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Interesting Tax Updates

Home renovation incentive

The 2014 budget introduced the Home renovation incentive which provides tax relief for homeowners by way of an income tax credit at 13.5% of qualifying expenditure on repairs, renovations or improvements carried out to the Homeowners main home by qualifying contractors.

Tax relief may be claimed on qualifying expenditure from €5,000 to a maximum spend of €30,000 inclusive of VAT. The income tax credit is payable over 2 years following the year in which the work is undertaken. Unused tax credits may be carried forward to the next tax year.

Qualifying works must be carried out on or after 25 October 2013 and up to 31 December 2015. Qualifying works carried out between 25 October 2013 and 31 December 2013 and paid for during that period will be treated as though they were paid in 2014 for credit purposes. Where planning permission is required and is in place prior to 31 December 2015, works carried out up to 31 March 2016 will qualify for relief. The works may be phased, and multiple payments to different contractors are allowed. Claims may be made for costs at the 13.5% rate of tax and excluding anything subject to VAT at 23%. In order to qualify for relief Homeowners must be Local Property Tax (LPT) compliant and Contractors must be registered for VAT and RCT and must have a tax clearance certificate.

Debt Write off – Taxation Pitfalls

The Finance Act (No 2) 2013 aims to ensure that only a capital loss equal to the economic loss on a disposal of an asset is available. The rationale behind this piece of legislation is to ensure that individuals who benefit from a debt write off will not receive the benefit of a capital loss also. This is best explained by an example.

Example:

Michael bought new commercial premises in 2006 for €1.5m. The purchase was financed by way of a bank loan for €1.2m and personal cash of €300,000.

Due to the adverse economic environment Michael is unable to repay his loan as his business has suffered badly during the recession. The current value of the property has reduced to €750,000 while the loan outstanding is €1m.

Michael and the bank have entered into an agreement whereby Michael will sell the property for €750,000 and pay the proceeds to the bank. In return the bank will release the balance of the debt of €250,000.

In normal circumstance a capital loss of €750,000 would occur which Michael could carry forward and offset against any future capital gains. However, under the new rules the base cost of the asset is reduced by the amount of debt released and the capital loss is reduced.

Sale Proceeds

€   750,000

Cost

€1,500,000

Less Debt Release

€   250,000

Allowable Cost

€1,250,000

Allowable Loss

€   500,000

Each individual scenario is different and we are happy to provide advice in relation to this if you have any queries.

Succession Planning

Estate planning can often be one of the more difficult aspects of financial and tax planning. There are many reasons for this such as a parents fear that their children may not be able to run the family business successfully or that their children may squander their new found inherited wealth.

An additional fear is the associated tax costs involved in passing on assets to the next generation. This is a legitimate concern because since 2007 there has been an increase of 65% in the rate of tax payable on gifts or inheritances received. In addition to this, the amount a child can inherit tax free from a parent has reduced from €542,544 in 2008 to €225,000 today.

The good news is that with careful and advance planning some of these tax costs can be mitigated in the future.

If you need advice on this area please do not hesitate to contact us.