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Capital Allowances

Capital Allowances are granted for tax purposes in lieu of depreciation.

Annual Allowance – Plant and Machinery

An annual allowance known as Wear & Tear allowance is granted for plant and machinery used in the trade in an accounting period.

The write off period for annual wear and tear allowances is eight years for expenditure incurred after 4 December 2002, i.e. 12½ % per annum on a straight line basis.

Balancing allowances or charges may arise where assets which have qualified for capital allowances are disposed of. Where the proceeds of the sale are greater than the tax written down value, a balancing charge arises or where the proceeds of disposal are less than the tax written down value of the asset then a balancing allowance arises.

Balancing charges will not arise where the proceeds on the disposal of an individual asset are less than €2,000. This will not apply to disposals between connected persons

Energy efficient equipment

Accelerated allowances of 100% in year 1 will be available for the purchase (as opposed to leased, let or hired) by companies only of certain new energy efficient equipment approved by the Minister for communications, Energy and Natural resources.

The list of approved expenditure has certain classes of minimum spend as follows:

  • Motors and drivers                                                                                       €1,000
  • Lighting                                                                                                          €3,000
  • Building energy management systems                                                    €5,000
  • Information and Communication Technology                                       €1,000
  • Heating and electricity provision                                                              €1,000
  • Process and heating, ventilation and air conditioning systems          €1,000
  • Electric and alternative fuel vehicles                                                        €1,000
  • Refrigeration and cooling systems*                                                          €1,000
  • Process and heating, ventilation and air-con systems*                        €1,000
  • Electric and alternative fuel vehicles*                                                      €1,000

This regime is due to end on the 31st December 2017.

Intellectual Property Incentives

Tax relief on capital expenditure incurred in the acquisition of intellectual property including goodwill and customer lists (after 1 January 2015) is available in certain circumstances from 23 October 2014. The company claims allowances at either a 7% rate or a rate which effectively matches the amortisation or impairment of the specified intangible asset in the accounts. The relief is limited to the relevant trading income derived from the assets, and will be withdrawn by way of a balancing charge where the assets are disposed of within a five year period of the date of acquisition.

A new acquirer of the asset may claim any unexpired at the time it acquires the asset.

Lessors

Lessors of plant and machinery are also entitled to the allowance if the burden of Wear & Tear on the asset is borne by them.

Motor Vehicles

The annual allowance for motor vehicles (other than taxis and short term hire vehicles – see below) is 12.5% on a straight line basis subject to a maximum qualifying cost of €24,000 for motor vehicles. The availability of capital allowances will depend on the level of C02 emissions of cars. The capital allowance or lease deduction and proportionate balancing allowance or charge depends on the categories of emissions as follows:

Carbon dioxide Emission Level Category/Classification Capital Allowance value threshold Leasing Restriction Limit
Up to 155g/Km A/B/C €24,000* €24,000*
156g-190g/Km D/E Lower of 50% of €24,000 or cost Lower of 50% of €24,000 or cost
>190g/Km F/G No allowances No allowances

The €24,000 limit applies irrespective of cost of the vehicle.

Electric Cars

There is an enhanced scheme of Capital Allowances for expenditure incurred on a car which is electric or runs on alternative fuels.  An accelerated allowance of 100% is given by reference to the lower of the cost of the car and € 24,000.  This provision is subject to a ministerial order.

Taxis

A taxi or short-term hire car is given an unrestricted write off of the purchase price at 40% per annum on a reducing balance basis. Existing taxi licence owners may write off the cost of their licence as a capital allowance against trading income.  The taxi licence is treated as plant and machinery and the rates applicable above apply.

Sea Fishing Boats

A Special regime of allowances applies to expenditure on polyvalent and beam trawl fishing boats where the expenditure is certified by BIM. The allowances are available at the rate of 50% in year 1 and 20% of the balance for 5 years.

If a balancing allowance arises as a result of a compensation for the decommissioning of white fishing vessels, the balancing charge will be spread equally over five years commencing in the year in which the compensation is paid.

Industrial Buildings

The annual allowance for Industrial Buildings is 4% (available on a straight-line basis) on the net cost of the building. It is available to whoever holds the “relevant interest” in relation to the construction expenditure. Both owner-occupiers and lessors of Industrial Buildings are entitled to claim this allowance. Accelerated allowances are available in certain circumstances.

For an investor, any capital allowances unutilised against rental income of passive investors may be offset against non-rental income, this is subject to a maximum of €31,750 per annum.

There are anti-avoidance provisions which restrict capital allowances available to a subsequent purchaser of an industrial building on the disposal of industrial buildings from a company to an individual.

Anti-avoidance provisions also disallow interest relief on money lent to, or invested in, a company to acquire a premises from another company where tax relief has not been fully utilised. The provision restricts the interest relief to the individuals return from the company.

Time Limits:

There is a two year deadline by which a developer must sell a building which qualifies for capital allowances in order for the purchaser to be entitled to base their capital allowances claim on the purchase price (rather than the developer’s original construction cost).

Property Reliefs USC Surcharge:

A USC surcharge has been introduced for individuals who have gross income equal to or greater than €100,000.

The surcharge is in the form of an additional USC of 5% of the amount of income sheltered by property reliefs in a tax year.

Investors who claim accelerated capital allowances and investors in residential property projects are subject to the
surcharge. It does not apply to owner occupiers.

Accelerated Capital Allowances Schemes

Investors in an accelerated capital allowances scheme will no longer be able to use capital allowances beyond the original tax life of the particular scheme where the tax life ends after 1 January 2015.  Therefore the last claim can be made on the later of the end of the tax life of the building and the end of 2014.

 

Tax Life of a Building

The tax life of a building is normally ten years where accelerated capital allowances are claimed.

The retention period for certain facilities listed below has been extended from ten years to fifteen years, i.e. tax relief availed of will now be clawed back if a property is disposed of within fifteen years where the property was first used after 1 February 2007. This will also impact on the tax life for a subsequent purchaser who will now be entitled to write the expenditure off over a fifteen-year period. This provision impacts the following properties:

  • Qualifying hospitals
  • Convalescent homes
  • Nursing homes
  • Qualifying residential units
  • Childcare facilities

Deemed Balancing Event:

Where any of the facilities listed above cease to be used as described and are put to some other use a balancing event will be deemed to have arisen, unless the properties are reinstated to their intended use within a period of six months. This provision also applies to the new qualifying mental health centres.

Hotels

The maximum Capital Allowances available for offset against non-rental income by passive individual investors is €31,750 except in the case of hotels, where no offset against non-rental income applies. Hotels located in counties Cavan, Donegal, Leitrim, Mayo, Monaghan, Roscommon and Sligo are not subject to any capital allowance restriction.

Capital allowances are not available in respect of capital expenditure incurred on or after 20 March 2001 on the construction or refurbishment of hotels where any part of that expenditure is met by way of grant assistance.

Hotels must be officially registered with the register of hotels, the registers must be kept under the Tourist Traffic Act, if the registration is not in place then there will be no entitlement to capital allowances.

Allowances once approved, operate from the date of first use as a hotel.

Camping and Caravan sites

 For expenditure incurred after 1 January 2008 on buildings and structures (including toilets, showers, laundry rooms, canteens etc.) comprised in, and in use as part of, premises which are included in the register of caravan sites  allowances of 4% per annum will be available i.e. the tax life is 25 years.

This measure effectively applies the same relief to camping facilities as it does to hotels, holiday camps, guest houses and holiday hostels which are registered with Failte Ireland.

Multi-Storey Car parks

Defined as a building of three or more storeys for use as a car park to the general public for which a fee is payable. The annual allowance, which may be claimed, is 4% on a straight-line basis. Accelerated allowances are also available in certain designated areas for owner-occupiers. Allowances no longer apply to car parks in the Cork and Dublin areas.
 

Nursing and Convalescent Homes

Capital expenditure incurred on the construction, extension or refurbishment of a private nursing home or convalescent home qualifies for capital allowances as follows:

Years 1-6 15%
Year 7 10%

These capital allowances are subject to the overall annual limit of €31,750, which an individual passive investor can claim against non-rental income.

The building must remain a nursing/convalescent home for 15 years: if it does not, the allowances will be lost.

Residential units may be comprised in a larger building consisting of one or more storey’s provided certain fire safety standards are complied with. In addition the number of qualifying residential units associated with a registered nursing home is reduced from 20 to 10.

Palliative care units

A new scheme of Capital allowances will be available for expenditure on facilities with a minimum of 8 (previously 20) in-patient palliative care beds which have been approved by the Health Service Executive. The allowances will be available at a rate of 15% per annum for the first 6 years and 10% in year 7 (net of any grant or other financial assistance)with a clawback where the facility ceases to be used for the purposes of palliative care within 15 years of its first use.

Childcare Facilities

Capital expenditure incurred on the construction or conversion of a building used for childcare qualifies for capital allowances as follows:

Years 1-6 15%
Year 7 10%

Accelerated capital allowances of 100% are available to owners and investors. For investors, the allowance that may be offset against other income is limited to €31,750. There is also an exclusion for property developers.

A minimum 15 year holding period applies where the childcare facility is first used on or after 1 February 2007, otherwise a 10 year minimum holding period applies.

This scheme will terminate on 30 September 2010, or to 31 March 2011 or 2012 in respect of certain pipeline projects.

The 30 March 2011 deadline applies where the work does not require planning permission and not less than 30% of the total construction conversion or refurbishment costs have been incurred on or before 30 September 2010.

The 30 March 2012 deadline applies where planning permission is required, and the application was received and acknowledged by 30 September 2010, and the application is not invalid.

See restrictions for property developers outlined below

Student Accommodation

100% relief is available on the provision of student accommodation. The relief operates to allow the offset of the capital expenditure against all Irish rental income of the owner. The accommodation must meet certain conditions and conform to guidelines drafted by the Department of Education. The accommodation must be immediately accessible to the college.

College buildings

Construction expenditure on college buildings may also qualify for an annual (deemed) industrial building allowance of 15% in each of the first six years and 10% in year 7.

Private Hospitals/Psychiatric Hospitals & Sports Injury Clinics

An allowance, similar to hotel capital allowances is available for certain hospital buildings and private sports injury clinics. The allowances are granted at a rate of 15% per annum for 6 years and 10% in year 7.

Relief may not be claimed by corporate investors, trusts, property developers, individuals involved in the operation or management of the facility.

Where an individual investor falls into any of the categories of investors listed above then relief will be denied to that person only, and not any other investor simply by way of being part of a group of investors.

Designated Areas

Tax Designated Areas

Tax incentive schemes have developed over the years to encourage development in derelict areas in Dublin and a number of other urban centres. In addition, allowances are/were available for Seaside Resort Areas, Islands and Rural & Town Renewal areas.

The special incentives are available in respect of certain properties in what are termed designated areas (and certain designated streets) in Dublin and in specified areas outside Dublin . There are a number of different designated schemes. The original scheme was introduced in 1986. A new scheme was introduced in 1994, with a further revised scheme in 1998.

Urban Renewal Scheme

The areas were selected based on submissions by local authorities. Double rent relief is not available under this scheme.

Residential Reliefs

The type of relief’s are:

“Section 23” – Cost of construction, refurbishment or conversion of rented residential accommodation can be offset against all rental income.

Owner/Occupier Relief – Allowance of 50% of cost of construction (100% on refurbishment) will be deducted from the individual’s total income by an annual deduction of 5% (10% for refurbishment) for 10 years.

Industrial and Commercial Allowances

Industrial Buildings Owner Occupiers Lessors
Free Depreciation 50% Nil
Initial Allowance 50% 50%
Annual Allowance 4% 4%
Maximum Allowance 100% 100%

Commercial Buildings/Multi Storey Car Parks

Owner Occupiers Lessors
Free Depreciation 50% Nil
Max 1st Year Allowance 50% 50%
Annual Allowance 4% 4%
Maximum Allowance 100% 100%

Capital allowances are denied to property developers and in respect of properties used in certain specified industries and large projects. Allowances may also be denied in respect of office developments and multi-storey car parks at the discretion of the Minister.

 

Seaside Resort Areas

Capital allowances were available in respect of capital expenditure incurred on the construction or refurbishment of tourism buildings in the period from 1 July 1995 to 31 December 1999 subject to certain conditions.

Tip: While the original scheme has lapsed, relief may still be available on the purchase of one of the units where the tax life has not yet expired. The relief will be the original amount allowed over the remaining tax life of the building.

Rural Renewal Relief

This scheme introduced tax incentives in counties Leitrim, Longford and parts of Cavan, Roscommon and Sligo .

The relief’s are similar to those for industrial and commercial buildings under the Urban Renewal Scheme. Double rent relief is not available.

Residential relief’s are available in the form of Section 23 relief on the cost of construction, refurbishment or conversion of rented residential accommodation.

Owner-occupier relief on the construction or refurbishment of private residential accommodation is also available.

Capital allowances will be denied to property developers and in respect of properties used in certain specified industries, including industries employing more than 250 people.

Town Renewal Scheme

An Urban Renewal Relief for 101 towns across Ireland was introduced in 2000. It provides for the usual relief’s – Industrial Building Allowance, Commercial Buildings , Capital Allowances, Section 23 Relief and Owner-Occupier Allowances. The relief’s are similar to those for industrial and commercial buildings under the Urban Renewal Scheme 1998 (see above).

Residential relief’s are available in the form of Section 23 relief on the cost of construction, refurbishment or conversion of rented residential accommodation.

Capital allowances will be denied to property developers and in respect of offices and properties used in certain specifies industries and in large projects.

Living Over The Shop (LOTS)

Tax incentives are available for the use of space over commercial property for residential purposes. The incentives apply in Dublin , Cork , Galway, Limerick and Waterford . S.23 relief and owner-occupier residential relief’s will be available. In some circumstances, accelerated capital allowances will be available for associated commercial development. The qualifying period runs from 6 April 2001 to 31 December 2004.

The Finance Act 2004 extended to 31 July 2006 the deadline date for this scheme where full planning permission has been applied for before 31 December 2004.

Certain exclusions apply to property developers.

Park & Ride

Owner occupiers qualify for 100% accelerated allowances on park and ride and related commercial premises in the period ended 31 December 2004. Passive investors are entitled to claim 50% allowances in year one and 4% p.a. thereafter. Residential property reliefs’ associated with the park and ride facility are also available, these take the form of S23 type relief.

Certain exclusions apply to property developers.

Refurbishment of certain Rented Accommodation

A tax deduction is granted for refurbishment of certain residential properties. The premises must, both before and after the refurbishment, contain one or more residential units to qualify for this relief. Such refurbishment is available for offset at 15% p.a. for years 1 – 6 and 10% in year 7. The deduction is available against all rental income. This refurbishment relief is available in respect of all qualifying premises, irrespective of where they are located.

Tip: This relief used in conjunction with interest relief can be very valuable

Property Developers

Property developers or persons connected with property developers are excluded from claiming capital allowances where either the property developer or the connected person holds a relevant interest in the property and either party incurred expenditure on the construction of certain properties.

Specific exclusions apply to:

  • Qualifying hospitals
  • Qualifying mental health facilities
  • Certain childcare facilities
  • Buildings within a qualifying Mid Shannon area in use as a holiday camp/other tourist facility.

Care should be exercised where advising developers in claiming capital allowances.

Living City Incentive

An incentive scheme for certain special regeneration areas which focus on the conversion and refurbishment of dilapidated Georgian Houses constructed before 1915 in urban areas was introduced in 2013. The initiative was piloted in Waterford and Limerick and has now been extended to Cork, Galway, Kilkenny and Dublin. The relief, originally available for owner occupier and commercial properties, has been extended to landlords in the Finance Act 2016. The incentive is due to expire in May 2020.

Owner occupiers: 10% p.a. for 10 years where expenditure >10% of the market value of the building.

Commercial: 15% p.a. for six years and 10% in year 7 where expenditure >10% of building

There is an expenditure limit of €400,000 for individuals and €1.6m for Companies with a maximum aggregate relief of €200,000 for individuals and companies.

A qualifying premises is one in use by the owner occupier or let on bonafide terms for rental of goods or provision of services.

This is subject to local authority certification and reporting requirements to Revenue.

Dealing in Land

• Debt forgiven after 12 February 2013 for debt incurred on development land will be taxable as income.
• For losses occurring after 13 February 2013 a loss on the value of property must be realised in order to claim loss relief.
• After 13 February 2013, interest must be paid in order to obtain tax relief.

Windfall Tax on Land Rezoning

The 80% tax that applied to windfall gains on land rezoning has been abolished for disposals made after the 2014 year of assessment or for accounting periods beginning after 31 December 2014.

Property Tax Tips:

  • Maximise your claim for property relief in 2011 prior to the pending restrictions outlined above.
  • In general in addition to any incentives available, relief is also available for interest on monies borrowed to purchase property.
  • The general restriction of €31,750 allowed against non-rental income (that applies to passive investments) is available for both husbands and wives, where there is sufficient taxable income spouses ought to invest in a property jointly.
  • As the €31,750 limit does not apply to rental income, convert as much as possible to rental income.
  • Where possible e.g. in the case of crèches and nursing homes consider becoming an active partner in the property investment as the €31,750 limit does not apply.
  • Consider structuring a partnership with a company where low tax rates may be availed of for income generated, and part of the capital growth in the property may be retained personally.
  • Always be careful when purchasing a tax incentivised property as the relief’s available are generally built into the price.
  • Be aware of the high earners restriction allowed for reliefs which is limited to €80,000.

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