The new reduced 9 per cent VAT rate on apartment sales will not apply to housing bodies engaged in forward-purchasing arrangements, creating a price anomaly in the State’s housing market, Grant Thornton Ireland has claimed.
While the sale of completed apartments in a block will benefit from the lower rate, a contract for sale of a site and the construction of a block of apartments will remain subject to the higher rate of 13.5 per cent, the accounting firm said.
“This will have inequitable impact, especially for those housing bodies who have entered into forward-funding agreements at the behest of the Government,” Janette Maxwell, tax partner at Grant Thornton Ireland, said.
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The majority of social housing units are delivered by private developers in what are known as turnkey projects where the local authority or approved housing body (AHB) enters a forward-purchasing arrangement with a private developer.
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Ms Maxwell was responding to the publication of the Government’s Finance Bill, which enacts the tax changes in last week’s budget.
A suite of tax measures to stimulate the supply of housing, further details about how the State’s new pension auto-enrolment system will operate and an open-ended VAT cut for hospitality formed the main elements of this year’s Bill.
The Government said the reduced VAT rate on apartment sales would support “wider policy goals to deliver more and higher density housing and will end on December 31st, 2030.”
Ms Maxwell also claimed the legislation remained “ambiguous” as it failed to clarify if it applied to all new apartments and to all buyers or to specific categories buyers and tenure types.
The Finance Bill also expanded the scope of the Living City Initiative, which provides tax rebates to refurbish older homes, to cover properties built before 1975 instead of 1915.
The bill also included a special corporation tax exemption in respect of income derived from cost-rental homes and an exemption from the residential zoned land tax (RZLT) during An Coimisiún Pleanála proceedings brought by a third party.
Unlike the VAT cut on new apartments, which will end in 2030, the controversial VAT reduction for food service businesses and hairdressers was open-ended.
The Bill also provided further detail on how the incoming auto-enrolment pension scheme will operate.
Under the scheme, which becomes operational at the start of next year, employer contributions will be “tax relieved” while the growth in the retirement savings will be exempt from tax.
“The Finance Bill implements a range of targeted tax changes including specific measures to support businesses, promote investment and protect jobs,” Minister Donohoe said.
“This Bill will also provide for a suite of measures designed to support additional housing supply and encourage regeneration,” he said.
