Finance Act 2024: Residential Property Measures

The rent tax credit was introduced in Finance Act 2022 (FA22), allowing a credit of €500 per tenant for years of assessment from 2022 to 2025. This credit was increased to €750 in Finance (No. 2) Act 2023 (F(No. 2)A23) and has now been increased to €1,000 through Finance Act 2024 (FA24). This could result in a tax credit up to €2,000 for jointly assessed couples who are renting their home. The increased credit will apply for the years of assessment 2024 and 2025. It is good to see the Programme for Government note that it will continue to increase the rent tax credit over its term. This is a welcome financial benefit for tenants at a time of increasing rents.

The marginal rate of tax that applies to a large majority of landlords is a huge disincentive to renting out a property in many instances, especially when combined with additional compliance charges and obligations to complete tax returns, draw up tenancy agreements and make relevant registrations. Therefore, it is important to look at measures to encourage landlords to bring properties to the rental market.

FA22 improved relief for pre-letting expenses incurred from 1 January 2023 by increasing the allowable deduction from €5,000 to €10,000 and reducing the period of vacancy from 12 months to 6 months. This incentive had been due to expire on 31 December 2024, but FA24 has extended the relief by three years to 31 December 2027.

Section 21 F (No. 2)A23 introduced a new personal tax credit for landlords of residential property to offset against their income tax suffered on rental profits. The tax credit is currently available for the years 2024 to 2027 inclusive and is capped at the lesser of 20% of rental profits and €600 for 2024, €800 for 2025, and €1,000 for 2026 and 2027. FA24 includes a slight tweak to the provisions to restrict the credit in situations where there is an overall Case V rental loss. The credit available to a landlord is now the lowest of the stated amount, 20% of rental surpluses and 20% of overall Case V profits. Overall Case V losses will take account of capital allowances and Case V losses forward. The Programme for Government includes a commitment to continue the landlord tax credit, but it will be felt by many landlords that further amendments are needed to the scheme to ensure that it encourages the supply of rental properties to the market.

With rising house values, many property owners will be reviewing their potential capital gains tax position if they were to sell investment property. It is likely that the 33% charge will be a disincentive to many who have base costs lower than current market values. However, FA24 continues to implement both the vacant homes tax (VHT) and the residential zoned land tax (RZLT) to encourage those seen as “hoarding” properties or development land to bring them to the market. The Programme for Government also includes measures aimed at bringing vacant properties to the market.

The VHT was introduced in FA22 and applies to properties used as a dwelling for fewer than 30 days a year. For such properties, the owner will incur a charge that initially was to be equal to three times the relevant local property tax (LPT) charge (before the local adjustment factor is applied) on the property. This rate was increased to five times the LPT in F(No. 2)A23 and has now been increased to seven times the LPT in FA24. There are some exemptions from the charge, including where the property is being actively marketed for sale or rent.

FA24 included some technical tweaks to RZLT in relation to the timing of site preparation, disputes regarding local authority maps and planning permission disputes. However, in broad terms, the tax will apply from 1 February 2025 and will be charged at 3% of the value of the land for land zoned for residential use and services before 1 January 2022. The return and related payment will be due by 23 May 2025. For land zoned after 1 January 2022, the RZLT will apply three years after the year in which the land comes into scope.

The main provision of FA24 in this regard has been the opportunity for landowners to make a rezoning request regarding maps to be published on 31 January 2025, which, if rezoned, allows for an exemption from RZLT for 2025.

The Help to Buy scheme was introduced in 2017 and has been used by more than 50,000 people to date. It currently provides for a refund of tax of up to €30,000 for first-time buyers of new-builds from an approved contractor or for self-builds. The property value must not exceed €500,000, and the mortgage must be for at least 70% of the value. This scheme, which had been due to expire on 31 December 2025, has been extended for four years, to 31 December 2029, which is good news for new entrants to the property market.

Finance (No. 2) Act 2023 introduced a new section into legislation allowing for mortgage interest tax relief for taxpayers in certain instances on their principal private residence. This was to be a one-year tax credit, with a maximum value of €1,250 available for 2023. The relief works by comparing the mortgage interest paid in 2023 to the amount paid in 2022 and allowing a credit for the difference. The loan balance must have been between €80,000 and €500,000 as of 31 December 2022. FA24 has extended the tax credit for a year to allow a claim to be made by individuals for the 2024 year of assessment. The value of the credit and the rules on loan balances remain in place. As was the case for 2023, the interest for 2024 will be measured against the base year of 2022 to calculate the relief.

The above measures are welcome to assist first-time buyers and homeowners. However, the mortgage interest credit is restrictive, given the loan limits that apply, and the Help to Buy scheme applies only to new-builds and self-builds. It would be beneficial if such provisions were extended to a wider population of people, particularly those looking to purchase a home or who have significantly high mortgages.

Although it may not, in practice, affect first-time buyers, given the level of consideration to which it applies, it is also worth noting the stamp duty change introduced in FA24, which applies a 6% rate to consideration above €1.5m on a property purchase; 1% still applies to the first €1m, and 2% to the next €500,000. In another bid to deter institutional investors from purchasing large blocks of housing, the 10% stamp duty rate on purchases of ten or more properties has been increased to 15% from 2 October 2024.