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Helping property buyers on the margins

I eventually got to watch Christian Bale’s take on Dick Cheney in “Vice” last weekend; I’m a bit behind on the movie front.  Spoiler alert!  In one scene the Veep attends an “Americans for Tax Reform Wednesday Meeting” which had been started years earlier by Grover Norquist. A marketing guru explains the “breakthrough” made to convince the American public to oppose the “Estate tax”:  Simply call it the more morbid “Death tax”.  We’re then shown a marketing team conducting focus groups demonstrating the effectiveness of derogatorily labelling the tax to facilitate appropriate counter lobbying.

Ok it’s a movie; it may or not have added some Hollywood-ness but the point is well made i.e. call it what it is.  So let’s give it a shot:  Let’s call the “Help to Buy” (HTB) relief the “Strict to Buy” relief (STB) so as to make it crystal clear that the conditions are very strict with no variability allowed.   

The STB scheme allows a taxpayer a refund of up to 5% of the purchase value of the qualifying residence subject to various Ts and Cs.  When it was originally announced it was to apply to those who had mortgages with a minimum 80% loan-to-value (LTV) ratio. The Central Bank told the then Minister for Finance that many first-timers took out mortgages with a ratio below 80%. The Minister amended the scheme in the Finance Bill and brought the required minimum LTV ratio for the scheme down to 70%.   

A recent decision of the Appeal Commissioners dealt with a taxpayer who ticked most of the conditions for the relief.  On 15 July 2016, the taxpayer signed a contract for the purchase of the apartment. On 2 August 2016, the transaction closed and the taxpayer entered into possession of the apartment.  So far so ok.

On 28 June of the following year, the taxpayer requested Revenue to verify his entitlement to a refund of income tax in accordance with the STB Scheme. The tax relief involved was €18,500 on an apartment costing €370,000.  On 29 June 2017, Revenue responded stating that he was not entitled to avail of relief under the STB scheme on the basis that he was outside the ‘qualifying period’ of the STB Scheme.  Revenue said that as the taxpayer signed the contract, and here’s the kicker, on 15 July 2016, four days prior to the commencement of the ‘qualifying period’ on 19 July 2016, he did not qualify for the relief – 96 hours too early!  Bear in mind he didn’t have access to the property until 2 August which was almost 2 weeks after the deadline.   

In the end the Commissioner said that the timing of the contract mattered in accordance with the law.  If the law had said “taking possession” of the property or the like, then the relief could have been given.  Solution: change the law.

I mention this because the STB came before the Appeal Commissioners a couple of times last year.  One of those decisions dealt with the position of a taxpayer who purchased her home in 2016 for €279,000. She drew down a mortgage on the property of €195,000 resulting in a loan-to-value ratio of 69.89% and not 70%.  The relief was denied.  

The bank rounded that ratio up to the nearest percentage and so the taxpayer said that her bank’s loan offer letter confirmed the LTV ratio as 70% as the.  Fair enough.  As I mentioned earlier the LTV ratio requirement in the law was deliberately reduced to 70% so that more first-time buyers could qualify The Appeal Commissioner said that “Had the Appellant’s mortgage been €195,300 as opposed to €195,000, she would have qualified” for the relief “all things being equal”.

In this instance, the amount of STB relief obliterated the €300 lacuna given the benefit to the taxpayer.   Proportionate? You’ll guess my thoughts.

The Appeal Commissioner said he didn’t have the authority to depart from LTV requirement of “not…less than 70%” which was written in the law.  I get that, the president signing legislation matters.  Rounding it up would have met the 70% requirement but the Commissioner couldn’t do that either because of the view that the rule of law matters and he felt bound by certain legal interpretative rules at the time.

But take a big step back for a second:  The IMF explained in their June country report on Ireland that depending on how the “B word” unfolds on Halloween then growth could slow to about 4% in 2019 as one-off factors driving MNEs’ net exports dissipate, and to gradually converge over the medium term to its potential rate of close to 3%. We saw the Summer Economic Statement which outlines the good version and the bad version of a budget in October depending on how Halloween turns out.   

The Summer Economic Statement spoke of other vulnerabilities to the outlook to include risks from disruption to world trade given on-going trade tensions, changes in international tax rules and risk relates to potential overheating as the economy nears full-employment.  As an aside, is early October the time to be deciding on the plan of action what may be coming as the year unfolds. Isn’t it time to pause and confirm to the best extent possible the sense of the possible storm coming. Incredible times deserve incredible measures.

But Back to STB and I mention all of the above because changing the law on the STB isn’t a new tax advantage it would fix what we already have.  Changes are needed to make it a more user friendly relief so that the relief’s raison d’etre can be fulfilled.  We’re in a property crisis so why not let Help to Buy do what is says on the tin?  Yes there may be uncertainty ahead but isn’t making progress on one of our most serious challenges a way to go?

Tom Maguire is a tax partner with Deloitte and his column on tax matters appear in the Sunday Business Post. The above column was first published on 30th June 2019.

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