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We need to make tax law easier in the housing crisis

Tom Maguire | Business Post

We have a lot going on right now with the Jurassic economy. Unfortunately, other crises haven’t gone the way of the dinosaurs and housing problems are still with us. The Programme for Government has said that home ownership should be within reach of all citizens. It explained that it would bring forward measures over the Government’s lifetime to enable home ownership for more people through increased supply and interventions that make home ownership more affordable.

It explains the Government’s overriding objective of its housing policy is to make homes more affordable. It goes on to outline various measures in dealing with home ownership to include progressing a state-backed affordable home purchase scheme and bringing forward a target for the delivery of affordable homes over the lifetime of the Government.

This column’s always been about tax and the programme also clarifies that it would “retain and expand the “Help to Buy” (HTB) scheme for new properties and self-build properties”. “Expand” is important here. I’ve previously written about the HTB’s appearance before the Tax Appeal Commission (TAC; think tax court) in these pages. Another case recently came before the TAC in relation to the relief. The relief was denied on the basis that legislative boxes weren’t ticked. This is where the “expand” bit comes in and by that I mean ensure that the HTB does what is says on the tin. Don’t get me wrong the rule of law can’t be obviated so the law needs to be expanded.

The HTB 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%.

In the recent TAC case, a building contractor, entered into a contract, as seller, with “B” as Purchaser, for the sale of a plot of ground. In general, decisions of the TAC are given on an anonymised basis to protect the identities of those concerned. Bear with me on the facts for a minute. The consideration for the sale was €120,000 and it was conditional upon the seller and the buyer entering into an agreement to build a house on the site. The contractor and B entered into an agreement for the house construction for €130,000.

Critically B is not and was not at any time a “qualifying contractor” for the purposes of the HTB. In early 2017, the taxpayer and his spouse decided to buy the entire property. In April 2017, the taxpayer learned that the building contractor was not a “qualifying contractor” either but it sorted that and it was a qualifying contractor prior to the taxpayer’s HTB claim.

Then in June 2017, the taxpayer and his spouse, as buyers, entered into a contract with B as seller, to buy the property together with two car park spaces. The price payable under the contract was €400,000. Revenue argued that building contractor’s only contract was with B, who had in turn entered into a separate contract with the taxpayer and his spouse to sell them the property. Revenue argued that as B was not a qualifying contractor (one of the Ts and Cs of the HTB) then the taxpayer wasn’t entitled to payment under the scheme.

Put another way, according to the above the taxpayer bought the property from the wrong person. This was the case even though B never completed the purchase as she did not enter into a Deed of Transfer or Assurance with the contractor nor was she ever registered as owner of the Property. The taxpayer highlighted that the dwellinghouse was not completed until after he and his spouse had entered into the Contract in June 2017, and that thereafter he and his spouse dealt directly with the contractor in relation to snagging issues. So there was no question that the house was new.

The taxpayer argued that the HTB was designed as an incentive for first-time buyers. So new house, first time borrower, just no HTB. I’m not commenting on the decision here but my point is that this is one example for the expansion of the relief such that a trip to a tax court can’t be on the cards. The Appeal Commissioner said he understood the taxpayer’s “view that he and his spouse are being denied relief under the Help to Buy scheme on a mere technicality, and that it is illogical, unfair and contrary to the spirit of the scheme to be denied relief on this basis.” However he went on to conclude that the law was the law.

Another TAC decision from a couple of years ago 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 HTB relief obliterated the €300 lacuna given the benefit to the taxpayer. Proportionate? You know my thoughts! The Appeal Commissioner said, similarly to the case I discussed earlier, that he didn’t have the authority to depart from LTV requirement of “not…less than 70%” which was written in the law. 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.

The answer to all this is to “expand” the law’s application so that the law’s theory and application of align. Solutions on housing shouldn’t be deferred and the HTB needs to be amended to let it do what it says on the tin.

Please note this article first featured in the Business Post on 19 July 2020 and was republished kindly with their permission on our website.

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