Why does Help-to-buy penalise us for using our land as a deposit?
Q&A: Law does not provide for cash sum for people who put up deposit ‘in kind’
The rules of the help-to-buy scheme are clearly defined in legislation. The basic intention is that it helps first-time buyers meet the deposit requirements for buying a home.
We have been approved by Revenue under the help-to-buy scheme to get some tax back on our self-build property and our solicitor now has to verify the details we input (so far, fair enough).
Now we are also being told that the money will be transferred into the loan account and this just does not seem right. We used the land we owned on which we are building the house as the deposit for the loan. Now, we will not have access to that money if it pays €17,000 off our mortgage and we will also be penalised for paying some of our mortgage off early. Is there another option you are aware of or what we should do?
I don’t understand why someone with a self-build mortgage would be penalised in the way someone buying a house out right wouldn’t.
Ms S.M., email
The rules of the help-to-buy scheme are very clearly defined in legislation. The basic intention is that it helps first-time buyers meet the deposit requirements for buying a home.
The added complexity in your case is that the land was the deposit. So, effectively you have paid the full deposit by virtue of contributing the land and now your help to buy relief is also going to the loan account and not to you.
The precise terms governing payment under the scheme can be found in the Finance Act 2016, which amended the overarching tax legislation – the Taxes Consolidation Act 1997 – by putting in place a new section 447C. Subsection 16 within this section outlines precisely and legally what must happen with payments made under the help-to-buy scheme.
Subsection 16 (i) deals with payments under the help-to-buy scheme made to people who entered a contract to buy or drew down the first tranche of their self-build mortgage between July 19th last year and January 1st this year when the administration of the scheme officially started.
It states that, in those circumstances, for self-builds, the money is paid into your bank account. This essentially takes account of the fact that people in that situation will already have had to provide the full deposit on the project and therefore it is refunding you part of that deposit. However, the presumption is that we are talking cash deposits here.
Loans to self-builds after January 1st this year are covered separately under subsection 16 (iii). In this situation, once the first tranche is drawn down, the money is paid by Revenue to “the claimant’s qualifying loan bank account”.
This is no different to people buying a new home being built by a developer or contractor where, assuming the contract was entered into by the buyer after January 1st, the money is paid to the contractor effectively as part of the deposit.
The problem for you is that there is no provision in the legislation to allow for a cash payment to people who would have put up a full deposit “in kind” – such as, in your case, using land they owned for the site.
So, no you will not have access to the money and I cannot see any other option for you. The only good point is that you have accelerated payment of the mortgage by €17,000 though that is probably cold comfort now when the cash could be useful in so many ways.
It’s not so much that you are being penalised; rather that you fall outside the scenarios envisaged by those drawing up the legislation. And with growing pressure to tighten mortgage lending rules as property prices rise, I see little chance of amendment likely to benefit you.
Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to email@example.com. This column is a reader service and is not intended to replace professional advice.