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Property tax incentives Back  
The Finance Bill has unveiled yet another renewal scheme - this time for small towns. It joins several renewal schemes in the Brussels limboland, fully announced but only half operational. The big surprise is in the small print.
Reliefs restricted

The new small towns scheme follows a well trodden pattern of capital allowances for construction and refurbishment of commercial buildings, the construction refurbishment and conversion of rented residential buildings, and the construction of owner/occupied dwellings.

The big surprise in the legislation lies in the fact that the usual array of capital allowances are denied to certain persons, and also where the construction etc costs are in relation to a building occupied for the purposes of certain trades. This is a new feature in property renewal schemes.

These restrictions are not only introduced into the new small towns relief, but are also now inserted into the 1998 urban renewal scheme and the 1998 rural renewal scheme. The restrictions apply only to allowances on industrial buildings and commercial buildings in the qualifying areas under the schemes.

Out, out

The first restriction imposed is to deny allow-ances to a property developer (ie one whose trade consists wholly or mainly of developing buildings with a view to sale), where the expenditure on the construction or refurbishment etc of the building was carried out either by the developer or a connected person. In practice this restriction will have little impact since it would be unusual for somebody carrying on a trade of developing property to hold property as an investment.

Potentially the more serious restriction is that allowances are denied to an owner occupier of an industrial or commercial building in a qualifying area where it is in use for the purpose of one of several trades including:

• agriculture, including production, processing and marketing of agricultural products
• the coal industry
• fishing industry
• motor vehicle industry
• transport industry
• steel industry
• shipbuilding industry
• synthetic fibres industry
• financial services sector.

The allowances are also denied both to investors and owner occupiers if the building is in use for a large scale project for which regional aid is subject to EU limits. Broadly, this refers to projects costing E15 million or more. In its application to the rural re-newal scheme this latter restriction is ex-pressed somewhat differently, in that the exclusion in that case is where the building is provided for the purposes of a trade in which the number of employees exceeds 250.
These restrictions are described as being inserted to meet EU requirements.


The fact that it is possible to insert such restrictions into reliefs first introduced in 1998 highlights the long delay that has occurred in getting the 1998 urban renewal and rural renewal schemes operational in the critical area of commercial property. In part these delays have been caused by the need for EU approval, and in part by the rather lengthy procedures in the case of urban renewal for selection of the designated areas.

Some of the restrictions noted above are not likely to impact on the commerciality of developments, few of which will be predicated on use by (for example) somebody in the coal industry.

However the exclusion of buildings used by large firms, or by firms in the financial services sector is more serious. The exclusion of large scale employers implies that allowances will not be available for large scale single user buildings. The exclusion of the financial services sector as the occupier of buildings attracting capital allowances excludes one of the fastest growing areas of the economy and a prime user of office buildings.

Capital allowances and other incentives for regeneration of derelict areas have been dying the death of a thousand cuts for quite some time, despite their huge initial success. Falling corporation tax rates make them of little interest to companies. The ?25,000 per annum limit on the offset of capital allowances against non rental income of investors, and the limitation of the number of individuals co-financing a single project to 13, all have tended to make the schemes of (at best) marginal interest. The latest blow to the commerciality of the schemes, in excluding significant potential users of the buildings, may be one too many.

Small Town Relief details

The residential element of the new small town reliefs will start up from 1 April 2000 for those towns, and those areas within the towns, which are approved for the purpose. However the reliefs in relation to commercial buildings, and industrial buildings, will not start up until EU approval has been received. When that occurs it will be started up by ministerial order. Both sets of reliefs continue until 31 March 2003.

The commercial and industrial reliefs can be summarised as being a 50% year one allowance on the qualifying expenditure, with a 4% per annum allowance thereafter until total allowances are 100% of the qualifying cost. The rented residential relief is the standard “section 23” relief. The owner/occupier relief is the standard relief of 50% of the qualifying expenditure over a ten year period provided the dwelling in question is the sole or main residence of the taxpayer.

The restrictions of relief, and delays in starting up schemes, outlined above are all a sobering reminder of the extent to which tax powers have moved from Dublin to Brussels even at a time when direct taxes are not yet harmonised in the Community; taxation matters still require unanimous voting; and the measures against harmful tax competition are parked in a cul de sac.

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