Budget 2022 real estate

Perspectives

Real Estate and Housing

Budget 2023

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Key measures

1. Help-to-Buy Scheme

The scheme will continue at current rates for another two years until the end of 2024.

2. Vacant Homes Tax (“VHT”)

A VHT will apply to residential properties occupied for less than 30 days in a 12 month period. The applicable tax rate is proposed to be three times the existing local property tax (“LPT”) rate.

3. Residential Development Stamp Duty Refund Scheme

The stamp duty refund scheme will continue until the end of 2025.

4. Residential Zoned Land Tax (“RZLT”)

Amendments will be made in Finance Bill 2022 to streamline how the RZLT will be administered.

5. REIT and IREF Tax Regimes

A review will be undertaken of both the IREF and REIT regimes to determine how best they can continue to support housing policy objectives.

6. Rent Tax Credit

A form of rent tax credit is to be restored for tenants from 2023. This credit will be subject to a maximum of €500 each year. It is proposed to permit claims based on qualifying expenditure in 2022.

7. Pre-letting Expenses on Certain Vacant Residential Properties

The limit for allowable pre-letting expenses is to be increased from €5k to €10k. The vacancy period for eligibility is to be reduced from 12 months to 6 months (both changes effective from 1 January 2023).

8. Levy on Concrete Blocks, Pouring Concrete and other Concrete Products

A 10% levy was announced in response to the significant funding required in respect of the defective blocks redress scheme. This levy applies from 3 April 2023.

Our view

With affordability remaining a significant challenge, first time buyers will welcome the news that the Help-to-Buy scheme will continue in its current form until the end of 2024.

The purpose of a VHT was stated as to increase the supply of homes for rent or purchase. It is positive that exemptions are to be provided to ensure that owners are not unfairly charged where a property is vacant for a genuine reason. These include properties recently sold or currently listed for sale or rent; properties vacant due to the occupier’s illness or long-term care; and properties vacant as a result of significant refurbishment work. The VHT will not apply to derelict properties or properties unsuitable for use as a dwelling which are not captured under the LPT system. The impact of the VHT on increasing supply may be modest as existing vacancy levels in Ireland are considered to be low.

While the extension of the residential stamp duty refund scheme is important and is welcome, we await to see whether amendments to the current scheme will be provided for in the Finance Bill in response to the industry’s claims that the conditions for obtaining relief currently present real difficulties.

It was noted that amendments will be proposed to the RZLT to facilitate easier administration of the scheme. Under current rules, there is a real possibility the landowners who are frustrated in progressing developments for genuine reasons will fall within the scope of the tax. It is suggested that the amendments should take this into account to ensure that taxpayers are not unfairly penalised.

As part of announcing a review of the REIT and IREF regimes, it was recognised that institutional investment has played a key role in the provision of housing in recent years. It is hoped that a balanced review can be undertaken, the outcome of which will see institutional capital continuing to be a source of key support to real estate and housing in future years.

The previous rent tax credit was abolished in 2017. The credit was phased out following the conclusion that the net effect of the credit was to increase the cost of private rented accommodation. The Minister will be hoping that the existence of RPZ caps today provides more scope for the credit to benefit tenants.

Landlords will be disappointed to see that today’s Budget provided no meaningful change to the current regime. The modification of rules in connection with pre-letting expenses for certain vacant units with effect from 1 January 2023 is unlikely to deter the exodus of “mom and pop” landlords from the market.

While it is important to consider the funding of the defective building redress scheme, the introduction of a 10% levy on concrete will add to construction inflation. There is a risk this levy may result in the unintended consequence of further disincentising construction activity in a time where viability is a significant issue.

Overall, market participants may feel today’s budget was conservative and, in some respects, a missed opportunity. We await the Finance Bill for more detail on the key measures mentioned above.

Finance Bill 2022: Key Provisions

Help-to-Buy Scheme

  • The scheme will continue at current rates for another two years until the end of 2024. 

Vacant Homes Tax (“VHT”)

  • A VHT will apply to residential properties occupied for less than 30 days in a twelve month period. The applicable tax rate will be three times the existing local property tax rate. Satisfying the 30 day occupation test requires a bona fide tenancy. A number of exemptions are provided for in cases where a property is vacant for a genuine reason. The first chargeable period commences on 1 November 2022 and will run until 31 October 2022. 

Residential Development Stamp Duty Refund Scheme

  • The stamp duty refund scheme will continue until the end of 2025. 

Residential Zoned Land Tax (“RZLT”)

  • A number of amendments have been made to support the administration of the RZLT. One notable change is to provide an exemption from the tax in circumstances where landowners are precluded from developing land within the scope of the tax due to contractual obligations entered into prior to 1 January 2022. Provided certain conditions are satisfied, the exemption applies for the duration of the contractual obligations which existed prior to 1 January 2022. An example of where this could apply is where a lease of less than 35 years was entered into by the landowner in relation to a site prior to 1 January 2022 and it is reasonable to consider this contract precludes the owner of the site from carrying out development on the site.

Rent Tax Credit

  • The bill provides for the introduction of a rent tax credit. The value of the credit will be equal to the lower of 20% of the qualifying payment made and €500 or €1,000 in the case of a jointly assessed couple. Subject to certain conditions being satisfied, rental payments made in
    respect of an individual’s principal private residence, a residence to
    facilitate work or college or a residence of a qualifying child attending
    college will, subject to satisfying the required conditions, qualify for
    relief. Individuals must make a claim to Revenue to avail of the credit.

Pre-letting Expenses on Certain Vacant Residential Properties

  • The limit for allowable pre-letting expenses is to be increased from €5k to €10k. The vacancy period for eligibility is to be reduced from 12 months to 6 months (both changes effective from 1 January 2023).

Levy on Concrete Blocks, Pouring Concrete and other Concrete Products

  • The levy is now proposed to be 5% rather than the 10% announced in the Budget and is set to be introduced from 1 September 2023 rather than April 2023. The levy will apply on the first supply of a defined list of certain concrete products calculated at 5 per cent of the open market value of the products.

Living City Initiative

  • This property incentive scheme has been extended until 31 December 2027. Qualifying expenditure incurred on refurbishment or conversion work carried out up to this new termination date may qualify for tax relief under the scheme.

Change to 10% Stamp Duty Anti-Avoidance Rules

  • A clarification amendment is made to provide that where there is an acquisition of a partial interest in a relevant residential unit, that partial interest expressed as a fraction will be taken into account for the purposes of determining whether the 10 unit threshold is met. An exclusion is also provided for in the case of certain acquisitions by home reversion firms.

Additional Potential Stamp Duty Refund Schemes

  • Subject to certain conditions, Section 83DA provides that a full repayment of stamp duty will be made where a residential property is sold within 12 months of acquisition for the purpose of affordable home arrangements under the Affordable Housing Act 2021.
  • Section 83DB further provides that a partial repayment of stamp duty may be available, if certain conditions are satisfied, in respect of properties that have been: 
    • let to a housing authority or an approved housing body for social housing purposes, or
    • designated as cost rental dwellings under the Affordable Housing Act2021, or registered as designated centres under the Health Act 2007, which provide care in the community for those with special needs, or registered as children’s residential centres under the Child Care Act 1991, which provide homes for children in care
  • Both Sections 83DA and 83DB are noted as being subject to a commencement order.


Non-Resident Landlords (“NRLs”)

  • This section is subject to a commencement order. Additional information obligations are proposed to be placed on the tenant with respect to payments made to NRLs. A further amendment is proposed to acknowledge that a collection agent who deducts withholding tax on rental payments made to a NRL should not be chargeable and assessable on the income of a NRL. 

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