Ireland offers some of the most generous forms of tax relief and incentives for the investor from the creative industries and the financial sector to the construction industry in and outside Ireland ’s cities. However as in other businesses where tax relief is used to encourage spending across particular markets there are problems.
Recent allegations that a single leaf timber frame development in Leitrim was forced to incorporate an outer layer of blockwork in spite of no such requirement in the Building Regulations or by the local authority in question suggests that something is seriously amiss, as Frank Coles explains.
In the construction sector we have Section 23 and the Rural Renewal Scheme that while providing incentives for construction and renovation outside of Dublin are also creating problems, by potentially over-inflating the housing market and forcing the use of energy inefficient and outdated technologies.
In brief, Section 23 provides tax relief for the capital expenditure incurred on construction costs. So for example if a property costs €200,000 in total and has qualifying construction costs of 90%, the tax on this €180,000 total can be written off against all of the investor’s other Irish rental income in the first year, with any unused relief being carried forward indefinitely.
In addition the Rural Renewal Scheme that includes Section 23 also allows the new owner of a rental property in an approved rural area to offset the interest payable on any borrowed money against any rental income from the property.
These allowances are calculated by referring to the price paid to the property developer and may be encouraging overpricing in rural housing. This higher pricing creates a situation where profits are made on the value of the property and in the tax relief granted.
Conor McManus, Manager of timber frame builders GreenTek explains that “ here in Leitrim, everybody who wants to build a house, they want to get the section 23 on it.” Because of this it is common practice for properties and developments to be advertised as having Section 23 or Rural Renewal compliance, even when this factor is unknown. The reason is “your standard house is only worth about €100-120,000 but you can command €180-190,000 if the section 23 is on it.”
This situation is having a negative impact for builders such as McManus who use building techniques that, at present, the Department of the Environment inspectors are refusing to acknowledge. On one particular development in Leitrim McManus constructed six out of 23 houses fabricating the timber frames on-site and creating a single skin cladding for the exterior. It was at this point that the Department of the Environment came out to inspect the dwellings that had previously been certified by an engineer for compliance with the Building Regulations and were also covered by Premier Guarantee Insurance. The DoE refused to sanction the buildings under Section 23 because they were constructed on site with a single-skin. McManus says that the DoE representative then “demanded that a block skin be built in front, […] encouraging block building, which doesn't make sense.” As a consequence the developer is continuing the project with the remaining houses to be built with a block skin.
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