Owner occupier Sect 23 - good idea?

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klink

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Folks,

I can't find much info on the above category for Owner Occupiers, even my FA knew little as the scheme is nearly wound up? Still waiting to hear back from officialdom on it as well.


How does this work for a FTB owner occupier? I saw a property @420K that I am only considering it because its near work, although it is quite alot over my budget. However if the relief was significant then maybe I could manage it?

This property qualifies for 65% relief on above 420K. As owner occupier you get 50% of 65% relief @ 136.5K over ten years (I think).

Can anyone break this down for me on how it is applied? Is it monthly against paye tax paid (with example annual salary @ 40K) or annually. Any examples out there of what the above may expect as general monthly net takehome?


Is the over inflated price which is typical for setion 23 worth the heafty mortgage? I am also conscious of new financial regulator guidelines for increasing stress test limits on FTB as of Sept. Loop holes possibly; a five year fixed mortgages, result increasing the interest repayments for FTB.

Can anyone confirm that there is no claw back for owner occupiers if they sell Sect 23 within the ten year period?

Is this a good idea for my above scenario and current climate?

Thanks, this non accounting type person.
 
I got my accountant to work mine out so not sure exactly the ins and outs. It's calculated based on what tax rate you're on as well so if you're on 42% you'd benefit more. It comes directly off the income tax you pay so in effect you'll get a bigger paycheck every week or month or whenever you're paid. Don't know what it's worth to you specifically, I'm sure some accounting person in here will work it out!
 
Thanks moon dance, going to an accountant - too tricky to work out myself what with tax credits etc.
 
Hey klink,
let us know how you get on with the advice you get from your accountant.
I am in a similar situation and interested to hear your outcome.
best of luck.
 
Hi Spider,

Sorry for late response been out of the loop for a while.

There is a basic kind of formula you can use to work out the Section 23 value to you. I am talking only from owner occupier perspective.

It is as moondance said based on your tax band, in my case I fall between both bands so I am taking an average of the two calcuations below.

The relief is obviously worth more to you if you pay tax at the higher rate.
It also very much depends on the percentage of section relief attributed to the property as to whether it is worth your while. The higher the percentage the better, the lower the purchase price the better - obviously.

A percentage relief of 65% for property cost of 420K for an average earner like myself is not great - I would have equally as much disposable income on a smaller mortgage with no relief. There are a few remaining sections out there at 90% - which are a better bet.

This is how I worked out the value to me in my pay packet based on a 420K purchase price at 65% section.

Purchase price 420K x .65 (% relief) = 273K total qualifying cost
Owner occupiers qualify for 50% of above relief therefore actual qualifying cost = 136,5K

The tax deductable from your PAYE is spread across ten years or 5% annually of total qualifying cost. Therefore annual gross PAYE relief to me is worth 13,650K.

Value of relief at 20% tax band = 13,650K x .2 = 2,730k/yr
spread across 12 months = 227.50/month tax relief savings

at 42% = 13,650K x .42 = 5,733K/yr = 477.75/month

Bear in mind that if interests rates go up at any point (I am not saying they will) but if they do and if you are on 20% band the tax relief could be reduced.

Also factor into your take home pay, your mortgage interest relief go to 0asis.gov.ie to work this out/month.

If you buy now, I am not sure but think you will have to wait until the new tax year in '08 to claim back for the current year '07 and thereafter it can be applied monthly to your PAYE. If this is the case, which I believe it is, you have to factor in the higher than average mortgage repayments for this property compared with non sections in the same area, from now until you get your tax back next year.

Bear in mind on going section 23 tax relief schemes have been terminated by the government. Developers who got planning permission a while ago and recently launched new section 23 phase 2's need to offload their stock before a certain deadline - I do not know if this is specific to their development or whether there is a catch all date.

Those who have already purchased and activated their 23 relief will not be affected. Check with the likes of www.hookemacdonald.ie who have alot of section 23 on their books. This may mean that there is some room for negotiation on price as developers try to shift stock. Counter side to this, is you are competing with investors who get double your relief and can possibly well afford the inflated price of the section property.

As an owner occupier you will not be able to sell-on your section - it dies once you move. Therefore you need to be sure you want to live in the property for the next 10 years. Because the purchase price is generally inflated you will find it hard to sell it at or above the original purchase price in the immediate future. This may not be the case if the location is pretty exclusive - but I know of no bargains out there.

From my research, current sections in Tallaght/Lucan where I was looking are over priced compared to similar properties in the same area. In current market with price falls a fact and long term stablisation likely, it is unlikely you will make your money back if you choose to sell. As per above there is no claw back for owner occupiers.

I CANT confirm whether if you choose to invest in a second property after purchasing a section as owner occupier whether you can claim tax relief on the investment property as well. If anyone can confirm this, I would be obliged? This is the case for investors.

I don't pretend to be an expert, just an ordinary punter, so I hope the above is accurate, apologies if I have misunderstood the rules. It is a grey area according to the accountants, and very few estate agents out there have a clue about the value to owner occupiers - all the blurb continues to concentrate on investors. God damn them! Good luck!
 
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