In 2010 the FF/Green government announced its plans to bring the property incentive schemes to an end. Given the serious mortgage arrears situation with investors (official figures are that 37,000 of investor loans are in arrears of 90+ days), the current government has decided not to proceed with any part of the previous plan in this area. Bear in mind that a large number of these investors are “ordinary people” who were incentivised by Irish governments to help rejuvenate areas such as Dublin city. It is hard to believe that a government could encourage people into buying the properties on the basis of tax incentives and then try to remove those incentives years after the investor had entered into a long term commitment. These people would have released equity from the family home and borrowed the balance of the purchase price by way of a mortgage secured on the investment property. When values rose, many would have released further equity and bought more units. With interest only mortgages, the plan was to sell some of the properties at the end of the mortgage term and hopefully be able to hold on to one or two, so that the rental income would be a pension. In these cases it is unlikely that the investors ever made a taxable profit to date, but having the Section 23 Allowance would mean that sometime in the future there would be something to offset against a rental tax liability when rents rose sufficiently.
There are however a few points to note:
-If you earn over €100,000 and avail of property incentives, then that part of your income relieved from tax will be subject to 5% surcharge.
– If you are a PAYE worker, then your rental income will be subject to PRSI from 2013 onwards.
– If you have invested in accelerated allowance schemes like crèches, hotels or multi-storey car-parks, then the carry forward of these reliefs beyond the tax-life of the building concerned is abolished. This has the potential to impact more on those with lower income levels, but the schemes were generally targeted in a more focused way at high earners so potential impact is minimal, i.e. €25 million (after 2015) according to Budget estimates.
– There are no further restrictions on mortgage interest relief for investors. 75% of the interest paid continues to be allowable as a deduction, although originally this was 100% when people bought their properties.
In fact, if you are interested in investing in property, there is some really good news here:
- Rates of stamp duty on commercial property have now been reduced to a flat rate of 2%. (This is good news for the very wealthy who can pick up good commercial properties very cheaply and achieve high yields.)
- Any property bought between now and the end of 2013 which is held for 7 years will be exempt from capital gains tax. No reference has been made to the residence of the purchaser, potentially leaving this open to the non-resident market as well as major property investment funds. (Even better news for the very wealthy!)
Given that property is considered by many to be the root of all our current economic woes, and property investors in particular, kick-starting this sector is certainly an unexpected move. However, with the banks still reluctant to lend, these changes will benefit those who have cash available to buy, severely limiting the potential upside. (Expect the very wealthy to make a killing. Plenty of our property stock will be bought at rock-bottom prices by cash from America and China.)
Mortgage interest relief is increased to 30% for First-Time Buyers who bought their homes between 2004 and 2008. This is estimated to cost in the region of €52 million.
Current rates of mortgage interest relief will be extended into 2012 both for first-time (at 25%) and non first-time (at 15%) buyers. The abolition of mortgage interest relief from 2018 has also been confirmed.
For people in difficulty with their home mortgages, the Minister has promised a formal announcement ‘shortly’. We’ll wait and see. If you are in trouble and the property is not your home, then you’re on your own. The existing Mortgage Arrears Resolution Process introduced in 2010 and modified in 2011 is only concerned with homeowners. Fortunately our firm has been working in this area for some time, so feel free to contact us at Good Financial Housekeeping/Lucas Mortgage Finance, if you need help.
Good Financial Housekeeping
The Loan Arranger