Buyers will have to register for property tax to get Dirt refund
NEW home buyers who want to avail of the Government scheme to avoid paying tax on their savings will have to register for the property tax.
This has prompted experts to conclude that the scheme will be of little use in helping first-time buyers save for a deposit to buy a property.
In the last Budget, Minister for Finance Michael Noonan said those using a savings account to build up a deposit as part of a home purchase would be able to get a refund on Dirt (deposit interest retention tax) they pay on any interest they earn on their savings.
But Revenue has issued a briefing saying that to claim back the tax on savings interest the homebuyers will first have to register for property tax to get the tax back. "To make a claim, the property must be registered for local property tax (LPT)," the tax authority outlined in a briefing note.
Mortgage expert Karl Deeter said this meant the scheme would be of no use to those building up a deposit to form part of the transaction.
This was because it would only be possible to get the refund once the house had been purchased and registered for property tax in the name of the first-time buyers. "Functionally, this does not help a person buying a house," he said.
Mr Deeter said the Dirt refund would not make an significant difference, given the new requirement for a 20pc deposit for mortgages over €220,000 and very low interest rates on savings.
When he announced the measure Mr Noonan said he expected around 9,500 new homebuyers to benefit from it this year.
First-time buyers will get a refund on the Dirt on savings being used to build up a deposit to buy a home. They will have to pay it first, and then seek a refund. The refund will apply from this year and will run until the end of 2017.
The refund will be limited to savings that represent a maximum of 20pc of the purchase price of the property.
The relief will apply to Dirt paid for four years before a property is bought by a first-time buyer.
However, Fianna Fáil finance spokesman Michael McGrath claimed the tax refund was not going to make much of a difference to potential property buyers, and dismissed it as little use to new buyers. "The relief from Dirt for first-time buyers is little more than a gimmick. The actual benefit will be a fraction of what first-time buyers used to get from mortgage interest relief and, in most cases, will be less than their property tax bill."
Simon Moynihan of price comparison website Bonkers.ie said the concession would mean that a couple who managed to save €6,000 in a year will get a refund of just €50 back.
This is if they can get interest of 2pc and earn €120 before tax.
New limits on lending apply from February, restricting first-time and second-time buyers to borrowing no more than 80pc of the value of the property for amounts over €220,000. And only three-and-a-half times the income of buyers can be used to calculate the maximum that can borrowed.