Your complete guide to home renovation incentives
WOULD you appreciate getting €4,050 handed back to you by the Government for that major home renovation that you've been planning for years?
Launched by Michael Noonan in Budget 2014, The Home Renovation Incentive Scheme (HRI) offers a temporary window in which homeowners can save 10pc on construction and up-grading work at a time when labour costs for home improvements are at their lowest in 15 years.
The scheme allows a VAT clawback of up to €4,050 on the 13.5pc VAT rate applied to work costing between €5,000 and €30,000 and which is carried out between October 25, 2013 and December 31, 2014.
Given that many home owners who have been earning well through the recession have been saving money, and postponing necessary upgrades and renovations in the process, it is expected that the HRI will indeed result in a spending splurge through the coming year.
But this scheme has more than a few stings in the tail.
Negotiating your way to your tax credits can be a minefield of box ticking compliance, paperwork and complications.
Kevin Hollingsworth of the Society of Chartered Surveyors (SCS) says: "There is no doubt that the HRI is exceptionally good news both for homeowners and for the struggling tradesmen who have had to compete with the black economy. However given that the Revenue have cast such a big net with it, the scheme is also a pretty cumbersome animal with a lot of complications to iron out and negotiate."
Worst of all, he points out that the onus of application is not in the hands of the householder and beneficiary but instead rests with the builder/tradesman. This in professions not always noted for a zeal with deadlines.
And there are numerous grey areas which have yet to be resolved – among them the issue of how old age pensioners who no longer have a substantial taxable income can claim back an incentive returned with tax deductions over a two-year period.
There's also the fact that householders can't benefit without using a registered tradesman/building firm but the list of registered tradesmen won't appear online until April at the earliest.
There's also the likelihood that the HRI will itself eventually increase the costs of home renovation work simply by increasing demand for tradesmen – even given the high number of them currently unemployed. It's even possible that the knock-on effect will eventually increase the cost of home renovations above the value of the rebate savings available.
"It's true to say that as we move out of the recession, the costs of building and renovation, which have been historically low, will begin to edge up anyway. And it is conceivable that the very existence of this scheme could cause prices to rise," says Mr Hollingsworth.
"From March builder's costs are likely to increase anyhow thanks to new levels of paperwork and administration they will entail under new building regulations. The result is that with the HRI you're probably best getting in early," says Hollingsworth, who, as part of an SCS committee of three, spent a week grilling Revenue officials about the scheme in order to compile an online guide for punters. This is now available free at www.scsi.ie along with a HRI job calculator.
To help you negotiate the HRI minefield, Independent Property today brings you a dedicated 20 Point Guide which will tell you whether you qualify for the HRI, how to claim it and most vitally of all, what pitfalls you will need to watch out for.
1. How Much Money Can You Save?
The reclaim is 13.5pc on qualifying expenditure between €5,000 to €30,000. You can commission jobs to any cost – €100,000 if you like – but only the VAT on the first €30,000 is applicable. The minimum amount reclaim-able is €595 while a maximum credit reclaim limit of €4,050 applies. There is a notable additional clause attached for kitchen work whereby the materials must not cost more than two thirds of the entire outlay. "So if you start ordering designer units for your kitchen with granite worktops and so on, then you're in serious danger of compromising your payback," says Mr Hollingsworth.
2. Do you qualify?
To qualify for the HRI you must be a fully tax compliant home owner. If you are self-employed then you must show that your returns are up to date.
If you are a PAYE worker then your compliance should be already evident to Revenue and your tax details already supplied to you.
But that's not all. Your residential property tax must also be paid fully to date. Also, if you have dodged the previous Household Tax you are also excluded although Revenue allow for both to be paid up in order to qualify yourself for HRI.
There is also a big question over whether or not pensioners and the unemployed have in essence been excluded from the HRI scheme on the basis that they don't earn enough taxable income.
"This is a very pertinent question which needs to be answered. The money is paid back by tax credits – so by definition you have to be earning enough to get it back over a two-year period. It's not yet clear how pensioners who are not in receipt of enough taxable income can claim this money back and benefit from the scheme. It seems to me that a lot of those who might want to perform renovations will be over the age of 65. This remains to be clarified."
The Revenue Commissioners have made it clear that those who lose their jobs over the course of claiming, may retrieve their tax credits more slowly over a longer period.
If you are a joint owner but not listed as the property's owner on the Property Tax records, then you can phone Revenue and have yourself listed for the purposes of claiming the HRI rebate.
3. Does Your Home Qualify?
Only the private principal residence qualifies for HRI. You cannot benefit if you are renting the property as a tenant or leasing it out as a landlord. If you are renovating a home which you intend to move into – then this home does qualify for the scheme, even though you are living elsewhere temporarily.
How that "intent" is to be indicated or certified to Revenue is not yet clear. But it is assumed you will be living there by the time the work is completed. This is a particularly pertinent clause because the large scale renovations often require the owners to live elsewhere for much of the duration of the work.
4. Does Your Builder/ Tradesman Qualify?
Those who perform the work must be tax compliant on a number of fronts – regarding their business earnings, regarding their participation in VAT and regarding their payment of sub contractors if there are any.
5. What Does Qualify:
"They key rule is anything that qualifies for the 13.5pc rate of Vat is applicable but anything that qualifies for the 23pc rate is not," says Mr Hollingsworth.
The applicable costs include: extensions, demolition, the supply and installation of kitchens, bathrooms, storage, attic conversions, plastering, painting, joinery and carpentry decorating, tiling, flooring, landscaping which includes decking and structural work, home office installation, attic conversion, removal and installation of new windows, addition of energy-saving measures like spray-on external insulation, heat recycling systems, boiler installation and upgrade, solar panels. The construction of a garage, and the renovation or resurfacing of a driveway also qualifies.
The work doesn't have to be linked, so you can have a garage built and convert the attic and claim on both as one "job."
6. What Won't Qualify:
Anything which invokes a 23pc VAT rate. This includes the cost of non "tradesmen" consultants such as architects, engineers and chartered surveyors. Kitchens, white goods, electrics and bathroom components are considered non applicable if they are bought separately. On the other hand if they are included as part of an overall job contract, then they are applicable. Hence get the builder to buy the kitchen units and install them rather than buying the kitchen units and handing them over to the builder. Many believe not qualifying the costs of architects, engineers and surveyors is an oversight, as these are the people who can police the quality of the construction work on behalf of the homeowner.
7. Project Contractor V Hiring Tradesmen Yourself:
How you find a contractor and the terms you agree with them in advance are probably among the most important choices for participants in the HRI. The choice of contractor determines the quality and cost of the work overall and their qualifying tax status and willingness to do the paperwork on your behalf are all key factors in you getting your money back.
"If you employ one firm – a contractor who sub contracts the work out to the roofers, tilers and so on – then this party is the only one that must file your details with Revenue.
"However if you decide to hire the tiler, the painter and the roofer yourself, then each of these will need to prove separate compliance and will have to file their details individually with the Revenue. Your home renovation project is now treated as many different projects for claiming tax relief rather than one big project. This obviously complicates matters considerably."
8. The Paperwork – What You Will Need From Your Contractor/Tradesman:
(a) A VAT number – the trader must be registered for VAT and you should check with the Revenue Commissioners that the number is genuine.
(b) A tax clearance cert for the current tax year – get a photocopy.
(c) Where relevant, a photocopy of his Relevant Contracts Tax (RCT) Cert which should have been dated within the previous 30 days. This is to show that he has been tax compliant in his employment of his own sub contractors.
(d) Receipts and more receipts. "You will need certifiable proof of every penny you pay over," says Mr Hollingsworth.
9. What Your Contractor/ Tradesman Will Need From You:
Your property tax ID number which is included on any local property tax (LPT) letters or email from the revenue commissioner. Your contractor will need to enter this number on the Revenue's electronic HRI system in order to register your work for tax relief.
But whatever you do, don't give the contractor your PIN number for LPT nor your PPSN number both of which should be kept strictly private for your own security.
10. Quality Control – Vet the Tradesman/Builder:
A tax-compliant builder isn't necessarily a good builder and there is no point in saving €4,000 if it costs €10,000 putting shoddy work right.
All homeowners should conduct due diligence on any contractor or tradesman about to conduct a substantial renovation or project. "Ask for work references and then go around and actually visit. Ask to see that work," says Mr Hollingsworth. "You should all the while be looking for a builder or tradesman who is vested in spreading a reputation for good work and efficiency."
11. Planning the Job:
It stands to reason that before hiring a builder or tradesman, you need to decide exactly what it is that you want done. However, as many popular renovation-based TV shows reveal, too many people don't give this enough thought. The result of failing to decide properly what exactly it is that you want done, and how in ends up in work that gets chopped and changed through the process – increasing costs along the way.
"For bigger jobs a professional like an architect, engineer or surveyor can steer you through the options and the costs," says Mr Hollingsworth. Which brings us to ...
12. Pricing the Job:
With previous work monitored, it's time to price the job. The cost for renovation works can vary in the order of €60 to €95 per square foot, depending on the requirements and the specifications.
As with any job, paying peanuts often gets monkeys. However, neither does shelling out the most cash ensure the best quality. A single-storey ground level extension could vary between €140 to €200 per square foot depending on architectural design, heights, overhangs and quality and cost of materials.
The renovation of a typical three-bedroom home constructed in the seventies with roof, walls and structure in good condition will cost around €90,000 to €100,000 for an internal upgrade and small rear extension. As the man says, shop around. Up-to-date tender price tables are available for your perusal at www.scsi.ie in addition to a HRI job calculator.
13. Tactics – Hold Back Cash:
Look for your contractor on the online HRI contractors register which the Revenue Commissioners are expected to have up and live by April.
But bear in mind that the onus is on your builder to submit your data and that of your work to the Revenue Commissioners on time in order for you to qualify for the tax rebate.
"Most important of all perhaps, you should make a contract with your builder through which he agrees to permit you withhold a portion of the money until he has filed the relevant paperwork details with the Revenue.
"It is absolutely vital that they file these in the correct timeframe. If you have paid your builder in full before they have filed that required return, then you have lost a vital means of persuading them to get onto it. In contrast, if you still owe them money, they have an added incentive."
14. Tactics – Controlling Builder Bother:
As we have said, not all tax complaint builders and tradesman are kosher in their practices. Do your own research and costs before commissioning or you could end up having your savings wiped out through two common practices conducted by the minority of unscrupulous operators – upselling and over-ordering.
Upselling means consistently persuading you to pay out more money for extra and better services and products which you didn't want in the first place. Some tradesmen consistently try and upsell to increase their profits (see Home Truths page 8). This is not illegal but you should constantly be aware of it. Another questionable profit hiking dodgy practice is over-ordering of materials and components with the aim of taking them off afterwards to another job where they are resold to a new client.
Research the cost of materials and components required for the job, and check and recheck with the contractor/tradesman that the right materials are being ordered and in the right amounts.
15. Tactics – Bundling Pays:
Certain costs are either included or excluded depending on how you commission the jobs.
"If you go to the kitchen supplier and buy the kitchen cabinets along with appliances and then hire a tradesman to install it, then the cost of the kitchen and the appliances are not included under the scheme. However if you go to a kitchen installation company and order a kitchen which includes the cabinets and built-in appliances as part of the "job" then they should qualify."
16. Doubling Up on Grants:
A lot of household renovation work already qualifies for home improvement grants of one kind or another. In particular the Sustainable Energy Authority of Ireland (SEAI) provides grants for the installation of insulation and energy-saving devices which reduce energy consumption in the home.
Crossing between the two sets of grants causes some serious complications and of course they don't allow you to double claim for the same spend. But the Revenue Com- missioners do have guidelines and you should contact them to clarify.
"This is how complicated it is," says Mr Hollingsworth. "If you spend €10,000 on spray-on exterior wall insulation as part of an overall €30,000 home renovation then you'll get a grant from the SEAI for €2,900 on the €10,000. They pay that quite quickly – often within a few weeks. The SEAI grant is then multiplied by three and subtracted from the SEAI qualifying amount, which is €10,000. So minus three times €2,700 leaves €8,100 which is deducted from the €10,000 giving €1,900. Now you calculate the VAT relief for HRI at 13.5pc and this amounts to a €226 rebate.
Now what about combining the Housing Adaption Grant for the disabled and impaired with the HRI? Contact the Revenue Commissioners.
17. The Time Lines:
Jobs which qualify for NRI VAT rebates are those which have been conducted between October 25, 2103 and December 31, 2015. Those conducted in the back end of 2013 are treated as if they have been undertaken in 2014. The builder/tradesman must apply for the rebate on your behalf and the money is paid back in tax credits which are split over the following two years.
Jobs carried out before April must be registered on the electronic data base within 28 days of it going live in that month. So if you incur the maximum rebate of €4,050 in March 2014 then your contractor/tradesman should submit your details by the end of this tax year.
The first €2,025 will be refunded in 2015 and the second amount of €2,025 in 2017.
In special cases, (for example, where the applicant loses their job), the tax credits are paid back in lesser amounts over a period of more than two years.
18. Ask About Your Grey Areas:
Given that this is a new scheme, not all of its creases have been ironed out. Many questions have yet to be asked and adjudicated on. Does a chicken coop qualify as a home improvement? What about a greenhouse? Does this qualify as "landscaping?".
Kevin Hollingsworth says, "Some questions remain that even tax accountants won't know the answers to. However the best route is to call the Revenue Commissioners. In questioning them for the purposes of the SCS Guide we found them generally to be well informed, helpful and able to answer the questions put to them.
19. Financing Your Renovation Work:
Credit Unions have had their lending abilities tightened considerably since the downturn but are generally hoping to provide credit for home renovation – something they've traditionally specialised in. In the Autumn, Bank of Ireland set up a special €75m fund to lend under HRI.
The personal loans are available for terms of 10 years or as a so-called mortgage "top up" which would allow borrowing €20,000 over a term of 20 years repaying €125 per month. Bear in mind, however, that stretching out your repayments with interest over such a long period can lead to you repaying an additional €10,000 and wipe out the cost of your HRI saving in the first place.
20. Further Information Can be Had From:
CASE STUDIES (source: SCS)
EXTENSION TO A 1950'S SEMI-DETACHED HOME
Total Cost Excluding VAT: €48,000
Less Costs not applicable: (kitchen appliances) €1,500
Total Allowable Costs excluding VAT: €46,500
Less HRI maximum credit (13.5pc of €30,00): €4,050
Net Cost With Grant Paid: €43,950
INSULATION UPGRADE TO A 1980'S THREE-BED TERRACE
Total Cost Excluding VAT: €8,700
Less HRI Credit at 13pc: €1,175
Net Cost With Grant Paid: €7,525
REFURBISHMENT OF 1950'S FOUR-BED DETACHED
Total Refurbishment Costs Ex VAT: €69,400
Less Costs Not Applicable (kitchen cabinets and appliances): €1,500
Total Allowable Costs Excluding VAT: €67,900
Less HRI maximum credit (13.5% of €30,000): €4,050
Net Cost With Grant Paid: €65,350