Tax Reliefs for First Time Buyers

Despite the collapse of our Property Market a few years back, individuals are finding it increasingly difficult to afford to purchase their first home.

There are, however, a number of incentives currently available to first time buyers purchasing new and second hand properties so as to help them get on the property ladder.

Help to Buy (“HTB”) Incentive

The Help to Buy Incentive, introduced in Budget 2017, is available to First Time buyers who purchase or self-build a new residential property valued at €500,000 or less (€600,000 where the property is purchased between 16th July and 31st December 2016).

It is designed to help First Time Buyers meet the deposit requirements set out in the mortgage lending rules by the Central Bank. With effect from 1st January 2017, a First Time Buyer requires a deposit of 10% of the purchase price of the property regardless of the value. The HTB Incentive allows purchasers to claim a refund of tax and Deposit Interest Retention Tax (“DIRT”) paid in the previous four years equal to 5% of the value of the property, up to a maximum of €400,000, implying a maximum relief of €20,000. Essentially, the individual will need to have paid tax in Ireland over the previous four year period, so if they have not worked in Ireland or have paid little to no Income Tax, the refund will be reduced.

In order to qualify for the scheme, the property must have been purchased or built as the individual’s main residence. It must be a new build with the construction subject to VAT in Ireland. In the case of a purchase from a developer/contractor, the relevant developer/contractor must be approved by the Revenue Commissioners and will be required to verify the details of your claim. In the case of a self-build property, this verification process is to be carried out by a solicitor who is registered/approved by the Revenue Commissioners under the scheme.

A loan of greater than 70% of the value of the property must be drawn down on the property and this loan must be solely for the purchase or building of the property.

Whilst there are various conditions, it can prove to be a very helpful initiative.

Refund of Deposit Interest Retention Tax (“DIRT”)

First time buyers who purchase or self-build a house/apartment to live in between 14 October 2014 and 31 December 2017 can apply for a refund of any DIRT paid on their savings in the previous 48 months before completion from both individual and joint accounts, if co-owners.

The first time buyer must not have, individually or jointly, previously purchased or built a house/apartment, and must not be buying or building for investment purposes, but to reside in the property as their home.

The maximum savings on which a refund of DIRT can be claimed is based on 20% of the purchase price or completion value i.e. if the purchase price of the house was €200,000 then the maximum savings on which you can claim your DIRT refund on is €40,000 (i.e. €200,000 x 20%).

Rent-A-Room Relief

A relief that may assist with lessening the burden of mortgage repayments is the ‘rent-a-room’ relief. This allows you to rent out a room in your house for up to €12,000 each year free of Income Tax, PRSI and USC. However, if the income goes over €12,000 you will be taxed on it all.

This relief also facilitates what are often known as ‘digs’ for students, as income from ancillary services such as providing meals or laundry are allowable i.e. if the income for both the accommodation and the ancillary services come under €12,000 for the year. Also, the relief allows for a self-contained unit, such as a converted garage, as long as it is attached to the main residence.

The relief only applies to long term lettings and not short term guest accommodation, so lettings via sites such as ‘Air B&B’ would not be allowable.

Tax Free Gifts

If saving for a mortgage deposit, a renovation or help with your Mortgage repayments, then the small gifts exemption can be of value. An individual can receive €3,000 from another individual tax free in any tax year. So for example, two parents could give their daughter and son-in-law €12,000 tax free in any one tax year to assist with, say, a house deposit, fit-out or mortgage repayments.

Gift of Site to a Child

An individual can receive a gift of a site for a house from their parents without payment of Capital Acquisitions Tax (“CAT”) if the market value of the site is under the ‘Group A Lifetime Threshold’ -currently at €310,000. Furthermore, parents will not have to pay any Capital Gains Tax (“CGT”) on this transfer either, on the condition that the individual is using the site to build their Principle Private Residence (‘PPR’), the market value of the site does not exceed €500,000, and the area does not exceed one acre. Stamp duty will, however, have to be paid.

Mairead O'Grady

Taxation Partner

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