Can I off­set cost of re­pairs against tax?

The Irish Times - Thursday - Property - - Advice -

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.

Send your queries to prop­er­tyques­tions@irish­times.com

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

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