Willie Penrose (Longford-Westmeath, Labour)
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Question 170: To ask the Minister for Finance the reliefs available to people in the Longford area in respect of the tax designated areas and their entitlements if they purchase dwelling houses in such areas; and if he will make a statement on the matter. [22495/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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All of County Longford is a qualifying area for the purposes of the Rural Renewal Scheme. This scheme was introduced in 1998 and is due to terminate on 31/07/08.

Two different tax reliefs are available under the scheme in respect of qualifying residential units. These are:

Owner occupier relief; and

Rented residential relief.

Owner-Occupier Relief

An individual who incurs expenditure on the construction, refurbishment, conversion or purchase of his/her house which is a qualifying house, is entitled to an additional tax free allowance as follows:

5% per annum of the expenditure for 10 years in respect of new construction;

10% per annum of the expenditure for 10 years in respect of refurbishment or conversion.

Relief is granted at the individual's highest rate of tax. It can be given either by increasing an individual's tax-free allowance during the year or by repayment of tax at the end of the year. Where the individual is self-employed the tax relief will be given in the annual tax assessment. If the property is sold within the 10 year writing down period any relief granted is not withdrawn but a subsequent purchaser is not entitled to the relief. The cost of the site does not qualify for relief and grants are deducted in arriving at the amount of expenditure that qualifies for relief. Only the cost of work actually carried out during the "qualifying period" can qualify for relief under the scheme. Where a property is purchased from a builder the expenditure that qualifies for relief is the proportion of the purchase price that relates to the construction expenditure.

To qualify, the property must be:

not less than 38 sq. metres and not greater than 210 sq. metres in floor area;

situated within a qualifying rural area and be a qualifying building;

occupied by the individual after the expenditure is incurred as his/her sole or main residence;

occupied by the individual as his/her sole or main residence for each year of claim.

Rented Residential Relief

This relief is available to individuals and companies for 100% of the cost of constructing, refurbishing and converting rented residential property (exclusive of site costs and grants as appropriate). These costs can be deducted in full or in part from rental income arising in the State. The amount of the expenditure that qualifies for relief is deducted in full from the rental income from the property. If this deduction exceeds the rental income in the first year from the property, the excess can be deducted from other rental income arising in the State for that year. Any rental loss created in the first year can be carried forward against rental income of succeeding years until the relief is exhausted. If the property is sold within a period of 10 years of its first letting any relief granted is withdrawn. A subsequent purchaser of the property within the 10 year period is entitled to the relief provided the property is available for full time letting for the remainder of the 10 year period. Where a property is purchased from a builder, the expenditure that qualifies for relief is the proportion of the purchase price that relates to the construction expenditure.

To qualify, the property must be:

not less than 38 sq. metres and not greater than 175 sq. metres in floor area. In respect of eligible expenditure incurred prior to 6 December 2000 the maximum floor area is 140 square metres in respect of a newly constructed house or apartment and 150 square metres where a house or apartment has been refurbished or converted from non residential to residential use;

situated within a qualifying rural area and be a qualifying building;

let under a qualifying lease for a term of at least 3 months after the expenditure is incurred without being otherwise used;

continue to be let for terms of at least 3 months during a period of 10 years from the date of first letting, except for reasonable periods of temporary disuse between the ending of one lease and the commencement of another lease.

Scheme Qualifying Period

To qualify for relief the work must be carried out during the "qualifying period". The qualifying period for the 2 reliefs is as follows:

Rented Residential Relief — 1 June 1998 to 31 July 2008.

Owner-Occupier Relief — 6 April 1999 to 31 July 2008.

The scheme was originally due to terminate on 31 December 2002 and was extended by 2 years from 31 December 2002 to 31 December 2004 in the 2002 Finance Act. The 31 December 2004 deadline was further extended in Finance Act 2004 until 31 July 2006 where an application for full planning permission was received by the planning authority by 31 December 2004. Where the work involved is exempted development for the purposes of the Planning and Development Act 2000 the extension to 31 July 2006 also applies where the following conditions were met by 31 December 2004:

a detailed plan in relation to the development work was prepared,

a binding contract in writing exists under which the expenditure was incurred,

and work to the value of 5 per cent of the development costs was carried out.

The 31 July 2006 termination date was further extended in Finance Act 2006 to 31 July 2008 where work to the value of 15% of the actual construction or refurbishment costs was carried out on or before 31 December 2006. While local authority certification is not required, the person claiming relief must be able to show that this condition has been met. There is a gradual reduction in the amount of expenditure qualifying for relief after 31 December 2006. Expenditure incurred during 2006 can qualify in full without restriction. However, only 75% of expenditure incurred in 2007 and 50% of expenditure incurred in the period between 1 January 2008 to 31 July 2008 can qualify for relief.

Certification Requirements

Qualifying construction, refurbishment and conversion expenditure under the scheme must be certified by the Department of the Environment, Heritage and Local Government. This certification involves the issue of a Certificate of Compliance or a Certificate of Reasonable Cost.

A Certificate of Compliance is required where a newly constructed, refurbished or converted property is purchased from a builder. While a Certificate of Reasonable Cost is required where a newly constructed, newly converted or newly refurbished property is to be lived in or let by the person who carried out the work or who had it carried out. These certify that the property in question complies with the Department of the Environment, Heritage and Local Government's standards of construction, is within the specified floor area limits and in the case of refurbishment projects that the work was necessary to ensure the suitability as a dwelling of the property.

Mortgage Interest Relief

In the case of investors, interest on borrowed money used to purchase, improve or repair a qualifying house can be deducted for tax purposes from the rental income received from a qualifying residential property. In the case of owner occupiers, tax relief at the standard rate is available in respect qualifying interest on a qualifying loan in respect of a qualifying residence. The ceiling for mortgage interest relief for first-time buyers was increased in Budget 2008 from €8,000 single/€16,000 married to €10,000 single/€20,000 married. The ceiling for non first-time buyers is €3,000 single/€6,000 married.