SECTION 23:PROPERTY INVESTORS have been granted a reprieve in the Finance Bill, with the restriction of section 23-type tax reliefs being postponed until at least 2012.
Landlords have been lobbying hard since the phased abolition of property-based legacy reliefs was unveiled in last December’s Budget.
The proposal that section 23 tax relief would be ring-fenced for use against rental income from the property giving rise to that relief, as opposed to all Irish rental income as was previously the case, proved particularly controversial.
These provisions were due to come into force on January 1st, but the Government has now decided to delay this until an assessment of the potential economic impact of such changes has been completed.
This will delay the introduction of the proposed changes until at least 2012, as yesterday’s Finance Bill specified that they could not be introduced until the tax year following the publication of the impact assessment.
This reprieve also applies to the proposed restriction of accelerated capital allowances on a variety of buildings and structures.
A Department of Finance spokesman confirmed last night that the economic assessment had not yet been started and would probably take about six months.
The decision to hold off until its completion was made in light of the receipt of several hundred representations on this issue by the Department of Finance.
Lobby groups had criticised the proposals, arguing that they represented a form of retrospective tax and that they would lead to widespread bankruptcy and job losses.
The department took account of the argument that the provisions would effectively “guillotine” property reliefs immediately, rather than withdrawing them on a phased basis.
In many cases the rents on section 23 properties are low, while borrowings are generally high. As a result, there tends to be little or no taxable income arising from such properties. If tax relief were to be ring-fenced to this income, investors argued, it would be useless. This argument also applies to capital allowance projects.
The response from representative groups was generally positive.
Stephen Faughnan, chairman of the Irish Property Owners’ Association, said: “This will give a breather to the investors of this country who trusted the State and invested on the basis of State incentives in properties like housing, hospitals, nursing homes etc and were shocked by the Government announcement.”
Andrew Cullen, chairman of the Irish Taxation Institute, said thousands of taxpayers would have been immediately forced into financial difficulty had the proposed changes gone ahead without examination.
However, Paul Reynolds, president of the Institute of Professional Auctioneers and Valuers, said that while it represented a step in the right direction, it had added greater uncertainty to the market for section 23 properties (or those that qualify for accelerated capital allowances).
He warned that the Minister for Finance’s indecisiveness could depress prices or even “effectively close the market”.
Labour’s finance spokeswoman Joan Burton accused Mr Lenihan of “kicking the can down the road” for another year. It was clear that “vested interests have been able to bend the ear of Government Ministers to postpone additional contributions from this sector”, she said.
The Finance Bill has also given effect to the stamp duty reforms outlined in the Budget. Stamp duty is now payable at 1 per cent on all transactions of residential property valued up to €1 million and at 2 per cent on amounts above €1 million, for property transfers on or after December 8th, 2010.
As announced in the Budget, all residential property stamp duty reliefs and exemptions are being abolished.
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