 |
| Registered to
carry on audit work and authorised to carry on investment
business by the Institute of Chartered
Accountants in Ireland |
|
The Rural Renewal Scheme
The Rural Renewal
Scheme was introduced by the Irish Government in 1998 to help
stimulate the development of the Upper Shannon region.
It covers the
following areas
 | Co.
Cavan, west of the River Erne, which stretches from Gowna to
Belturbet. Some areas immediately east of the Erne, including
Crossdoney, Belturbet town and Killykeen, are also included
|
| All
of counties Leitrim and Longford
|
| North
Co. Roscommon
|
| Areas
in the East, South and Northeast of Co. Sligo.
|
Tax Relief
The scheme allows
for special tax relief on
| construction
of new buildings and
|
| refurbishment
of older buildings
|
To qualify,
expenditure must be incurred before 31st December 2004.
The original deadline of 31st December 2002 was put back to this
date by the Minister for Finance in the December 2001 Budget.
The scheme covers:
| Residential
properties
|
| Industrial
buildings
|
| Commercial
properties
|
For detailed
explanations and examples of how the tax reliefs operate, please
follow the relevant links. Please note that this guide is for information purposes
only and no responsibility can be accepted for any errors or
omissions.
Residential Properties
Owner-occupied Dwellings
Any
individual who buys or builds a new home in the designated
area or who refurbishes an older dwelling can obtain tax
relief under the scheme
For new
dwellings, the relief is 5% of construction cost per year for
10 years total 50%
For
refurbished dwellings, the relief is 10% of construction cost
per year for 10 years total 100%
No tax relief
is available on Site costs
To
qualify, the floor area of the dwelling the floor area must be
between 38 sq metres and 210 sq metres and the property must
be situated within the designated area.
The
relief only applies where the owner-occupier first occupies
the dwelling as their sole or main residence after the
expenditure is incurred, and where the property is used solely
as a dwelling. The relief no longer applies if any of these
conditions are broken within the 10-year period. However, any
relief given previously is not withdrawn. The relief is not
available to any subsequent purchaser of the dwelling.
|
Example 1 - Sarah Teacher
Sarah Teacher is a PAYE
taxpayer. She builds a new house in West Cavan.
|
|
|
|
Site cost
|
30,000
|
|
Construction cost
|
150,000
|
|
Total spending
|
180,000
|
Sarah can claim income tax
relief on the 150,000 construction cost.
Sarahs annual income
tax relief is 5% of 150,000 = 7,500.
This relief can be claimed
against her Income Tax bill every year for 10 years
If she pays tax at the 42%
rate, Sarah will save 3,150 in tax every year for 10 years.
This will save her a total
of 31,500 in income tax over the ten years.
|
Example 2 - Peadar Farmer
Peadar Farmer buys an old
derelict house in the Rural Renewal area and refurbishes it
for his own private use.
|
|
|
|
House purchase cost
|
30,000
|
|
Refurbishment cost
|
80,000
|
|
Total spending
|
110,000
|
Peadar cannot claim any
income tax relief on the 30,000 house purchase cost.
However, he can claim the
relief on the cost of refurbishment, which amounts to 80,000.
Peadars annual income
tax relief is 10% of 80,000 = 8,000.
This relief can be claimed
against his Income Tax bill every year for 10 years
If he pays tax at the 42%
rate, Peadar will save 3,360 in tax every year for 10 years
a total of 33,600. If he pays tax at the 20% rate, his
saving will be 1,600 per year, or 16,000 in total
|
|
Rented Residential Properties
There is also valuable tax
relief for the cost of construction or refurbishment of rented
dwellings.
The investor can claim
100% of the cost of construction or refurbishment as an
expense against all their rental income. If this results in a
rental loss for the year, the unused relief can be carried
forward into subsequent years until it is fully used up.
To
qualify for this relief, Rental properties must satisfy the
following conditions:
| For new properties, the floor area must be between
38 sq metres and 140 sq metres (1,494 sq ft). The maximum
floor area of refurbished properties is 150 sq metres
(1,600 sq ft)
|
| The property must be let under leases for minimum
periods of three months.
|
| The tenant must occupy the dwelling as their main
residence. They cannot use it as a holiday home.
|
If
the dwelling is sold within 10 years of first letting, any
relief granted is withdrawn. However, a subsequent purchaser
of the house is entitled to the relief during this period. The
relief is in addition to mortgage interest relief and other
tax deductions and allowances usually available against rental
income.
Example 3 Jim Landlord
Jim Landlord builds a new
house in the Rural Renewal Area for letting purposes.
|
|
|
|
Site cost
|
50,000
|
|
Construction cost
|
200,000
|
|
Total spending
|
250,000
|
Jim can claim the full
construction cost of 200,000 against his future rental
income.
If Jim already earns 40,000
each year in rental income from a pub, and if he earns another
10,000 each year from renting the new house, the Rural
Renewal relief will mean that he will earn all this income
TAX-FREE for the next four years.
|
|
Commercial & Industrial Properties
This section of the Scheme
covers any property used for a trade or profession, or for
manufacturing trades, or any property let to a tenant on
commercial terms for example shops, pubs, offices,
factories, warehouses etc.
The property owner who
carries out construction or refurbishment of a commercial
property can avail of the following tax relief:
|
Year 1
|
50% of allowable
cost (excluding site cost)
|
|
Subsequent years
|
4% of allowable
costs each year until all expenditure is claimed
|
If Qualifying Commercial
or Industrial properties are sold during the 13 years after
the expenditure is incurred, a clawback of the relief will
apply.
Example 4 - Paddy Grocer
Paddy Grocer builds a new
shop, office and store complex in the Rural Renewal Area.
He spends the following |
|
Site Cost
|
|
100,000
|
|
Construction Cost
|
|
|
|
shop, stores, offices
|
|
500,000
|
|
Total Spending
|
|
600,000
|
Paddy
can then claim the following tax reliefs
|
Year 1
|
50% of allowable cost
(construction cost on shop, stores, and offices, but Excluding
site cost)
|
|
Subsequent years
|
4% of allowable costs
until all expenditure has been allowed.
This means that Paddy can claim 4% of expenditure each
year for 12 years, and the remaining 2% in the final year.
|
Tax Relief
|
Year 1
|
500,000 x50%
|
250,000
|
|
|
Yrs 2-13
|
500,000 x 4%
|
20,000
|
each year
|
|
Year 14
|
500,000 x 2%
|
10,000
|
|
If Paddy pays tax at 42%, his tax savings will be as follows:
|
|
|
|
per Year
|
Total
|
|
Year 1
|
250,000 x
|
42%
|
105,000
|
105,000
|
|
Yrs 2-13
|
20,000
x
|
42%
|
8,400
|
100,800
|
|
Year 14
|
6,600 x
|
42%
|
4,200
|
4,200
|
|
Total Tax Relief over 14
years
|
210,000
|
|
 
| Valuable Tax
Reliefs!
The Rural Renewal Scheme
offers wonderful tax incentives to individuals,
businesses, property owners and investors in the Rural
Renewal Area! |
| Look before
you Leap!
Please note that this guide
is for information purposes only and no responsibility can
be accepted for any errors or omissions. |
| 2004
Deadline!
To qualify for the Rural
Renewal Reliefs, construction or refurbishment expenditure
on properties must be completed by 31st December 2004. |
| We can
help!
If you need further
information, advice or guidance on any aspect of the Rural
Renewal Scheme, please contact McGibney & Company
today! |
|
