How you can reclaim 13.5pc VAT on property renovation
Q
I have bought a property which needs substantial renovation. Can you explain the scheme for claiming back tax on this? When does the scheme expire? (This is important as I may need to apply for planning permission.)
A
The Home Renovation Incentive scheme enables householders to reclaim 13.5% VAT spent on repairing, renovating or improving their home. The work usually must be done between October 25, 2013, and December 31, 2015. If planning permission is in place by December 31, 2015, payments made in the following three months will qualify.
There’s no upper limit on the value of the project but the maximum sum on which VAT can be reclaimed is €30,000 (before VAT). You must spend a minimum of €5,000 (including VAT) and this can be spread out among several contractors.
Q
It looks like I will be getting a divorce in the not-too-distant future. Can I write off maintenance payments and child support against tax? What are the criteria for claiming a Single Parent Tax Credit?
A
In general, payments made under a legally enforceable maintenance agreement will be deducted from your income for tax purposes. But child support is not tax-deductible.
Separated parents such as yourself were able to claim the Single Parents Tax Credit – which was available to both parents. But this was abolished at the end of last year.
It has been replaced by the Single Person Child Carer Credit, which can be claimed only by the primary carer.
Q
If I give you some specific figures, can you work out how much interest I can write off against tax on the rental income? I am borrowing €192,000 at an interest rate of around 4.6%. The repayments will be €1,056 per month. I should get a rental income of €1,300 per month. What are the pros and cons of this?
A
Your interest bill would be roughly €736 a month. For starters, you could write off 75% of this, or €552. Your tax bill, based on writing off interest alone, would therefore be around €307 a month (41% of €1,300 less €552).
So, theoretically, you would be paying €1,367 in tax and mortgage repayments and getting €1,300 in rental income
But you will have other expenses too such as such as furniture, decorating, agency fees, advertising, etc. These can also be written off against tax. Pros are:
As the property market rises, you should make a tidy profit;
In 25 years you will own the house;
Rental income will increase as your repayments stay the same; Potential cons include: Unruly or unreliable tenants; Potential periods with no rent; Capital gains tax of 33% on any profits from a sale;
The interest element of the repayment will gradually decrease, eroding the tax advantage;
The property value could fall.
Q
I have lived in a rental apartment for over six years. Can I claim tax relief on my rent? I heard that this has been abolished but can be claimed if you are in longterm rental accommodation.
A
You can claim rent relief only if you were renting on December 7, 2010. Relief can be claimed at the standard tax rate (20%) up to maximum amounts that depend on your age and marital status. So if you’re single and under 55, the maximum is €800; if you’re single and over 55, it’s €1,600; if you’re married or widowed and under 55, it’s €1,600; and if you’re married or widowed and over 55 it’s €3,200.
You’ll need a Rent 1 form, which is available from revenue.ie.
Further details can be found at http://www.revenue.ie/en/tax/it/ reliefs/hri/index.html.
Colm Rapple is away