Help to Buy: will phased tax payment affect relief?
Q&A: Dominic Coyle answers your personal finance questions
Help to Buy has been one of the very few incentives available to homebuyers over the last few years. Photograph: Cathal McNaughton/Reuters
I’m back in Ireland for the past two years years after spending seven years in the UK. I’m self employed (soletrader). I see on the Help to Buy application that Revenue will request four year’s accounts.
Can I still apply with two years accounts? When it comes to carrying out a self build, I will most likely have three years! After the build it would make four years! (Clutching at straws I know).
I have requested my accountant to make a PPA (Phased Payment Application) to Revenue. I’m doing this in order to keep money in my business but rather than making a lump sum payment of taxes due, I will make phased payments instead (say for argument’s sake, over two to three years). Can you envisage this being counterproductive to a ‘Help to Buy’ application?
Mr E.L., email
Help to Buy has been one of the very few incentives available to homebuyers over the last few years. It is scheduled to come to an end in December of next year after the Government extended the deadline by a year in the last budget. But this December is also important because, as of now, that is the deadline for an enhanced version of the scheme.
That might explain why you are trying to rush your fences a little bit here. The good news, from your point of view, is that there is every chance that the enhanced scheme will be extended in Budget 2021 which Minister for Finance Paschal Donohoe and Minister for Public Enterprise and Reform Michael McGrath will announce next Tuesday, October 13th.
Nothing is ever certain with budgets, of course. The hopes for the Help to Buy scheme rest largely on its popularity – albeit economists question whether it is sensible use of money or whether it is simply underpinning prices that are inherently unsustainable – and also on the stubborn persistence of the housing crisis.
Adding to the optimism is the decision by the Government to expand and enhance the scheme in its July Covid stimulus package.
This saw the amount that first-time buyers could claim back off income tax and DIRT (deposit interest retention tax on your bank savings) taxes paid in the previous four years to €30,000 – a 50 per cent increase on the €20,000 limit that had applied till then from the outset of the scheme.
The amount allowed also rose as a percentage of the purchase price that could be claimed in back taxes – from 5 per cent to 10 per cent. That effectively means aspiring homeowners could fund their full deposit through Help to Buy as first-time buyers are allowed to borrow up to 90 per cent of the value of a home up to certain multiples of their earnings.
But this was only for the period between July and December of this year.
It would be odd for the Government to make such a landmark move for a matter of months only. Things are very tough right now for younger workers and families. Politically, this would not be a great time to be seen to strike yet another blow against their prospects for home ownership.
There is much then to suggest that enhanced Help to Buy might be extended – but, of course, it is not a certainty. So what do you do?
Well, for now, nothing might be the right answer. Or maybe, more correctly, not everything.
Eligibility for the scheme is not determined by when you make an application for the relief but by when you take concrete steps towards building or acquiring the home.
The relief applies only to newly built homes and to first-time buyers. If you are buying a property built by a developer as most of us do, the key date is when you sign the contract for purchase.
For those, like you, looking to build your own property, the key date is when you draw down the first tranche of your mortgage loan to finance the building project.
In both cases, as things stand, that needs to happen before December 31st to avail of the enhanced scheme. But the budget is on October 13th so it seems to make little sense to jump the gun now.
If the Minister allows no extension, you still have more than two months to draw down funds under the enhanced scheme – and another year to avail of the original scheme. More importantly, if it is extended, you will be able to show three – or maybe even four – years of tax returns and, more importantly, taxes paid.
You’re concerned about the reference on the form to supplying four years’ accounts. That clearly applies to those who have four years to provide.
There is nothing to stop you applying with just the two years and it will not count against you in any way in a decision on granting the relief. I have come across homebuyers who were applying on the back of only one year’s tax paid.
What could very well have an impact, however, is your phased payment approach to tax liabilities. It’s not entirely clear if this is just going forward or applies to taxes already owed, though I imagine it is the latter to some degree.
You are one of many people taking such a course during the Covid-19 pandemic as many businesses struggle to survive with much of the economy closed down for a number of months and now the prospect of more of the same looming.
Revenue said only last week that €46 million in taxes owing from before Covid was now covered by such arrangements, which were put in place under the July stimulus programme as well, though they have existed outside that framework previously. The Revenue Commissioners has now extended the deadline for such applications for another month to the end of October.
It is a very useful option to have for self-employed people like yourself who can have trouble securing payment from customers in general – and are certainly vulnerable right now.
However, it may make a difference to what you can secure under Help to Buy. Under Help to Buy, Revenue is effectively refunding money to the taxpayer. The nature of a refund is that it relates to money already paid.
Revenue are unlikely to refund taxes that are due but have not yet even been paid. On their own site, they warn specifically that “first-time buyers must ensure they have the relevant tax returns filed and any outstanding balances paid”.
And I have never come across a case where they might adjust such an phased payment arrangement to allow for non-payment of taxes due under such an agreement to allow for such a refund “in advance”.
So, yes, I can see that being counterproductive. You’ll need to make an assessment that the phased arrangement is more important to you in your circumstances than the relief under Help to Buy.
Finally, bear in mind that any mortgage will need to be for not less than 70 per cent of the value of the finished property.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into.