Do your home work: how tax relief scheme works

It was a welcome announcement in last month’s budget and amounts to a 13.5 per cent reduction on home renovations. How does it work?

Thu, Nov 7, 2013, 00:00

Who is eligible to use the scheme?
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 need to have paid your property tax to qualify. The credit applies to the house, so even if it has multiple owners you will only be aim to claim the credit once. It 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.

How does it work?
If you are a PAYE taxpayer the amount of the allowable credit will be included in your annual Tax Credit Certificates for the two years following the year in which the work is carried out. If you are a self assessment taxpayer it will be incorporated into your tax assessment for the two years following the year in which the work is carried out. So, if work is carried out and paid for in 2014, then relief of 50 per cent is given in 2015 and 50 per cent in 2016 and so on.

If you get work done before the end of this year, it will be treated as if it was undertaken in 2014, and the relief will be granted in 2015 and 2016. If you don’t have enough of a tax liability in the first year, then the excess can be carried into year two.

How much relief will I get?
All work which costs between €5,000 and €30,000 is eligible. If you spend more than €30,000, the maximum you will be allowed to claim back is €4,050. So, if you spend €6,000 on a new bathroom for example, you will be able to claim back €810 against your tax. It’s important to remember that the amount allowable is ex-VAT. So, for example, if you get work done for €5,000 including VAT, it won’t be eligible.

What renovations qualify?
Extensions, garages, attic conversions, supply and fitting of kitchens, bathrooms and built in wardrobes, window fitting, plumbing, tiling, rewiring and plastering. You won’t be able to claim relief on carpets, furniture and white goods and work which is subject to VAT at 23 per cent.

What about my garden?
According to the Revenue, the relief may also apply to your garden if landscaping is part of the “repair, renovation and improvement” of your home, and if the work is subject to VAT at 13.5 per cent.

What happens if I get work carried out by different people at different times?
If you have a number of smaller jobs that you want to get done – built-in wardrobes and some electrical work for example – don’t worry about using different contractors. If the total qualifying work exceeds €5,000 (excluding VAT), you will still be able to get the refund on the amount you have spent. 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.

If I spend €30,000 in two different years can I claim the credit twice?
No, it is a “lifetime” limit and is the maximum you can claim over the life of the scheme.

I’m looking to upgrade my boiler. Can I claim a tax credit under the incentive as well as claiming and receiving an SEAI Grant?
Yes. And no. According to the Revenue, you can claim twice on eligible work, 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 ex-VAT but also receive a grant of €1,000 to upgrade your property, then you will only be available to claim relief on €7,000 (ie €10,000 – (€1,000x3)), for an additional benefit of €945. 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.

Can I borrow money to avail of the scheme?
Yes. Bank of Ireland has reacted to the scheme by launching a new €75 million fund to lend to customers. But remember, the cost of borrowing (9.9 per cent for a personal loan/up to 4.6 per cent for a mortgage top-up with BofI) will negate the value of the scheme.

Will home renovations increase my property tax?
No. The valuation you already gave for your home will stay the same until 2016 no matter what improvements you make to it. Thereafter, however, you will have to apply a new valuation to your property and if your house has increased in value, it might kick in then.

Can I use any contractor?
The aim of the scheme is to cut down on so-called “cowboy builders” by bringing more into the tax net. So, before hiring anyone you need to ensure they are tax compliant. Ask to see a Notification of Determination of RCT Rate showing zero or 20 per cent RCT Rate which means they are tax compliant. It should be dated within the previous 30 days. Once the Revenue’s online system is in place, you will be able to check here. Remember, if the contractor is not compliant, you won’t be able to claim your VAT back.

Is there a downside?
Like all tax measures aimed at boosting demand, the introduction of the relief may put upward pressure on prices – so while you gain from the tax relief, you might end up paying a similar amount anyway. Be sure to shop around.

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