consultations with the Department of Finance and Revenue on key tax issues affecting the Irish real estate sector, both directly and through relevant industry bodies.
Please get in touch with us for further insights. We would welcome feedback from you on issues that are impacting your business and on matters that may help in continuing to shape the policy agenda for the Irish real estate sector.