Sunday 19 January 2020

Can I use rental return to gauge house value for property tax?

Sinead Ryan

Sinead Ryan

I'm confused about the property tax valuation on my investment property. It cost €240,000 in 2006 and I was told I could expect to make over 8pc of the purchase price annually in rental income once I had renovated. Since then, rent has fallen considerably and I'm getting just under €11,000 per annum. Is the rental yield still a good measure of value? If I use this method, my property is worth just €137,500 but the house next door sold for €161,000 last year."

This is a good question and difficult to answer precisely. Barry Flanagan, tax expert with, agrees investment property valuations are uncertain with regard to LPT.

"The most important factor to bear in mind is that Revenue is looking for an honest assessment. They have confirmed that a valuation will only be challenged where they believe that the estimate could not reasonably have been arrived at," he says.

"Several recommendations have been made as to how best to estimate value. The advice coming from most experts, including the Society of Chartered Surveyors Ireland, is that the comparative method (comparing the sales price of similar homes sold recently in the area) is the best estimate of market value.

"The 'rental yield' method has some merit in evaluating a potential investment and perhaps could be relied on if there are no comparable sales in the area, but in reality it is quite subjective and the choice of 8pc as a benchmark is somewhat arbitrary. In this case, the advice from valuation professionals is quite clear – a similar property recently sold in the area is the best guide to market value." In any event, you must complete a return online by the May 28 deadline.

Can you tell me what the current position is with regard to rental tax relief on section 50 student accommodation? Can I still buy an apartment under the scheme?

The student accommodation scheme was introduced in section 50 of the Finance Act 1999. It provides for 'section 23' type relief whereby expenditure incurred on student rental accommodation can be set against the rental income from the property and against other Irish rental income, thus reducing the taxable income of the person incurring the expenditure. Since then, says Louise Carey of, some qualifications have been clarified.

"The definition of a student has been amended to include certain foreign exchange students. A development can be certified by one or more educational institutions.

"A qualifying lease must be drawn up for the whole of the academic year.

It is considered qualifying if agreed between the owner of a student accommodation unit and a management company that will let the bed spaces to students of the certifying institutions.

"The treatment of a caretaker unit has been clarified. To qualify for relief for expenditure incurred on a share of the communal facilities and amenities, an investor must also have purchased a house.

"Relief is not available for expenditure incurred solely on communal facilities and amenities."

Irish Independent

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