With housing the central challenge facing the country over the next few years, KPMG outlines the measures introduced in Budget 2023 to help reduce certain costs facing the sector
The proposed changes in Budget 2023 have been designed to promote the viability of homebuilding, reduce the cost of renting and increase the costs of holding passive or unused housing assets. However, the measures lack a coherent effort to reduce the tax disincentives facing Irish landlords who are a vital part of the supply of housing accommodation to tenants. It is hoped that this will be addressed in the future. In the meantime, the measures announced in the Budget are as set out below.
MEASURES TO ASSIST RENTERS AND HOME BUYERS
Rent Tax Credit
In order to alleviate financial pressures on renters, the Minister introduced a new rent tax credit valued at €500 per year. The credit will be available for renters in the private rented sector who are not in receipt of any other State housing support. Only one credit may be claimed per person per year. However, it is proposed that the value of the credit will be doubled in the case of married couples and civil partners.
The credit may be claimed in respect of rent paid in 2022 and will also apply for 2023 and subsequent tax years. It is proposed that the credit for 2022 may be claimed from early in 2023 and that the credit for 2023 to 2025 may be claimed “in year”. It is anticipated that approximately 400,000 people will benefit from the new credit.
The Help-to-Buy scheme has been a significant support to first time buyers since its introduction in 2017, with 35,000 people benefitting under the scheme. The scheme was due to end in 2022 but now it will be extended in its current form to the end of 2024. This two-year extension will be welcome by prospective first-time buyers and indeed registered builders who will continue to be able to bring marginal supply onto the market.
The scheme has been enhanced and extended on a number of occasions since its original form in 2017, and the current scheme provides for a refund of the lower of:
10% of the cost of a new house, €30,000, or
the income tax and DIRT paid by the buyer for the previous four tax years. To qualify for the relief, the value of the house must be no more than €500,000 and the mortgage on the property must amount to at least 70% of the value of the property.
An independent review of the scheme had been commissioned by the Government earlier in 2022 and on Budget Day, the minister published the report. The report includes a number of recommendations which will be considered in the coming years.
MEASURES TO ASSIST LANDLORDS AND PROPERTY DEVELOPERS
Pre-letting residential expenses
In a move to continue to encourage the current owners of vacant residential property to bring such property to the rental market, the Minister on Budget Day announced that the rules which allow a deduction for certain ‘pre-letting’ expenses will be enhanced. The relief allows for a deduction of certain ‘pre-letting’ expenses, which would not otherwise be allowable, incurred on a property that has been vacant for a period of time and which is subsequently let as a residential premises on or before 31 December 2024.
The relief was previously available for qualifying expenditure on property which had been vacant for 12 months, up to a cap of €5,000 per property. The relief has been enhanced with effect from 1 January 2023 and will be available for qualifying expenditure on property which had been vacant for six months, up to a cap of €10,000 per property. The relief will continue to be clawed back if the person who incurred the expenses ceases to let the property as a residential premises within four years.
Stamp Duty Refund Scheme for residential land
The Stamp Duty Refund Scheme for residential land was introduced in Finance Act 2017. It provides for a refund mechanism to reduce the net effective stamp duty rate for qualifying residential developments to 2% where higher stamp duty had been paid on the acquisition of the land.
The scheme was due to expire for new construction commencing after 31 December 2022, but has now been extended by three years to 31 December 2025. The scheme was designed to incentivise residential development. However, the conditions to avail of this refund scheme are onerous and subject to relatively tight time limits for both commencing and completing the development of the residential project.
While the three-year extension is welcomed, in order to avail of the relief, construction must start within 30 months of the acquisition of the site. This continues to be a significant challenge on many projects given the fallout from Covid-19 over the last few years, and the impact of significant planning delays which can hamper the ability to start on-site within that window.
WIDER PROPERTY SECTOR MEASURES
Vacant Homes Tax
The Minister introduced a new Vacant Homes Tax from 2023 with the stated aim of maximising the use of existing housing stock to increase the supply of homes available for rent or purchase to meet demand. The new tax is not expected or intended to be a significant revenue raising measure, with projected yield of €3m for a full year.
The new tax will apply to residential properties which are occupied for less than 30 days in a 12-month period.
A number of exemptions will apply to ensure that owners are not unfairly taxed where the property may be vacant for a genuine reason. These will include properties recently sold or currently listed for sale or rent, properties vacant due to the occupier’s illness or long-term care, and properties vacant as a result of significant refurbishment work.
The tax will be charged at a rate equal to three times the property’s existing base Local Property Tax rate (i.e. before any application of the “local adjustment factor”). The tax will operate on a self-assessment basis and will be administered by Revenue.
Residential Zoned Land Tax
Finance Act 2021 introduced a new Residential Zoned Land Tax (RZLT) which will apply to land which is serviced and zoned for residential development (including mixed-use land which includes an element of residential), in circumstances where the land has not been used for the development of housing. A 3% rate of tax will be applied to the market value of the zoned residential land, with the first RZLT charge payable in 2024.
Local authorities have been charged with preparing and publishing maps to identify the land within scope of the new tax. The first such draft map is due for publication on 1 November 2022. The Minister has indicated that Finance Bill 2022 will include a number of amendments to streamline the operation of the RZLT and to ensure it is efficiently administered.
Defective Concrete Products Levy
On foot of a Government decision in late 2021, the Minister on Budget Day introduced a new levy on certain concrete products to fund the cost to the exchequer associated with the Defective Concrete Blocks (Mica) Redress Scheme which was introduced earlier in 2022 to help homeowners who have been affected by defective products used in the building of their homes.
Following the announcement of the levy on Budget day and in light of subsequent feedback from industry participants and others, the Minister has since determined that the rate at which the levy will apply will now be set at 5% and will come into effect on 1 September 2023 so as to allow more time for all stakeholders to prepare for its introduction.
The Minister has also decided to remove pre-cast concrete products from the scope of the levy. Finance Bill 2022 provides for its application to only pouring concrete (aka ready-mix) and concrete blocks under two harmonised EU standards. The levy remains unchanged in all other respects.
PROPERTY STRUCTURES & OTHER PROPERTY TAX MATTERS
Consistent with the recommendation set out in the Commission on Taxation and Welfare report, the Minister has committed to commencing a review of the Real Estate Investment Trust (REIT) and Irish Real Estate Fund (IREF) regimes with regard to institutional investment in the Irish property market. This review will consider those structures and how best they can continue to support housing policy objectives. In our view, the review should include consultation with all stakeholders to ensure these regimes are fit for purpose going forward. The Minister noted that institutional investment has played a key role in the provision of housing in Ireland in recent years and we believe that this is often under-appreciated by commentators.
In addition, the Minister welcomed the Commission’s proposals on changes to the Local Property Tax and the introduction of a Site Value Tax. However, he noted these longer-term reforms are wide-ranging and require careful consideration and consultation across Government.
Living City Initiative
The Minister for Finance announced the extension of the Living City Initiative to 31 December 2027. The Living City Initiative is a scheme of property tax incentives which applies to certain “special regeneration areas” in Dublin, Cork, Limerick, Galway, Waterford and Kilkenny. The scheme provides for tax relief for qualifying expenditure incurred on both residential and certain commercial refurbishment and conversion work. The Minister has also announced an acceleration of the tax relief for owner-occupiers so that it can be claimed over seven years instead of 10 years. The relief may 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. The carry forward of relief for owner-occupiers will also be allowed where it cannot be absorbed in year.
Denise Maguire Editor of Irish Construction Industry Magazine & Plan Magazine