Pleas for VAT exemption ignored

THE Government has ignored pleas by builders to exempt first-time home buyers from a 1% VAT increase.

Thousands of new home buyers who have already signed contracts - but will not be closing the deal before the end of the year - will have to pay the new VAT hike announced in the Budget.

The 1% VAT rise - from 12.5% to 13.5%, announced in the Budget, pushes up the cost of a €200,000 home by 1,800. Up to 8,000 first-time buyers, who have already signed contracts, will have to pay the increased VAT charges because the Government chose not to ring fence deals already entered into but not closed.

While the old VAT rate will apply to part-payments already made, any monies still owing from January 1 next will be subject to the new rate.

A spokesperson for the Department of Finance claimed yesterday the extra charge will be outweighed by increased mortgage relief for first-time buyers over the extended seven-year period. But chief executive of the Irish Home Builders Association, Ciaran Ryan, said the department could have allowed people, who had already entered into a house purchase agreement before the budget, to pay VAT at the old rate.

"First-time buyers have already lost their grant. Now they have to pay another1,800. The only concession made by Finance Minister Charlie McCreevy is to extend the mortgage interest relief for first time buyers - that's €160 a year to a single person and €330 to a married couple. It's very small."

He pointed out that when VAT was last increased in 1993 provision was made to ring fence contracts signed before the budget. Mr McCreevy, should take similar steps, he said.

"You can't have people signing a contract and then finding out, through no fault of either party involved, that they have to pay more," he said. With the Government taking in excess of €3 billion in VAT and taxes from the new housing industry it could afford to let the old tax rate apply to contracts already signed.

Currently, 37% of the cost of a new house goes back to the State in tax of one form or another - €74,000 on a house costing €200,000.

Mr Ryan is also concerned about the huge cost to the industry in providing social housing: "There are more options for the house builder, but it is still going to cost the industry €350 million a year."