Many of us have heard of Section 23 incentives, but not as many of us are familiar with Section 50 tax relief. This is a ‘section 23 type relief’ that was introduced under Section 50 of the Finance Act, 1999. It covers relief on expenses incurred on construction, conversion or refurbishment of residential accommodation for third level students in full time education. This relief was primarily introduced in order to increase the supply of quality residential accommodation for students, but also provides attractive terms for long-term investors. To qualify for Section 50 relief, accommodation must adhere to the guidelines as issued by the Minister for Education and Science, Minister for the Environment and Minister for Finance. As usual, full advice should be sought from your local authority before undertaking any such projects.
As a rule, generally 90% of the price of section 50 units is eligible for rental deduction. For example, a unit costing €200,000 can earn up to €180,000 in rental income over 10 years before becoming liable for tax. Deductions left over can be carried forward after the 10 years. Also in the event the a property is sold within the initial 10 year tax break period, then the relief that is received by the vendor is looked upon as additional rent for that year.
Section 50 units must be let to students who are registered in full time education at an educational institution. However, the units may be let to non-students outside of the academic year. Properties that qualify for section 50 relief must consist of a development of a minimum of twenty bed-spaces and must be situated either on campus at the educational institution or within 8km of there. The development must also be approved by the educational institution in question. The lease can be granted to students directly or to the educational institution which will then on-let the units to students. As there are many practical guidelines that determine max. and min. unit size, floor space, access, fire safety, facilities and amenities etc. it is important that early consultation with the educational institution takes place.
Unless a unit is purchased brand new from a builder (as in the case of conversion or refurbishment of a property), a Certificate of Reasonable Cost is required as part of an application to the Revenue commissioners by anyone wishing to claim tax relief under Section 50. This states that the cost of providing this accommodation was acceptable. A prior inspection of the property must be carried out before any work is commenced. The Department of the Environment must also certify that the refurbishment work was necessary to bring the property to the standards as required.
In order to apply for a Certificate of Reasonable Cost, anyone proposing to claim Section 50 tax relief must complete a HPF/1 form and send it, along with relevant documentation and an application fee to the Department of the Environment, Heritage and Local Government, Housing Grants Section. The compulsory documentation includes site plans, drawings, specification of units, planning permission, fire safety certificate and a schedule of costs.