As with any investment, it is vital that prospective property buyers are fully aware of the tax implications of such a venture before signing the dotted line. Ned Gladney, tax director at Dublin accounting firm OSK, offers some practical tax planning advice to investors tempted by the property market.

"One of the main recommendations is that from January 1st, 2006, in the context of residential lettings, if you are not registered with the PRTB (Private Registry of Tenancies Board), which costs €70 a year, you'll have no entitlement to any tax deductions," warns Gladney.

Owners of rental properties are entitled to deduct certain expenses from their gross rental income each year - including repairs and maintenance, management and rent collection fees, rates, insurance, losses from other Irish rental properties, and mortgage interest payments - to arrive at the net amount on which they must pay income tax. However, expenses incurred prior to letting the property are not allowable for tax purposes.

Individuals who purchase a second property and rent out what was previously their main residence should inform the TRS (tax relief at source) section of the Revenue, says Gladney, as they will no longer be entitled to mortgage interest relief at source at the standard rate of tax. Instead they can claim a tax write-off for the full amount of mortgage interest against their rental income, he advises.

Capital allowances are available in respect of expenditure on capital items, such as furniture for the rental property. "One area that is often overlooked is capital allowances on plant and machinery - particularly plant which is embedded in the building," adds Gladney.

"For example if someone buys a second-hand building, a quantity of the valuation can qualify for capital allowances. You're given a tax write-off without any extra cost."

Certain tax-incentive property schemes have been extended in a restricted format, Gladney points out. The termination date for these "pipeline" projects is now scheduled for July 31st, 2008, and transitional measures have been introduced to restrict the relief.

Full relief is allowed for qualifying expenditure incurred this year. Seventy-five per cent of normal relief will apply in 2007, but this drops to 50 per cent in the period from January 1st, 2008, to July 31st, 2008.

Gladney advises investors interested in such schemes to act quickly. "If they are contemplating purchasing a tax incentive property they need to move quite smartly on it."

He explains that the planning permission for these schemes had to have been submitted by December 31st, 2004, with the result that supplies are now limited. "I would expect the supply of these schemes to reduce and reduce. Move now."

He also stresses the importance of not basing an investment decision solely on the fact that tax breaks are attached to the development, as builders and developers always charge a premium on such properties. "Look at the commerciality as well," he advises. "Is it worth paying this premium?"

This year's Finance Bill provided for a new restriction on the use of tax reliefs by high earners. It will limit the amount of specified reliefs a person can use to reduce their tax bill in any one year to 50 per cent of their income, and will apply (in a tapered system) to those with earnings above €250,000. Gladney clarifies how this will work in practice.

"It's geared at high earners. Previously someone who had €1 million of rental income coming in each year could build up rental allowances of the same amount, and would have no tax to pay. Now they are only able to claim 50 per cent of their allowances, so €500,000 remains in the tax net." The remaining allowances of €500,000 aren't lost, but rolled forward to the next year, Gladney says.

He explains that the logic behind this restriction is to avoid the scenario of high net worth individuals paying little or no income tax. "The main idea is - if you consider the normal rate of tax is 42 per cent - that by restricting the allowances to 50 per cent you are effectively putting in place a minimum tax rate of about 20 per cent."

Gladney says self-administered pension schemes offer a particularly tax efficient method of investing in property. "If you have someone with a self-administered pension scheme, they can now borrow via the scheme.

"Traditionally you needed a very large amount within the scheme to buy a property, or else the fund was just invested in stocks and shares. Now you have the capacity to borrow and can gear up within the pension scheme."

"This is suited to company directors," he continues. "It costs in the region of €3,000 or €4,000 to set up, and people should budget around €2,000 per year to run the scheme."

He explains that pension contributions of at least €25,000-€30,000 a year are necessary in order to make such a scheme worthwhile.

"The advantages really kick in if investing €50,000 or more," he says. "In a pooled pension scheme there is a lack of transparency; at least with this you know exactly where your money is invesed."

Members of such pension schemes should be aware that there are restrictions on the types of assets in which scheme funds can be invested. For example, if funds are used to buy a holiday home, or "pride-in-possession goods" such as a classic car, the value of such assets will now be treated as a taxable pension payment. This has been the view taken by Revenue in recent years, Gladney says, but the restriction has now been formalised by the 2006 Finance Bill.

Ned Gladney will present a seminar on tax planning for property investment at the IAVI's conference in Mullingar on March 10th and 11th.