Proposed tax on property expenditure to be deferred

TOUGH measures aimed at taxing property-related expenditure will now be deferred, Minister for Finance Brian Lenihan said yesterday.

The long-awaited Finance Bill yesterday outlined how it would give effect to plans set out in the budget, including the phasing out of tax breaks for hotels, section 23 homes, sports facilities and private hospitals, among others.

But Minister Lenihan said the possible impact of the measures would first need to be examined in an economic impact assessment. Even then, the measures could only be introduced 60 days after the publication of that assessment and then take effect in the following tax year.

Minister Lenihan admitted the decision had been taken following concerns that the plans could have a negative impact on the real economy and on jobs.

Some property owners had said following the budget that they faced the possibility of insolvency if reliefs were scrapped.

Under the budgetary provisions, landlords of Section 23 properties and investors in capital allowance schemes, such as hospitals, universities and nursing homes, would have faced an increased tax bill this autumn.

Investors could only offset capital allowances against rental income from their Section 23 property, rather than on all properties owned, and many experts had warned that this would also have had a knock-on effect on hospitals, hotels and colleges who might have been liable for the increased taxes.

Irish Taxation Institute President Andrew Cullen welcomed the news that the measures would first undergo an assessment.

“The Institute’s submission to the Minister for Finance stressed that the immediate withdrawal of reliefs would undoubtedly lead to both business closures and job losses in provincial and small towns throughout Ireland,” he said. “Taxpayers who may also have seen their overdraft facilities withdrawn in recent times, would have no prospect of funding the additional tax arising and also funding the borrowings on the investments.”

Tim O’Rahilly, a partner in the Tax and Legal Services at PriceWaterhouseCoopers, said the measures were likely to still be introduced, but that the deferral had allowed people “breathing space”.

“People would have found it difficult to meet that tax payment and interest and capital repayments to lending institutions,” he said. “There is a broad spectrum of people, public servants, PAYE workers, etc that would have been affected.”

The cost of the reliefs to the Exchequer is currently estimated at €400m annually, and under the proposals those affected would see their tax rate raised from 38.8% to 52% on the profit generated by non Section 23 properties or properties not covered by the reliefs.

The bill will go through the Oireachtas in the coming weeks and is seen as one of the last acts of the current government before the Election on March 11.

John Heffernan, Tax Partner at Ernst and Young, said the announcement yesterday meant it was likely to be 2013 before any impact would be felt.