Thursday 23 November 2017

Pact typical of tax-driven investments to save cash

Donal O'Donovan and Peter Flanagan

THE investment deal that James Reilly and his follow investors agreed to back in 2000 was typical of many tax-driven investments put together at the time.

Thirteen investors raised €2.25m to build a 54-bed nursing home in Carrick-on-Suir, Co Tipperary.

Most of the 13, including James Reilly, put up £60,000 -- equal to around €76,000 -- of their own money to join the consortium, while one investor invested £30,000.

The group then borrowed €1.9m from Bank of Ireland to help finance the development.

Court records show it was a consortium of well-heeled investors -- doctors, solicitors, architects, engineers and other professionals -- who were drawn from across the country.

Tax breaks at the time allowed investors in nursing homes to claim tax relief on income from any other rental properties they owned for 10 years.

Relief

The tax relief for nursing home investments was just one of many similar incentive schemes at the time that covered hotels, student accommodation and developments in rundown seaside towns.

The reliefs meant the deal was valuable to investors who had other income coming in, even if the nursing home itself never made a penny over that initial 10-year period.

The group hired builder Conclan Ltd to build the home at a cost of €1.6m, and signed a lease agreement with Dr Dilip Jondhale, himself a syndicate member, and Dr Vasudha Jondhale who would operate the nursing home itself.

The doctors would run the home and pay rent to the syndicate. The rent would be enough to cover interest on the bank loan, and investors could use their investment to cut their overall tax bill.

That was particularly the case for eight of the original 13 who, as part of the original deal, signed an agreement to sell their share in the nursing home back to the remaining five members, including James Reilly, when the tax incentives ran out. That would be 10 years after the doors opened on the home, in April 2011.

The five included Dr Reilly and Dr Jondhale as well as Paul Kelly with an address at Mountjoy Square, Dublin; Ciaran Flanagan of Grattan Court, Inchicore Terrace South, Dublin 8, and Anne Devitt, Lispopple, Swords, Co Dublin.

The group of eight included solicitors Michele Mellotte from Tullamore, Co Offaly and Orla Higgins, Ashfield Road, Ranelagh, Dublin.

The others were three doctors -- John Caulfield from Belgrove Road, Clontarf, Dublin, John McGreevy of Mount Prospect Avenue, Clontarf, Dublin and John Whately, Ardee Road, Dundalk, Co Louth -- Garry Smyth, a civil engineer from Ailesbury Grove, Dundrum, Dublin; Tom Murphy, an IT consultant, Wynestown, Oldtown, Co Dublin and Michael Morris, Chelmsford, Celbridge, Co Kildare.

Under the sale-back element of the deal the group of five would pay €1.9m to the group of eight, for their share of the nursing home. The €1.9m figure is likely to have been calculated to be enough to cover the original investment and their share of the bank debt.

Tax advisers say such an agreement was typical under such investment schemes.

Everything went according to plan for 10 years.

However, last year the group of eight went to sell their share, and the rest of the consortium tried to get out of the deal.

It went to court and earlier this year Judge Peter Kelly ordered the group of five, including the Health Minister, to pay the €1.9m.

That was in February. With no money paid, despite a court order, the stakes are beginning to rise.

Irish Independent

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