Finance Bill 2022 Proposes a Number of Changes to Irish Property-Related Taxes
Property Taxes – Finance Bill 2022 proposes a number of changes to Irish property-related taxes
1. Interest Limitation Rule & the Residential Development Construction Sector
The interest limitation rules (ILR) introduced in last year’s budget provide for a fixed ratio rule that links a corporate taxpayer’s allowable net interest deductions directly to its level of earnings by limiting the maximum net interest deduction to 30% of the taxpayer’s EBITDA (earnings before interest, taxes, depreciation, and amortisation).
Interest on borrowings for “long-term public infrastructure projects” is not subject to ILR, meaning the amount of such interest that is deductible is not capped and does not count towards the calculation of a taxpayer’s maximum interest deduction under ILR.
The definition of “long-term public infrastructure project” for ILR purposes will be expanded to include the upgrade, provision, operation, or maintenance of a large-scale residential development as a qualifying “large-scale asset”.
Under the Finance Bill 2022, a “large-scale residential development” means:
- The development of 100 or more houses;
- The development of student accommodation that includes 200 or more bed spaces;
- Both the development of 100 or more houses of student accommodation; or
- Both the development of student accommodation that includes 200 or more bed spaces and of houses.
Further, at least 70% of the floor space used for the development must comprise of houses or student accommodation, as applicable, and the “large-scale residential development” must be approved by the relevant planning authority.
This amendment is anticipated to reduce the potential negatives of the ILR in the residential development construction sector.
2. Vacant Homes Tax
The new vacant homes tax (VHT) announced in Budget 2023 is included in the Finance Bill. It will apply to residential properties occupied for less than 30 days in a 12-month period. The VHT will be subject to various exceptions for properties which are vacant for a genuine reason, such as:
- Properties recently sold or listed for sale or rent;
- Properties vacant due to occupiers’ illness or long-term care; or
- Properties vacant as a result of significant refurbishments.
There are some specific exemptions from VHT.
The filing date for VHT returns will be 7 November after the end of the chargeable period, with the payment date for VHT being the following 1 January. The first chargeable period for VHT will commence on 1 November 2022 and end on 31 October 2023. Owners of vacant properties within the scope of the VHT charge will be required to self-assess their liability and file a return in November 2023, with payment of the VHT liability due on 1 January 2024.
The VHT will operate on a self-assessment basis and apply to all properties considered residential properties under the Local Property Tax (LPT) regime. The tax will apply at a rate of three times the current base LPT payable on the property and will be in addition to the LPT.
3. Rental payments to non-resident landlords
The Finance Bill introduced a new measure which was not mentioned in Budget 2023 regarding non-residents in receipt of rental income from properties situated in Ireland. These proposed measures are subject to a Ministerial commencement order.
Tenants paying rent on properties in Ireland to a non-resident landlord are required to withhold 20% of the rent payable and remit it to Revenue using a R185 form. They will also be required to disclose the following information to Revenue about their non-resident landlord:
- Landlord’s name and address;
- Address of the rented property and its LPT identification number; and
- The date of the rental payment and the gross amount and the amount withheld.
Irish collection agents acting on behalf of non-resident landlords, previously chargeable and assessable for the rental income of a non-resident landlord, will no longer be so, where they disclose the above information when remitting withheld tax on rental payments to Revenue.
4. Pre-letting expenses for landlords
A tax deduction was introduced in 2017 to allow landlords to deduct certain expenses incurred before a property is let. The purpose of the deduction is to encourage landlords in the residential rental sector to return empty properties to the market as quickly as possible.
The cap on the maximum tax deduction available to landlords for pre-letting expenses will double to €10,000, and the required period of vacancy for properties to qualify will reduce from 12 months to six months.
5. Stamp duty
The partial refund available for stamp duty paid on non-residential land that is subsequently used for developing dwelling units, will be extended until the end of 2025.
The increased rate of 10% stamp duty for a person who acquires ten or more residential units within a 12-month period, introduced in last year’s Budget, has been clarified to include a partial interest acquired in residential units when determining if the ten-unit threshold has been exceeded. The partial interest shall be expressed as a fraction for the purposes of determining the ten-unit threshold.
A new provision allows for full repayment of stamp duty (at the standard residential rates and the higher 10% rate) where a residential unit is sold to an eligible applicant as nominated by a local authority under a “direct sales agreement” within 12 months of the unit’s acquisition.
6. Zoned Land Tax
The Finance Bill introduces technical measures to support the efficient administration of the Zoned Land Tax (ZLT), including introducing a €3,000 penalty for failing to register for the ZLT, and bringing the tax within scope of mandatory e-filing.
The ZLT will apply to land zoned suitable for residential development that is serviced but not developed for housing. The tax will operate on a self-assessment basis and will be at a rate of 3% of the market value of the land. The ZLT replaces the vacant site levy.
7. Defective concrete products levy
The mica redress scheme announced in 2021 for individuals affected by defective building products will be supported by a new levy on the construction sector. The levy will apply at a rate of 5% (originally announced as 10% in Budget 2023) of the open market value of a variety of specified concrete products (including pouring concrete) from 1 September 2023.
8. Rental Tax Credit
A new annual tax credit of up to €500 (up to €1,000 for jointly assessed couples) will be available for rental payments in respect of an individual’s principal primary residence, a residence to facilitate work or college or a residence of a qualifying child attending college. The credit will be available from 2023, and will be claimable in respect of 2022, and be given on foot of a claim made by the taxpayer to Revenue.
9. Help-to-Buy Scheme
The Help-to-Buy scheme (HTB) will be continued at its current “enhanced” rates until the end of 2024.
The HTB helps first-time buyers of newly built homes to buy a new house or apartment. The scheme applies to properties costing €500,000 or less. The HTB refunds income tax and Deposit Interest Retention Tax (DIRT) paid in Ireland over the previous four tax years.
The government has commissioned a report on the HTB, which will be published shortly and contains several recommendations for future consideration.
10. Living City Initiative
The Living City Initiative (LCI) was introduced in 2015 and allowed various tax reliefs for money spent on refurbishing or converting residential and commercial properties in designated “special regeneration areas” in Irish cities.
The LCI will be extended until the end of 2027. The allowable deduction for owner-occupier relief under the LCI will be increased from 10% of eligible expenditure per year to 15%. This means that eligible expenditure can be reclaimed over seven years instead of ten years.
Contributed by Kyle Bradshaw