Tuesday, 26 July 2011

Red Letter Day... the end of Section 23s?

Readers will know that the subject of property-based tax reliefs has been covered before on the blog, particularly their effect in inflating the real estate bubble and driving house and apartment prices to stratospheric heights before reality intruded in late 2006.

The way it worked was investors bought a property in a “designated area” – and the rationale for choosing areas to be designated seems to have been nebulous – and they could write off all their rental income against tax. This meant that apartments in godforsaken shitholes were going for Beverly Hills money, purely as a tax dodge.

Now it seems that proposed changes will allow tax relief only on the Section 23 property itself – and, needless to say, investors are up in arms.

Witness the following extract from an advert, placed by the Institute of Professional Auctioneers & Valuers. The advert is styled as a letter to Finance Minister, Michael Noonan, asking him to preserve the existing tax shelters.  A selection of the "letter", below, is in green.  My own thinking-aloud obversations are in red type. 

“The people affected by these changes are tax compliant [never mind that such reliefs were created to avoid paying tax… legally of course] ordinary individuals, like me, who were encouraged to invest in schemes in specific areas in order to rejuvenate these areas [never mind rural areas blighted by empty apartment blocks and unwanted holiday home schemes.]...

..Like many others, I responded to the incentives introduced and paid a premium to acquire the tax relief attached to the properties although the project itself yields low rental income…. The withdrawal of these reliefs will mean that I will now suffer great financial distress….

….The proposed changes will further depress property prices, will increase repossessions by financial institutions, and will bankrupt investors thereby increasing the financial burden on the already stressed taxpayer..."

Nice to see tax-shy investors expressing such concern for the taxpayer, eh?

Given the number of solicitors and creative accountants who jumped on the Section 23 bandwagon, it can’t be long before they make a legal challenge, can it?

And like all powerful interests who have their day in the High Court – as they can afford it - we can be sure any changes to property-based tax shelters will be found “unconstitutional”.

Just wait and see.

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Anonymous said...

GM what a sad day for the oirish investment class this would never happen if BOLICKS BERTY was in charge its a disgrace BRING BACK RERTY before its too late irl could go bankrupt like greece remember irl is not greece is it or is it not ISIT,depends what you mean BY IS,what was it that german ambassador chappie said about those orish masters of the universe,never forget the price of real estate always goes up and up in our corrupt rotten little paradise republic makesure you you git on down to the next ALLSOP jamboree and fill your boots even if you have to bid against yourself UP KERRY -BH

The Gombeen Man said...

Yes, BH. I am busy researching the market to make sure I pay above private treaty asking prices at the auction. The shrewd punter who outbid himself at the last one is blazing a trail for the Irish investor!!! What an example of genius.

Anonymous said...

gm what a bizzare grotesque little paradise we have bring back BERTY -BH

Anonymous said...

GM, i am wondering if trying to correct this blunder now might do more harm than good. Admittedly it should never have been done. But aren't we stuck with it? Rents might even increase as a result.

If the irish economy were founded on rational principles, rents would fall with property values and incomes. Prices would respond to demand. But we've seen retail prices increase steadily while consumer demand shrinks and wholesale prices fall, which is perverse, but perfectly irish. Short-sighted greed, price gouging, and gombeen arithmetic are the economic principles to which we cling.

So my concern would be rising rents, or at least sustained rent overpricing as we have at the moment: a financial burden on those least able to pay, and least responsible for the housing fiasco. And even if i am too pessimistic with that prediction, we can be confident that a solution to the section 23 problem will manifest itself in some truly perverse way. Because, hey, ireland...


The Gombeen Man said...

I see your point alright, Thomas. Yes - "hey, Ireland". Where else, eh?