The budget for 2011 was held on 7th December 2010 and announced huge changes for investors with regard to section 23 property reliefs and accelerated capital allowances. The Finance Act 2011 has since been published and has announced that the changes proposed had been put on hold for a year to assess their impact. These changes do not affect owner occupiers.
From 1st of January 2011, investors can only use the section 23 relief against the section 23 property itself and not as previously against their other income. Similarly the accelerated capital allowances can only be used against the property the capital allowances relate to.
Despite the National Recovery Plan stating that there would be a phased abolition of the property reliefs, the measures taken in the budget mean for a lot of investors that they have being withdrawn with immediate effect. This is because the Section 23 properties in most cases had substantial mortgages against them and did not make a profit. The investors who bought them did so for the purpose of using the reliefs available to cover rental profit on other properties. The sudden withdrawal of the tax break would lead to severe difficulties for some of these investors possibly pushing them to bankruptcy. The bigger investors used all their reliefs in the first year but it is the smaller investors who were planning to use them over the full ten years that are most affected by the current proposals.
There have been numerous submissions to the Department of Finance on this issue. As reported in the Sunday Business Post on 2nd January 2011 the Chairman of the Oireachtas Finance Committee said he was confident that there would be an amendment to the bill before it comes before the Dail. It is proposed that there would be a gradual reduction in the percentage of reliefs allowable or a set amount each year to be used against other income.