Section 23 Premium

[nt00deep]

Have read most of the threads on S23, but missing one piece still.

Townhouse in rural town under S23 valued at 275k. Looking at it for investment and before I became aware it was S23 was all in favour of it. Only heard about the S23 last week, and now not sure because
a) I am not going to make use of the relief (my first investment)
b) I may not hang on the 10 years
c) Not sure what portion of the 275k would be the premium for it being S23 and therefore not sure what should be considered the real current value without the relief.

Help on that last point would be great.

 

[eamon]

Hi nt00deep,

My accountant tells me that there's normally a 20% premium on s23 properties. You would be able to offset the rental income from the property itself against tax. S23s are best if you've already got renatal income coming in and need a tax shelter. Hope that's some help.

 

[crassus]

nt00deep
Estate Agent should be able to advise you of the total available s23 relief. It's usuallya percentage of the build cost of the apartment and varies from scheme to scheme. Obviously the higher it is, the better.

Owner occupier can only receive 50% of the available relief spread over 10 years but can set this relief against all income by an increase in your personal tax threshold. So if there was 200K of relief, you could only obtain 100K over 10 years. That's 10K p.a. = €4200 in your pocket each year. (I think that this is how it works anyway but if anyone thinks different please advise!)

I think that s23 is more attractive for investors as they can set 100% of the relief against all rental income in Republic of Ireland.

What you should do is investigate the prices of non s23 similar properties in the area and then see how much of a premium is demanded for the s23 after calculating your tax relief each year. Then you can see if you are paying too much. Remember that you can only take up to 5% each year as an owner occupier - if you sell the relief ends and it cannot be passed on.

I think that you will find that s23s are mostly taken up by investors so there will be low levels of owner occupiers. Personally I wouldn't like to live in a development that didn't have a good mix of owner occupiers and tenants - no prejudice on my part - the two just have differing outlooks on the development.

Good luck!

 

[markowitzman]

if you do not hang on for 10 years are you sure there would not be a clawback of used relief?

 

[crassus]

Markowitzman, just to clarify, yes there would be a clawback of relief if you sell the investment within the 10 years. However, as far as I understand it all the original relief is available to the new purchaser over however many years of the 10 remain. So on the one hand you have a clawback but on the other it can be attractive to someone with a lot of rental income to shelter in a short space of time. But the fundamentals of the deal still need to be examined carefully to see if you are buying will hold value once the tax relief is used up.