Tax Breaks

Tax Breaks

Mountain View properties and The Courtyard have qualified  for capital allowances to allow purchasers obtain tax relief against rental income. The following comments apply to these units.

Units registered on the 'Register of Holiday Cottages' will qualify for capital allowances based on the construction expenditure incurred on the units.

The percentage of the purchase price of the units on which capital allowances will be available is approximately 75%.

The capital allowances will be available to a purchaser at 10% over each year for 10 years for offset against Irish rental income.

Planning permission for the units was applied for prior to 31 December 2004 and certain transitional requirements in the Finance Act 2006 (to extend the period in which construction can take place to 31 July 2008) have been met.

A clawback of the capital allowances will arise if the unit is sold within 10 years of being first let.

Value of Capital Allowances

 

  Bld Allowance Fit Out Total
Year 1 Allowance €56,250 €2500 €58,750
Year 2 Allowance €56,250 €2500 €58,750
Year 3 Allowance €56,250 €2500 €58,750
Year 4 Allowance €56,250 €2500 €58,750
Year 5 Allowance €56,250 €2500 €58,750
Year 6 Allowance €56,250 €2500 €58,750
Year 7 Allowance €56,250 €2500 €58,750
Year 8 Allowance €56,250 €2500 €58,750
Year 9 Allowance €56,250 - €56,250
Year 10 Allowance €56,250 - €56,250
Total €562,500 €20,000 €582,500
Self Employed
*** Total Tax Savings @ 49% (incl. 8% PRSI & Levies)
€275,625 €9,800 €285,425
Non self Employed
*** Total Tax Savings @ 45% (incl. 4% health contribution)
€253,125 €9,000 €262,125

 The table above is based on:

  • A qualifying cost of €562,500 (with the purchase price being €750,000)
  • A Fit out cost of €20,000
  • It is assumed that the investor has sufficient Irish rental income at marginal rate to absorb the capital allowances each year. The tax savings are calculated based on the prevailing rates at the time of writing.

The effect of the tax relief is to reduce the real cost of such a unit by up to €285,425. No account has been taken of any restriction for certain persons in the ability to utilise the relief pursuant to changes in Finance Act 2006.

VAT & Stamp Duty

VAT

The price per unit is exclusive of VAT and this will be charged separately. It is anticipated that each purchaser will register for VAT and recover same. Such VAT is likely to be recoverable on the basis that the purchaser will lease the unit under a 'taxable lease' to a marketing company which will use the unit for tourism purposes.

If the lease is surrendered or the units cease to be used for tourism purposes, a liability to VAT may then arise.

Stamp Duty

Stamp duty at the rate of 1% is payable.

Interest Relief

Interest on borrowings used to purchase a unit will be deductible from the rental income for tax purposes (and should increase relief available for offset against other Irish rental income).

Disclaimer

The information contained in this document is based on our understanding of the tax legislation and the current interpretation thereof. Investors should be aware that legislation and practice are subject to change without notice. The calculations are prepared using the tax rates prevailing at the time of writing. As with any property transaction each investor should seek independent legal and tax advice. The promoters and their advisors cannot accept any responsibility for any loss or damage however arising including failure to obtain capital allowances occasioned by any person acting or refraining from acting as a result of the information contained herein. The particulars are issued on the understanding that they will not form part of any contract.