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Will I lose Unused Section 23 Property Relief

Is there a way to protect all capital allowances on your section 23 property for future use? Maybe, so
read on…..

It is estimated that over 33,000 properties in Ireland remain eligible for Section 23 relief. Figures indicate that the remaining allowances on these schemes is costing the taxpayer €400m per annum. In light of the current financial woes, the Government put forward proposals in Budget 2011 to restrict and eliminate property allowances and Section 23 relief.

The changes can be summaries as follows:

Prior to Budget 2011
– Investors could use section 23 to shelter all rental income.

Post Budget 2011
– The following provisions are deferred subject to a Commencement Order whereby the Minister appoints the relevant date on which the provisions come into effect after the economic impact assessment is completed.

  • Investors can only offset capital allowances against rental income from their Section 23 property.
  • Any unused relief at the end of a 10-year period will be lost.
  • If the property is sold within the 10-year period, the seller will be liable to a clawback of relief claimed, and the new buyer will not get any relief.
  • Proposed guillotining of all property reliefs and allowances in 2014

There has being intense media discussion and speculation on the consequences of the Section 23 relief changes with some commentators stating the changes will leave many property investors unable to pay their tax bills and make their mortgage payments and ultimately will see some lose their properties or go bankrupt.

Not quite according to Patrick O’Rourke, Tax Partner at O’KellySutton.

There is nothing in Budget 2011 that affects correctly claimed Section 23 reliefs. Even if you have incorrectly claimed your Section 23 relief in earlier tax returns, there is still an opportunity to correct
it. However, you must act quickly as tax legislation is quickly evolving in this area.

There is a lack of understanding with regard to the most beneficial means for claiming section 23 allowances among taxpayers and unfortunately among some of their advisors. Where errors have been made in the past it is critical that any corrections are carried out by advisors who really understand the area.

O’KellySutton report that since the announcement of Budget 2011 there has been a substantial increase in enquiries from worried taxpayers that fear they will lose their unused Section 23 relief. In the majority of cases, O’KellySutton were able to correct the taxpayers tax computations and returns and protect all the unused Section 23 allowances for future use. Patrick O’Rourke, O’KellySutton, Kildare, por@okellysutton .com