Claiming tax relief on home renovation costs won’t be as easy as hoped for

It was one of the few bright points of last October's budget, and for many people, availing of the new home renovation tax relief will be on the agenda for 2014. However, if you're hoping to avail of the scheme to get a 13.5 per cent discount on work in your home, it's time to read the small print.

While the discount might be attractive, the method of claiming it back may negate its benefits.

Tell me again what I'm entitled to?
The scheme allows you to claim back VAT incurred on home renovations, which in effect means a 13.5 per cent discount on everything from getting your kitchen painted to your garden landscaped.

All work that costs between €5,000 inclusive of VAT*  and €30,000 is eligible, so the minimum you can claim back is €595, while the maximum is €4,050. If you spend €6,000 on a new bathroom for example, you will be able to claim back €713 against your tax.

You can only claim the relief on renovations carried out on your home – or principal private residence (PPR) in tax parlance – and you will also have to have paid your property tax to qualify.

Alternatively, you can claim relief on a home you own but do not yet live in – provided that you move in once the works are completed. So, the scheme is no good to you if you’re thinking of getting your holiday home or rental property upgraded.

The relief started on October 25th and is due to end on December 31st, 2015, but if you get your planning permission before this, the scheme will apply until March 31st, 2016.

According to chartered surveyor Patricia Power, who is appearing on television in RTÉ's Room to Improve, she has seen a "definite general interest in inquiries" since the launch of the scheme.

“Everyone is keen and we have been given a good positive feedback,” she says, although notes that as of yet, it’s been more a case of a bonus for clients who were doing the work anyway, rather than incentivising people to go and get it done.

What renovations qualify?
According to the Revenue, a wide range of works qualify for the relief. These include: painting and decorating; rewiring; extensions; garages; attic conversion; supply and fitting of kitchens; bathrooms and built-in wardrobes; window fitting; septic tank repair or replacement; driveways and plastering.

If you have something in mind that you would like to get done, but doesn’t fit into these categories, you can contact your local Revenue office first to check if it’s eligible for the scheme. Typically, however, you won’t be able to claim relief on anything that is subject to VAT at 23 per cent – so carpets, furniture, architects’ fees and white goods for example.

There are also some points to watch out for. For example, if you buy a kitchen and get it fitted separately the cost of fitting (which incurs a VAT rate of 13.5 per cent) will be eligible for the scheme but the kitchen itself won’t be.

On the other hand, if you get a contractor to supply and install the kitchen units, it will qualify provided that, in accordance with the "two-thirds rule", the cost of the kitchen units do not exceed two-thirds of the overall cost.

When will I get the money back?
The relief is payable over the two years following the year in which the work is carried out and paid for. "It's very much a delayed bonus, split 50:50 over two years," notes Power.

You won’t be able to make a claim – or have your contractor do it for you – until April 2014, regardless of when you get the work done.

So, if you get the work done this month for example, and claim for it in April, then the relief will apply in 2015 and 2016. If you are a PAYE employee, the credit will be divided equally across your pay dates each year.

Does the work need to be carried out by one contractor

?
There is no obligation under the scheme to get all the work carried out by one contractor.

If you have several smaller jobs that you want to get done – built-in wardrobes and some electrical work for example – you will still qualify, as long as the total cost of the qualifying work exceeds €5,000 (excluding VAT) over the course of a year. So, if you spend €30,000 on home renovations between now and 2015 you will be able to claim €4,050 back in tax relief – regardless of whether it’s one contractor, or 10 contractors, who carry out the work.

“So if you want to do your kitchen one year and bathrooms the next year, it’s okay,” says Power.

However, as you will see from the section below on claiming your relief, the more contractors you use, the more difficult this might be.

Can I claim a tax credit and receive a SEAI grant?
Yes you can – but not on the full cost of the project.

According to Revenue, you will be able to claim twice on eligible work – such as installing a new boiler and heat controls for example – but any grant you receive will be disregarded from the qualifying amount by a multiple of three. So, for example, if you spend €10,000 on external wall insulation, you will be entitled to a grant of €2,700.

This means that you will only be entitled to claim VAT relief on €1,900 ((€2,700 x 3)-€10,000). So, the total cost of the insulation to you would be €7,074, once VAT relief (€226) is factored in. Similarly, if you receive an insurance payment which you put towards the cost of an upgrade, the full amount of this payment will be disallowed.

How do I find a contractor?
The point of the renovation scheme is to bring contractors fully into the tax net, which means that you will only be eligible for the tax relief if the contractor meets the Revenue's requirements.

This means that they will need to show you evidence of their VAT registration and tax compliance, which involves giving you evidence of their business name and VAT number. In addition, they must give you a current “relevant contracts tax (RCT)” rate notification; and a current tax clearance certificate, which will show a “valid until” date.

And, of course, they must be capable of doing a good job at the right price.

Power recommends you get “at least” three quotes to compare. “There is always one that’s genuinely interested and that’s the person who you want to do the house,” she says, adding that you should meet them personally and walk through the job. “You’ll get a good gut feel as to who is genuinely interested in the job,” she says.

How can I make
a claim?
The key to remember with the scheme is that it's not up to you to submit a claim – it's up to your contractor. So, if you get windows fitted for example, it will be up to the window supplier to notify Revenue and fill out the related paperwork.

Similarly, if you get a house rewired, you will need the electrician to contact Revenue on your behalf. All you have to do is keep a copy of any relevant paperwork, and pass on your local property tax details to the contractor, as verification that this tax is up to date.

But the contractor has to fill out quite a detailed online form, indicating when the work commenced, when payments were received, how much the job will cost, etc.

From April, an electronic system will be introduced, through which contractors must enter information on qualifying works and payments. It must be done within 28 days of the system becoming available in early April 2014 – if it isn’t, then you won’t be able to benefit from the relief.

It all sounds
a bit tricky
That's because it is. While in principle, the prospect of getting any money back on home renovations is very enticing for many, the reality is a little different. And it may actually mean that people will favour builders and tradesmen who offer lower prices for those who don't look for a VAT rebate.

While you might welcome not having to apply for the rebate yourself, relying on someone else to do so may mean that you never get your tax credit.

“It’s going to be hard; it’s going to be a case of trial and error,” says Power, adding that the onus is going to be on the contractor to log on to the website and enter all the information.

“It’s okay if it’s a big job and continual work. But it’s a little bit messy for smaller bittier work,” she says. Indeed convincing a plumber of the merits of filling out all the paperwork for what might have been a €300 job might prove to be difficult – and even more so if they have already completed the work and been paid for it.

If they haven’t already completed the work by the time the new system is introduced, the advice is to hold an element of the payment back until such time as your tax credit is approved. But again, while this may make sense if it’s a €30,000 project you are undertaking, for smaller tasks it may be more difficult to do so.

*This article was amended on January 8th