Can I offset cost of repairs against tax?
QI purchased a house in 1974 and it has been rented continuously since then. During that period, I have carried out numerous renovations on the house, ie rewired it, put in central heating, replaced the bathroom and kitchen, put on a new roof, did some internal insulation and other small jobs – eg, replacing internal doors etc. None of these improvements were allowable against rental income for tax purposes. I now intend to sell the house along with several others that I own due to excessive regulation of the rental business. Unfortunately, I do not have receipts for this work as it was done more than seven years ago.
Do I have any chance of offsetting these repairs against a large capital gain? Does Revenue accept that work would have to be done on a house over 44 years and allow for this?
ACapital expenditure incurred on additions, alterations, repairs or improvements to the premises, unless allowable under an incentive scheme or incurred on fixtures and fittings, is normally inadmissible as a deduction from rental income under Case V of Schedule D.
However, such expenditure may be regarded as enhancement expenditure which is an allowable expenditure for capital gains tax (CGT) as defined under section 552 of the Taxes Consolidated Act (TCA) 1997. This section effectively defines enhancement expenditure as additional costs wholly and exclusively incurred on the asset, after the date of acquisition, which adds value to the property and is reflected in the state and nature of the asset at the date of sale. However, it does not include routine maintenance such as painting.
It is important to note that to qualify as a deduction for enhancement expenditure, the sole test of allowability is whether the purpose in incurring the expenditure was to enhance the value of the asset. Also, the expenditure must not have proved futile or have wasted away before the disposal of the property. For example if, during the period of ownership, a tennis court was installed and subsequently removed and replaced with a swimming pool. While the cost of the swimming pool should be an allowable deduction for CGT purposes, the cost of installing the tennis court is not allowable as it was not reflected in the state of the land on its disposal.
Strictly, in order to claim a deduction, all relevant supporting documentation confirming the amounts of enhancement expenditure claimed should be available. If this is not available, Revenue is likely to challenge the deduction for the expense. A successful challenge from Revenue will result in unpaid taxes which will also be subject to interest and penalties. However, if the work completed is clearly reflected in the current state of the property (eg an extension) and it is evident that an additional expense was incurred, we would suggest you discuss with your tax adviser whether a basis may exist to claim a deduction for these costs. Susan Blake Ireland is tax manager with RSM
QI am in rented accommodation and now contemplating progressing to owner occupation. We would be interested in building our home rather than buying a property for various reasons but mainly to have more space and bigger garden. Planning laws appear to be very restrictive in relation to permissions for new housing. What advice would you have for someone considering embarking on this route as we do not want to find ourselves in a position of spending too much of our savings on professional fees with the risk of not getting planning permission.
APlanning authorities generally favour urban development, rather than rural. There is logic to this as the proliferation of housing in ru- ral areas leads to subsequent demand for better infrastructure and this is costly. The recent debate about the excessive cost of providing broadband to remote areas is a good example of the effect of allowing development in remote country areas. The increase in the number of septic tanks and their effect on groundwater, inadequate roads, poor access for bin lorries and the like, all contribute to the negative side of the equation. However, the joy of owning your own plot and designing your own home remains an aspiration for many.
In some cases, rural housing is demanded by family members where they are involved in a family farm or other agri-business. Planning authorities will generally restrict development in rural areas to applicants who can demonstrate a “local need” and a “housing need”. Once these two hurdles have been crossed, the planner will then concern themselves with house type/design, site suitability for the provision of a wastewater treatment system or septic tank and sightlines so that a traffic hazard will not result with the placement of a new entry point to the site. Development plans, written by the planning authority, will generally clearly set out guidelines to be followed in this regard.
In your case, you are at an early stage and do not appear to have identified a site.
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or to Property Clinic, The Irish Times, 24-28 Tara Street, Dublin 2. This column is a readers’ service. The content of the Property Clinic is provided for general information only. It is not intended as advice on which readers should rely. Professional or specialist advice should be obtained before persons take or refrain from any action on the basis of the content. The Irish Times and its contributors will not be liable for any loss or damage arising from reliance on any content. Also, you do not mention the area of the country in which you wish to reside. My advice is that once you have identified a potential site, engage directly with the local authority and arrange a preplanning meeting.
This will help you to understand the requirements and any restrictions that the local authority might have. If you have a lo- cal need and housing need, you will be ready to move to the next stage. I would recommend that you then have the site tested at this early stage to ensure that it passes the suitability test mentioned above. Your designer should also look at sightlines and be satisfied that the required distances can be achieved before moving to the next phase of design.
At this stage, you would not have spent a significant amount of money but will have a clearer indication with regard to the potential outcome of the application. You should be aware however that third-party appeals can slow you down and most applications hit the odd bump in the road. So allow for unforeseen delays.
If you have an option to buy a site, make sure that it is subject to planning permission being granted. In that situation you know that even if the deal falls through, you will be entitled to get your money back.
Money spent at the early stages in achieving a good and sustainable design will be money well spent. If you follow the above process, you can be confident that the risk of outright refusal is mitigated.
‘‘ To qualify as a deduction for enhancement expenditure, the sole test of allowability is whether the purpose in incurring the expenditure was to enhance the value of the asset
Noel Larkin is a chartered building surveyor and member of the Society of Chartered Surveyors Ireland
Expenditure must not have proved futile or have wasted away before disposal of the property