So, you've decided to go for it - now it's time to do the sums
Good news - the VAT back grant on home improvements has been extended, while some banks are offering competitive home loans. Sinead Ryan reads the small print
With mortgages still as rare as hens' teeth and trader-uppers hit heavily by the Central Bank's tough new deposit requirements, many are looking around their existing homes and seeing what can be done to make life a little less cramped or even freshen it up a bit to cater for growing children.
One popular measure announced in the last budget was the extension of the Home Renovation Initiative (HRI) to December 2016. The scheme, in its third year, allows VAT refunds on works carried out for home improvements - important at a time when moving house and getting new mortgages remains challenging.
Since its inception, 48,400 works have been completed in 33,800 properties. The estimated value of them is €755.5m with the tax credits amounting to €52.48m. On average, the spend by individual householders is around €15,596 and the top three most popular types of works are extensions, general repairs and kitchen or window replacement.
The rules of the HRI scheme are straightforward: you must use a VAT registered and tax compliant contractor, and be up to date on your own property tax. The minimum spend is €4,405 before VAT (giving a tax credit of €595) and the maximum is €30,000 (tax credit €4,050). Of course you can spend more, but this is the maximum tax relief you will get.
The money must be spent on "repair, renovation or improvement works". (See table for qualifying works.)
The tax break is on the VAT element of the bill (13.5pc) so if you pay this year (2016), you get your tax back starting in 2017, over 24 months if you're a PAYE worker and via your annual tax returns if you are self-employed. It is important to note that the refund is only available to income tax payers, so if you are outside the income tax net (e.g. on a State pension only), you will not qualify.
Electrician ----------- €3,000
New windows fitted -€2,500
Total ------------------ €6,300
Allowed €6,300 x 13.5pc = €850 over 24 months = €35.44 per month
Before engaging a contractor confirm s/he's in the HRI scheme. You need to disclose your Property ID (from your property tax letter), but never give out the PIN number or your PPSN. The contractor enters the work to be completed online and begins. Afterwards, s/he enters the payment details and you can log on to claim the tax credit.
To see the Revenue requirements and rules, and to apply for the scheme, Google "Revenue", and "HRI" for the correct link (which is buried in the tax codes).
Paying for It
About 32pc of home owners undertaking works plan to spend over €5,000, so a loan is often necessary. A survey carried out by Tullamore Credit Union - one of the country's largest - shows 23pc of loans issued in 2014 were for home improvements, the average being €15,400. Credit unions typically offer lower interest rates than banks (9.5pc in TCU's case), but many offer even more attractive rates if the loans are matched by savings (5.95pc). Some banks, such as KBC, are now offering personal loans "packaged" for home improvement with lower rates than standard loans. For example, for a figure of up to €10,000, the rate is 9.9pc, while €20,000 or more can be borrowed at 8.5pc.
Finding a lender is not difficult, but there are a few questions you should ask before you get your application underway. First, check whether the loan is fixed or variable? It is most likely a fixed rate which means the payments stay the same throughout the repayment period which can give comfort, however, a variable rate may be lower (or higher) depending on how interest rates change in the period of repayment.
Ask for a quote for a few different terms, eg, three and five years. This spreads out your payment over longer, but it will be more expensive overall. Don't be tempted to add it to your mortgage unless it's a significant loan. While interest rates are lower, the repayment term is a lot longer, so it's poor value. A short-term personal loan is better.
Confirm the interest rate. You'll find it drops the more you borrow, but don't be tempted into loans you can't afford by "adding on" extras you don't need.
Only borrow what you need. An uptake in lending patterns by banks has meant credit is more freely available and may be foisted upon you even when you don't need it.
You'll only be paying it all back over a longer term.
An online application might be "approved" in a couple of hours, but don't start shopping until you're in a position to draw down the money with a signed contract. There may be a facility to do this in several tranches, which can be cheaper, rather than borrowing everything upfront when you won't be paying contractors until completion.
See table for current loan rates, but always ask if there is a cheaper option.
Some improvement works, eg, insulation, may be grant-assisted under the Better Energy Homes Scheme (seai.ie). Many people do not realise these are not means tested and are open to everyone to claim. They cover works such as wall and attic insulation, boiler upgrades and solar panel installation, most of which qualify under HRI also. Well over half a million upgrades have been carried out to date, and you'll get a yeah or nay within 20 days of applying. The rules are:
- Your house must have been built prior to 2006
- The grant approval from SEAI must be in place before you start any work (ie, don't engage a contractor yet or wait until the boiler goes and it's an emergency).
- You must use one of the registered contractors listed by SEAI and approved materials.
- You can't have applied for other grant towards the work.
- The minimum grant application is €400 but it is allowed up to €3,600 depending on house size.
Applying for an SEAI grant does not preclude you claiming under the HRI scheme, however, three times the grant amount is deducted from the qualifying figure, as is the norm with State grants.
Cost of wall and
attic insulation = €10,000
by SEAI = €2,000
Therefore, €2,000 x 3 (€6,000) deducted from outlay before VAT deduction calculated. So, €4,000 qualifies x 13.5pc = €540
The works qualify even if they're below the €4,405 minimum as the total outlay was above it.
See seai.ie for details