Lisney made a number of observations on Budget 2017.

Residential Construction

Given that the main reason behind the housing crisis is a lack of supply there are no quick fixes available that the Government can introduce in Budget 2017. While some measures have been introduced recently to help alleviate the crisis, the situation has continued to worsen. To meet the Government’s pledge to provide at least 125,000 homes by 2021, 25,000 new homes are needed every year. However, only about 14,000 are expected to be completed by the end of the year.

A new scheme introducing an income tax rebate aimed at enabling first-time buyers to accumulate cash to cover a deposit was announced. The scheme is essentially designed to stimulate the building industry, as the grant will be given to those who buy new homes, not second-hand houses and apartments. The building of new starter homes has been unfeasible in most markets for some time due to difficulty to secure mortgages and banks being hesitant to provide finance.
It is limited to 5% of the value of the home up to a ceiling of €400,000; which would work out at a €20,000 tax rebate. The same €20,000 maximum figure will apply to houses valued between €400,000 and €600,000. The new scheme will not apply to properties in excess of €600,000. The rebate will be of income tax paid over the previous four tax years. The applicants must also take out a mortgage of at least 80% of the purchase price to qualify. The new scheme will be back-dated to July and will extend to the end of 2019.

At first glance, this measure looked better than the detail suggests. Potential purchasers of the scheme will have to file tax returns for the previous four years in order to qualify for the scheme which limits the attraction for people returning to Ireland looking to purchase a new property. People who have previously owned residential property which they bought and sold or inherited will also be excluded; whether it was their residence or not. Therefore the scheme may have a negative impact on current rising prices in the second-hand home market, increasing demand further.

This intervention is also negative for owners of existing starter homes, who will see an adverse impact on the liquidity of their property. Owners of homes in schemes where new properties are also for sale will feel particularly hard done by, as they will not be competing on a level pitch.

It is disappointing that initiatives to make development viable, such as reducing VAT on affordable housing, were not addressed. We believe there should have been a bigger focus on development resources.

Additionally, the home renovation incentive scheme, which had been due to run out by the end of the year, will be extended by two years; providing tax relief to home owners.

Special Purpose Vehicles (SPVs)

In September 2016, the Minister for Finance published proposed amendments to Section 110 of the Taxes Consolidation Act 1997. The amendments relate to tax practices by Section 110 companies which hold debt interests secured on (or deriving most of their value from) Irish real estate and directly held Irish real estate assets through Section 110 Special Purpose Vehicles (SPVs) and Irish Qualifying Investor Alternative Investment Funds (QIAIFs).
A significant number of Irish and International Investors have been using tax efficient structures to purchase loans and direct real estate. The market eagerly awaits the detail in the upcoming Finance Bill on this as there is an expectation that certain investments will no longer be able to use some of these structures. The lack of clarity since the announcement in early September on the issue is causing concern for owners who may look to sell and those in the process of buying. Significant changes here could detrimentally impact liquidity and pricing.

Capital Acquisitions Tax

The capital acquisitions tax threshold for the tax-free inheritance of the family home was increased by €30,000, to €310,000. Lisney believe the threshold is still too low. The new level of €300,000 is well below the average house price in Dublin in 2016; which is approximately €385,000. The tax bill on the death of a parent for many can be large and given that the threshold was in excess of €542,000 in 2009, we believe it should have increased further in Budget 2017.

Private Residential Investors & Universal Social Charge (USC)

The reduction of the existing 1.0%, 3.0% and 5.5% USC rates to 0.5%, 2.5% and 5.0% respectively is welcome.

These changes are relevant to private residential investors. All rent received by a landlord is subject to PRSI and USC and in recent years landlords have had their mortgage interest relief reduced to 75%. Positively, mortgage interest relief for landlords will be increased to 80% in 2017. A further 5% will be added each year until 100% is fully restored.

The rent-a-room relief is to be increased. With a higher tax ceiling of €14,000(from €12,000), the government hopes to encourage homeowners to rent out a vacant room. This should encourage a more efficient use of the housing stock across the country.

To assist in the current rental crisis, private investors need to be encouraged to remain in the market. We believe that increased measures are required, such as removing residential rent from the USC net completely.

Corporation Tax & VAT

Lisney welcomes the government’s commitment to maintaining the 12.5% corporate tax rate, which is paramount for inward investment and expansion of multi-nationals. In addition, it is positive for the tourism sector that the Government has maintained the 9% VAT rate for the hospitality sector. This is particularly important now due to the weakness in Sterling following Brexit as the UK accounts for the largest amount of inward tourism in Ireland.

BREXIT

There is no simple Budget answer to address what the impact of Brexit may be. While difficult within the constraints of trying to balance the budget, greater alignment with UK and other European income tax rates may have to be looked at in order to make Ireland more attractive for key individuals looking to relocate from the UK in the coming years.