Monday 23 April 2018

Noonan's DIRT scheme for new home buyers is a three-card trick

Minister for Finance Michael Noonan
Minister for Finance Michael Noonan
GOOD ON GIMMICKS: Minister Michael Noonan
Charlie Weston

Charlie Weston

People seeking to buy their first home are beginning to realise that the scheme announced last year to help them avoid paying tax on savings to build up a deposit is about as useful as a front door made out of paper.

The tax rates on savings are penal. Known as DIRT - someone in official Ireland has a sense of humour - the deposit interest retention tax is 41pc.

Add to that the fact that PRSI (pay-related social insurance) of 4pc now applies to interest earned on savings for employees, and almost half of anything earned on savings is swallowed up by an avaricious State.

To counter this, Finance Minister Michael Noonan announced in the last Budget that 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 they pay on any interest they earn on their savings.

That seemed like a great idea, and only fair given that it is State policy generally to encourage people to own their own homes, and it is horrendously difficult to get a deposit together.

This is especially the case since the Central Bank introduced new rules in February requiring most first-time buyers to have a deposit worth at least 20pc of the value of the property being bought. Now it has emerged that to avail of the scheme new buyers will have to register for the property tax.

Revenue has issued a briefing saying that to claim back the tax on savings interest the home buyers 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.

This means the scheme will be no use to new buyers attempting to build up a deposit.

This is because it will only be possible to get the refund once the house has been purchased and registered for property tax in the name of the first-time buyers.

The bottom line is that the scheme is little more than a gimmick as it does not help a person buying a house.

As if it was not bad enough that new buyers are faced with the requirement for a 20pc deposit for mortgages over €220,000, savers also have to contend with very low interest rates on savings.

When he announced the measure Mr Noonan said he expects around 9,500 new home buyers to benefit from it this year.

The relief will apply to DIRT paid for four years before a property is bought by a first-time buyer.

However, the tax refund is not going to make much of a difference to potential buyers.

The concession will mean that a couple that saves €6,000 in a year will get a refund of just €50.

This is if they can get interest of 2pc and earn €120 before tax.

Never mind calling it a refund. It is more like Noonan's three-card trick.

Twitter: @CWeston_Indo

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