In keeping with the Government's Strategy 2020: A Strategy for a Renewed Construction Sector, Budget 2015 introduced a number of positive changes which should assist the Property and Construction sectors. The forthcoming Planning Bill will include further initiatives, particularly to encourage social housing.
CGT Relief Window Closing!
The relief was introduced in 2011 to allow purchasers avail of a seven year exemption from capital gains tax. Any purchaser wishing to avail of this relief must enter into a binding unconditional Contract for Sale on or before 31 December 2014. The initiative in 2011 was to encourage activity in the market. As the number and value of property transactions have increased dramatically since then, the time is right to close the window.
80% Windfall Tax Abolished
The 80% windfall tax applying to profits on the disposal or development of rezoned land will be abolished with effect from 1 January 2015. The standard rate of tax on capital gains of 33% will apply instead.
Current legislation provides that all changes in land zoning will result in this land being liable for an 80% windfall tax rate when sold. Commentators have stated that this super tax has contributed to the lack of development of new housing. The abolition of this tax is expected to kick start the construction industry in rural and urban areas and assist in solving the shortage of homes on the market at present.
First Time Buyers
Immediately effective is the introduction of a Deposit Interest Retention Tax refund on savings used to purchase a home by first time buyers. The relief will run until the end of December 2017 in respect of savings up to a maximum of 20% of the purchase price.
This means that first time buyers will be permitted to retain 100% of interest they earn on their savings. Banks will introduce saving packages to encourage prospective first time buyers to save.
Planning Levies
There will be a public consultation and if landowners are holding onto zoned or serviced development lands for higher prices the Minister for Finance will examine what taxation measures may be taken to penalise such landowners.
Mr Noonan's colleague, Alan Kelly, the Minister for the Environment, Community and Local Government, has already announced some reforms to the planning system to be introduced through the Planning Bill. The new legislation is expected to introduce a new levy to be charged to landowners with vacant sites or empty buildings. It is expected that the levy will start at 3% of the market value of the site or building and will increase by 1% each year to a maximum of 6%.
Currently, occupied commercial property and habitable unoccupied property are subject to commercial rates. Vacant development land and uninhabitable unoccupied property are not liable for commercial rates. By introducing a new levy, the Government aims to encourage developers to put vacant residential land into use to ease the housing crisis.
The levies are expected to apply to landowners who fail to act on planning permissions already granted within a particular time frame and landowners who fail to use their vacant sites in line with a city or county development plan. Local authorities, in urban centres of greater than 3,000 population, will have discretion to introduce the measures to impose the levies.
It is worth noting that the levy will attach to the property, not the owner, until such time as it is paid to the local authority. This means that the cost will be pass to a purchaser of the property if the charge is not paid before the sale completes.
Social Housing
Mr Brendan Howlin, the Minister for Public Expenditure and Reform, yesterday announced the intention of the Government to commit €2.2billion to social housing over the next three years. More specifically, Mr Howlin announced that €800million of this investment will be allocated to the 2015 housing programme, €450million of this being capital expenditure.
This investment by the Government is expected to deliver 10,000 housing units by 2018.
Analysis of the proposed reform to Part V will wait until the Planning Bill is published. In his announcement earlier this month, Mr. Kelly confirmed that new Part V proposals will be introduced which will require developers to provide up to 10% of their housing units for social housing. The new proposals will seek to ensure that the social housing units will be located predominantly on the site of the original development. Previously, developers could substitute social housing obligations with cash payments to local authorities.
In addition, developers will be required to develop a site within a timeframe or they will lose their planning permission. Currently, the duration of a planning permission is in general 5 years and where substantial works are carried out during that period, the planning authority may extend the period of the planning permission subject to certain requirements.
Other aspects of Budget 2015 to note include the threshold for exempt income under the rent-a-room relief scheme which is being increased to €12,000 and the extension of the Home Renovation Incentive ("HRI"). This is a tax scheme which was introduced last year to provide a tax credit to homeowners who carry out renovation and improvement works on their principal private residence in 2013 and 2014. The credit is calculated at 13.5% of all qualifying expenditure over €5,000 and up to a maximum of €30,000. HRI is being extended to include rental properties owned by landlords subject to income tax and will apply to works carried out from today to 31 December 2015.
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