Government phases out tax reliefs on properties

Property-based tax reliefs moved one step closer to abolition yesterday, as Minister for Finance Brian Cowen signed commencement orders giving legal effect to their phased removal.

The tax schemes affected are: the urban renewal scheme; the rural renewal scheme; the town renewal scheme; relief for hotels and holiday cottages; relief for third-level educational buildings; relief for park-and-ride facilities and associated developments and relief for multi-storey car parks.

The phasing-out measures, first announced in the Budget, were included in this year's Finance Act but could not be given legal force until the European Commission had given approval that the measures complied with State aid rules.

The Government has now secured this approval.

"The phasing out of the reliefs will ensure that these provisions, which have played a significant role in achieving economic and social objectives, can now be withdrawn in a gradual and orderly manner," the Minister said.

The winding down of the property-based reliefs reflected the ability of particular economic sectors to fund investments from their own resources, he said.

As flagged in the Budget, qualifying investments under the schemes will be eligible for full relief up to December 31st of this year.

In 2007, 75 per cent of qualifying expenditure will be eligible for relief, while 50 per cent of expenditure from January 2008 to the end of July 2008 will qualify.

After July 31st, 2008, no tax relief will be available under these schemes.

The gradual phasing out of the schemes is designed to facilitate projects that are already in the pipeline.

At least 15 per cent of construction work must be completed by the end of this year in order for the project to qualify.

Although the schemes will be phased out over the next two years, investors will be able to draw down tax breaks arising from the scheme for years to come.

Some schemes can deliver tax benefits for up to 13 years.

Most of the property-based tax reliefs were introduced between 1995 and 2000.

The hotels scheme was first introduced in 1959 and the holiday cottages scheme was introduced in 1962, but both were amended in the early 1990s.

Mr Cowen's predecessor, Charlie McCreevy, first sounded the death knell for property and area-based tax incentives in the 2003 budget, although the deadlines for the schemes were eventually extended following lobbying from the construction industry.

A review of the schemes carried out for the Department of Finance by consultants Goodbody, published earlier this year, found that they were an expensive way of achieving public policy.

The urban renewal scheme, designed to promote the development of certain inner city areas, was the most expensive of the schemes reviewed, resulting in €1.43 billion in taxes forgone.

Goodbody said that while the scheme had a positive impact on ridding centre city areas of derelict sites, in recent years the scheme had benefited high-income investors in property developments that would have been built anyway.