Minister Brian Hayes TD
Dail Eireann,
Leinster House,
Kildare Street,
Dublin 2.

12th July 2011

Re: 2011 Finance Bill and Removal of property relief’s.

Changes to Property Relief’s - Section 23 Relief and Capital Allowances

In very brief summary, from 1 January 2011, Section 23 relief is ring fenced for offset
against income from the Section 23 property only. In addition, at the end of the 10-year
holding period, any unused relief will be lost.

If the property is sold within this period, the new owner will not get Section 23 relief while the seller will continue to be subject to a claw back of relief already given.

Capital allowances for passive investors of property and area based schemes are also
restricted. With effect from Budget night, any unused capital allowances carried forward
beyond the seven or ten-year period relevant to the particular scheme will be lost. Similar to the Section 23 measures, capital allowances are now ring fenced for offset against income from the property generating the capital allowances only.

 

Background & Property Tax Policy

What would ultimately become Section 23 Relief was introduced in the Finance Act
1981. At Second Stage of that legislation, the then Minister for Finance commented in
the Dáil:

“As with the general proposals for increased participation by the private sector in capital development, these allowances are framed so as to provide investment opportunities for the private sector and at the same time represent reasonable
value for the State.”1

The Minister then went on to point out Government commitment to “arrangements to encourage rented housing and comprehensive redevelopment by private property funds in
major urban areas”.

Section 23 relief therefore was not seen as a tax break for the welfare of investors. It was introduced as a tool of Government policy to encourage a certain type of investment
Behaviour. That investment behaviour would in turn lead to a greater supply of rented accommodation in urban centres.