Property relief move will hit 'ordinary' investors
THE move to restrict the property tax relief, known as Section 23 relief, is set to impact severely on ordinary people who bought investment properties, tax experts said last night.
From next year, the relief will be restricted to only the income from the Section 23 property itself.
Any unused relief at the end of a 10-year period will be lost. Additionally, if the property is sold within the 10-year period, the seller will be liable to a clawback of relief claimed, and the new buyer will not get any relief.
This a major change to the way the relief worked up to now and comes at a time when a number of buy-to-let investors who took out interest-only mortgage deals are under pressure to start paying capital back to their lender.
Tax specialist at PricewaterhouseCoopers Ken O'Brien explained that the change announced in Tuesday's Budget would mean that, from next year, relief would be limited to the rental income arising from the Section 23 property that gave rise to the relief only. Section 23 relief had previously been available to shelter rental income on all other Irish rental properties.
"Restricting the Section 23 relief to offset against the same property would, in these circumstances, effectively mean than little/no value would be obtained from Section 23 relief," Mr O'Brien explained.
Section 23 relief that has not been claimed by the end of 2014 will be lost.
Mr O'Brien added that, in general, the rents from a Section 23 property would typically have been covered by expenses such as interest costs (75pc deductible), insurance and management costs anyway.
"Consequently, there would be little/no taxable rent arising on the Section 23 property itself," he added.
Accountants BDO pointed out that any unused relief at the end of the 10-year holding period of the property would be lost.
The 10-year qualifying period in which relief may be claimed starts next June 30 for Section 23 properties regarding which claims have yet to be made.
Property experts said this unexpected move in the Budget came as a number of lenders attempted to get buy-to-let investors to move away from interest-only tracker deals.
A large number of investors were given trackers to buy properties and got deals to pay interest only on these mortgages.
But as these mortgages are commercial loans, lenders have the power to take away the trackers and substitute them for more expensive loans after three or five years, if the investor is unable to also pay the capital back each month.
The combination of falling rents, the loss of property reliefs and higher mortgage costs will put many buy-to-let investors under enormous strain.