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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 one are available for the
purchase as opposed to lease or hire) by companies only of
certain new energy efficient equipment approved by the Minister
for Communications, Energy and Natural Resources. This was
extended to individuals using the equipment for a trade from 1
January 2017.

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
  •  Gas vehicles and refuelling equipment €0

This regime is due to end on the 31st December 2017. Following a
change in Finance Act 2017, the expiry date has been extended to 31
December 2020.

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 is put to some other use, a balancing event is
deemed to have arisen, unless the properties are reinstated to
their intended use within a period of six months.

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.

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. It is subject to local authority certification and reporting requirements to revenue 

Dealing in Land

Debt forgiven after 13 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.

Individuals resident or ordinarily resident in Ireland are liable
to CGT on disposals.
Individuals resident or ordinarily resident but not domiciled in
Ireland are liable to CGT on gains arising on the disposal of
assets situated in Ireland and all foreign gains to the extent
that those gains are remitted to Ireland.
Individuals neither resident nor ordinarily resident are liable
to CGT on gains made on the disposal of certain specified
assets:
• Land and buildings in Ireland.
• Minerals in Ireland including related rights, and
exploration or exploitation rights in a designated area of
the continental shelf.
• Unquoted shares deriving their value, or the greater part
of their value, from such assets as mentioned above.
• Assets of a business carried on in Ireland through a
branch or agency.
An anti-avoidance provision imposes CGT on individuals who
dispose of shareholdings after 4 December 2002 during a
period of “temporary non-residence” (an absence of less than
five years).

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