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34 taxbreaks
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 expected to be 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.
The units are anticipated to be completed in 2007 and the capital allowances
should be available for the tax year 2007 onwards.
Planning permission for the units was applied for prior to 31 December 2004
and certain transitional requirements in Finance Act 2006 (to extend the
period in which construction can take place to 31 July 2008) have been and will
be 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
A purchaser, who is an individual, should be entitled to claim capital
allowances as follows:
Building
Allowances*
10% per annum
Fit Out**
12.5% per
annum
€ Total
Year 1 Allowances €75,000 €2,500 €77,500
Year 2 Allowances €75,000 €2,500 €77,500
Year 3 Allowances €75,000 €2,500 €77,500
Year 4 Allowances €75,000 €2,500 €77,500
Year 5 Allowances €75,000 €2,500 €77,500
Year 6 Allowances €75,000 €2,500 €77,500
Year 7 Allowances €75,000 €2,500 €77,500
Year 8 Allowances €75,000 €2,500 €77,500
Year 9 Allowances €75,000 - €75,000
Year 10 Allowances €75,000 - €75,000
Total €750,000 €20,000 €770,000
Self Employed ***
Total Tax Savings @ 47%
(incl. 5% PRSI & Levies) €352,500 €9,400 €361,900
Non self employed ***
Total Tax Savings @ 44%
(incl. 2% health contribution) €345,000 €8,800 €353,800
* Based on a qualifying cost of €750,000
(with the purchase price being €1,000,000)
** Based on €20,000 Fit out cost
*** 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 €361,900.
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
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 9% is payable on the VAT exclusive cost of a unit.
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.
The document is confidential and is for use only by the person to whom it is addressed.