Q &A Dominic Coyle: Claiming allowances for the upgrading of property

I have inherited the family home. It requires a lot of work to be done before it can be rented. There are old Polystyrene ceilings throughout the house. They are a fire hazard and will have to be replaced prior to renting. Can I claim back anything if I get this work done?

If I can claim, do I have to have the house registered for renting before the work commences?

Ms A.K., email

There is a fairly wide range of expenses that are allowable against rental income. These include the cost of repair and maintenance.

However, as you seem to have half-guessed, there is a specific exclusion on pre-letting expenses – i.e. expenses incurred before the first letting of the property. That would certainly appear to rule out your claiming under this heading as you will not be able to rent out a property that does not meet fire safety regulations.

That really leaves you looking at the Home Renovation Incentive (HRI). This was originally targeted just at homeowners but was extended in the last budget to include landlords in respect of rented property.

Essentially the incentive covers the cost of works on your home, such as plastering, plumbing requiring, building extensions, installing new kitchens, painting, landscaping etc. The common thread is that these are all activities that are VAT-rated at 13 per cent.

So what’s excluded. Well, essentially anything that would be subject to the 23 per cent tax rate – such as the purchase of carpets and white goods is not claimable. Nor are the services of an architect or other professional on the job, who would also be claiming VAT at 23 per cent.

Finally, the cost of any labour carried out by yourself is excluded.

The minimum cost of works required in order to be eligible for relief under the scheme is €4,405 (before VAT) and the upper limit is €30,000, again before VAT. This does not mean that you cannot claim if your costs are higher, just that the relief will be calculated on a spend of €30,000 regardless of how much more you actually spend.

Interestingly, if you were converting a property into multiple rental units, the €30,000 upper limit applies to each new unit.

The relief is 13.5 per cent – i.e. equivalent to the VAT you will pay on the job and it is paid as a tax credit in the two years following the tax year in which the work was carried out. You can claim the credit once the work is completed and paid for.

In bottom line terms, this means you will be able to get relief on somewhere between €595 and €4,050 on your refurbishment of the property.

There are, as always, other important rules governing how the scheme works.

Clearly, you must pay income tax in order to benefit from a tax credit. Also, you must be fully compliant with the local property tax and any household charge. As you are not an owner-occupier of the property, you must have registered as a landlord with the Private Residential Tenancies Board (PRTB).

In your case, where you will rent following completion of the works, you will need to let the property and register with the PRTB within six months of the work finishing.

Most importantly, the contractors you use must be tax compliant. You need to confirm they are registered for the incentive as they will have to fill in details of the job and a record of payments made to the Revenue online. If they don’t, you can’t claim. You can check the form has been filled out online so ensure you do before works begin and, most importantly, before you pay over any money.

Finally, you need to get moving. The clock is ticking on the Home Renovation Incentive (HRI). Initially all the qualifying expenditure had to be incurred before the end of this year.

At the end of last month, that deadline was extended to the December 31st, 2016 but it is still a tight enough proposition for someone like yourself who has not even started the work yet. Of course, with the pressure on housing supply, Minister for Finance Michael Noonan might announce some relevant measures in his budget speech this afternoon. Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara St, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.