Reaction to Budget 2017

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Residential Property

The government has announced the introduction of a Help-to-Buy Scheme which is aimed at assisting first-time buyers of new homes in meeting the deposit requirements under the Central Bank’s macro-prudential rules. The scheme will benefit first-time buyers substantially. Based on a newly built apartment worth €280,000, a first-time buyer could potentially obtain 41% of their deposit requirements under the scheme. More information is contained within Example 2 below.

Help-to-Buy Scheme

  1. The Scheme

The incentive will take the form of a rebate of income tax paid over the previous four tax years, based on their total income tax (including DIRT), as a contribution to the deposit needed to fund the purchase of a new home. No refund of USC will be available. The maximum rebate available will be up to 5% of the purchase price of a new home valued up to €400,000 (i.e. €20,000). This can be made up of income tax (including DIRT) paid over the previous four years by an individual or by joint purchasers. Where a new home is valued between €400,000 and €600,000, the maximum rebate of €20,000 will continue to be available but no additional amount will be granted. No rebate will be available for new purchases costing over €600,000. Contrary to speculation in advance of the budget, the scheme will not consist of a top-up on buyer’s savings, and hence will act as an immediate benefit for those seeking to avail of the scheme and an important stimulus for the construction industry.

This incentive will also be open to applicants who have signed contracts to purchase their home on or after 19th July 2016 when the measures were initially announced in principal. In the case of self-builds, applicants who drew down the first tranche of their mortgage on or after the 19th July 2016 will also be eligible.  The scheme will run until the end of 2019.

  1. How do you qualify?

Aside from the requirement that any potential applicant must have paid sufficient income tax over the previous four tax years, there are a number of other requirements that applicant should be cognisant of:

  • To be eligible for the incentive, you must be a first-time buyer. If you have purchased a house before, you will not be eligible for the incentive. In line with the Central Bank macro-prudential rules, a joint purchase between a first-time buyer and a non-first-time buyer will not be eligible for the incentive.
  • The property (house or apartment) must be a new build or a self-build. It must be purchased or built as the applicant’s principal private residence. The relief is not available for buy-to-let properties.
  • Applicants must take out a mortgage of at least 80% of the purchase price, or in the case of a self-build, 80% of the valuation approved by the mortgage provider.
  1. How do you apply?

 Applicants will be able to apply online via the Revenue website to see how much of a rebate they could be entitled to under the scheme. It is expected that the electronic facility to avail of this scheme will be available from January 2017. Rebates in respect of those who have signed contracts between the 19th July 2016 and the 31st December 2016 can also be processed from January 2017.

  1. Examples

Example 1

Rose and Charlie signed a contract to buy a new house for €300,000 from a developer in August 2016. They paid a deposit of €38,000, in line with the minimum deposit requirement under the Central Bank macro-prudential rules. As their contract with the developer to purchase the property was put in place after the 19th July 2016, they are eligible to apply to Revenue for the Help-to-Buy scheme, when applications begin to be accepted from January 2017. This may see them qualify for a rebate of income tax paid over the previous four years up to a maximum of 5% of the purchase price of the property, which equates to €15,000.

Example 2

Mairead and John are hoping to purchase their first home, a newly-built apartment priced at €280,000. Under the Central Bank rules they will require a minimum deposit of €34,000, which comprises €22,000 (10% of the first €220,000) and €12,000 (20% of the additional €60,000). Under the Help-to-Buy initiative, as first time purchasers they would be eligible for a refund of income tax paid over the previous four years of 5% of the purchase price of the property. Assuming they have paid sufficient income tax over the previous four years, this would equate to €14,000. This represents a substantial gain for first-time buyers, who in this example have acquired 41% of their deposit requirements. They can use this as part of their deposit when signing the contract to purchase their new apartment.

Whilst Knight Frank welcomes attempts to stimulate the construction sector, we are of the opinion that the budget should have been used as an opportunity to introduce more supply side measures to stimulate housing construction, in particular a reduction in VAT on new home construction from 13% to 9%, which has been repeatedly called for by the industry. It can be argued that the loss in tax revenue as a result of the reduction would have been easily recouped due to the resulting increase in construction activity – in effect the measure would have been self-financing.

Rental Sector

 The following were some of the primary measures introduced to assist the rental sector:

  • The ceiling for income under the Rent-a-Room relief will be increased from €12,000 to €14,000. This increase would, for example, allow a homeowner to rent out two separate single rooms in Dublin at current average prices but still remain within the scope of the incentive.
  • Accordingly, to further support the provision of accommodation by landlords, a phased unwinding of the restriction on interest deductibility for residential landlords has been announced in Budget 2017. An increase in interest deductibility from 75 per cent to 80 per cent will take effect from January 2017. It is intended to further increase the allowable deduction on a phased basis in future years, subject to having the available fiscal resources.

While Knight Frank acknowledges the increase in the rent-a-room tax exemption and the increase in the percentage of mortgage interest payments that are tax deductible, as well as the and the extra €28 million in funding for emergency accommodation for homeless people, the sector requires a more comprehensive strategy going forward.

Commercial Property

In terms of the commercial property market, the reduction in the entrepreneurial capital gains tax rate from 20% to 10% on gains of up to €1 million and the increase in the Self Employed Earned Income Tax Credit from €550 to €950 should have a positive impact on job creation and ultimately the demand for office space. The Government’s reaffirmation of its commitment to the 12.5% corporation tax is also welcome as it provides much needed certainty for company’s engaging in foreign direct investment, whose confidence may have been shaken in light of the recent Apple tax case ruling. However, the budget provided no further clarity on fund structures in Irish property following changes to special purpose vehicles (SPVs), known as “section 110 companies”, holding Irish property assets which was announced last month and which had been used by many overseas investors in Irish commercial property. Following a consultation with industry stakeholders, details of proposed changes in relation to property in these types of funds will be contained in the Finance Bill which is due to be published on the 20th October.

We at Knight Frank, hope that you find this information useful. If you require any further information in relation to the above or any assistance in relation to any property matters,  please do not hesitate to contact one of our agents at +353 1 6342466 or visit our website at

Knight Frank

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