Secton 23 & 50 Properties (the Next Irish Crisis)

interpoint

Hi,

A few years the Irish government introduced a tax relief incentive scheme called Section 23 and Section 50. The purpose of this was to attract small investors to buy designated properties in areas that needed regeneration. It usually applied to Holiday Homes, Student Villages and developments in Rural or remote parts of the country. These tax breaks were all discontinued in recent years.

It basicially works like this.

Simple example: An Investor has some normal rental income and therefore pays tax on this rental income.

However, if the Investor buys a Section 23 designated property for say 300k then the Investor can offset over a 10 Year period the purchase price of the Section 23 property against all of his/her Irish Rental income.

In effect a tax shelter is created and resulted in tens of thousands of Irish people buying Section 23 properties not because they liked the property but because they wanted the rental income tax break.

However, in the recent 2010 Budget the terms of the Section 23 tax break was changed by the Government and implemented retrospectively.

You can now only offset the rental income directly generated from the Section 23 property itself and cannot offset it against all Irish Rental Income. That is a major game changing situation.

So in effect, people entered into a deal with the Government when they agreed to buy the Secton 23 property have now had the ecomomics of the deal turned upside down.

In my opinion they would not have bought the Section 23 property in the first place.

I am not endorsing the pluses or minuses of property tax breaks. They were probably a major contributory factor / cause of the property bubble in Ireland. I do however have a serious problem with the Governmant changing the fundemental tax rules they agreed to in the beginning.

This type of behaviour undermines investor trust and in effect shows that any future government incentives cannot be taken seriously.

Budget 2011 has proposed to introduce a retrospective change to tax reliefs previously enacted which in my view is unfair, unjust and possibly illegal. I feel that retrospective changes like this pose a real threat to future tax reliefs in all sectors such as the arts or film as many future participants will now question the integrity of future reliefs.

This country is in need of tax revenues and I for one completely understand and respect this. I am not against a property tax nor am I against austerity measures as they are needed to meet our fiscal obligations, but to retrospectively change tax reliefs previously enacted is simply wrong and will have very serious implications for the thousands of what I would call passive investors who entered contracts with the government over the last 10 years. To alter these obligations is simply unfair and unjust.

If this affects you please post to this thread..

Tigger

this will help rural prices to reset to propper levels so it affects me in a positive way but its too little too late.

interpoint

I agree with you Tigger. Prices will fall but that is not the point I am making.

The reason purchase prices were inflated was because Section 23 properties were all being sold at a premium price and were never designed for Owner occupiers. Bigger the purchase price the bigger the Tax break.

Section 23 only benefitted people with other Irish rental income that needed to shelter this income from the taxman.

My point is that many people got involved on that basis and now the fundamentals of the deal have been retrospectively changed by the governement.

ricman

YES, its wrong ,person a bought house in kerry, based on the reasoning, i can use the tax credits on house a, to lesson my tax bill on house b.a MORTGAGE IS a 30 year transaction ,a person should be a least able to work out what are the tax implications of this loan,otherwise whats the point of any one buying investment property ,if the government can change the rules in 3 years time after the house is bought.IE they can put up taxes or reduce tax credits.
Theres a crisis coming re investors, ie many investors are in negative equity,the rent barely covers the mortgage,if interest rates go up by 1 per cent they ,ll struggle to pay the mortgage and in the present market they cannot afford to sell,eg house bought for 200k, now its worth maybe 13ok.
the government made the banking crisis worse,by giving out to many tax credits for too long,which encouraged banks to lend even more .AND now the taxpayer will be paying for 30 years hence to rescue their banks ,ie your childrens children will be paying the debts of anglo ,aib etc
and those propertys were sold at price x, a higher price ,because of their tax status,
so the investor is paying more,taxes, and paid more to but the house,
this undermines any irish investment based on tax incentive,
ie beware investors, the government can change the rules at any time,
so your profits could vanish due to higher taxes or less tax credits.
i have never seen such a major change in regard to tax on long term investments,
a house is not a share ,it takes maybe 4 months to sell a house and the property market
can decline in a few months.

interpoint

Thanks Ricman.

Every economy needs investors.

Investors need to have a clear picture of what they are getting involved in.

Section 23 & 50 tax incentive schemes were at the time clearly explained to Investors. Investors made their decision based on these facts.

Retrospectively rule changing is unfair and unjust and is possibly illegal. It undermines future investment and will severely if not fatally distroy the rest of the Irish economy.

I do not have a problem with the government changing the rules on future investments but this retrospective "Tax Grab" should be stopped.

It is going to bankrupt alot of people in the country.

who_ru

you are dealing with a Govt that is utterly corrupt.

the galway tent was corrupt, indeed many of the tax breaks were corrupt if you ask me. the could only benefit the wealthy, the person earning the avg industrial wage was priced out of the market, or borrowed exorbitantly to pay for artificially inflated prices. the whole market was corrupt and based on corruption, be it at planning level through rezoning by dodgy councillors etc.

house & land prices must be allowed to reach their own market determined clearing prices. this is the only thing that will get the housing market going to some extent.

Pkiernan

I posted on this in the Legal section and was questioned as to what was wrong with the gubbermint doing this.

It is a retrospective change in legislation that will cause more people to go bankrupt.

I fully expect it to be challenged as it is clearly an illegal act by the government.

not even wrong

I wouldn't have had my nineteen children if I'd known the government was going to cut child benefit in the budget, therefore I'm going to sue the government to get it overturned. This is a totally unfair retrospective change -- when I had those children I did so on the basis that generous child support would continue to be available until their 18th birthday.

If a prospective parent can't trust the government then nobody will have chidren and we are faced with the prospect of the extinction of the very human race itself.

ricman

if you are in negative equity by say 100k, and can just pay your mortgage ,or pay most of it ,it makes no sense to go bankrupt.I think you,d need to owe alot to consider bankruptcy as its a complicated process ,most people only do it as a last resort.The government get abit more tax,but they will lose the trust of potential investors.

Pkiernan

not even wrong wrote: »

I wouldn't have had my nineteen children if I'd known the government was going to cut child benefit in the budget, therefore I'm going to sue the government to get it overturned. This is a totally unfair retrospective change -- when I had those children I did so on the basis that generous child support would continue to be available until their 18th birthday.

If a prospective parent can't trust the government then nobody will have chidren and we are faced with the prospect of the extinction of the very human race itself.

Ridiculous comparison, and it is obvious you do not have a clue as to Section 23 properties.
This legislation is more akin to introducing a new windfall tax today on people who won the lottery 10 years ago. There would still be begrudgers like yourself who would support it.

Nonetheless Happy Christmas :):)

The_Conductor

The fact of the matter is the reliefs were only for a finite timespan, come what may (it varied, depending on a lot of different factors). Governments can and do change rules- it would be a silly person who expects the system of taxation to remain static over a protracted period of time. We had good times- a number of the reliefs were extended- we now have bad times, and people are being warned of the ultimate 2014 cut-off for these reliefs.

I do not support the assumption that the government are corrupt- I do however subscribe to the train of thought that they have exercised a ridiculous level of ineptness- particularly in the period from 1992 onwards.

Ultimately the root of the issue is the nature of parochial politics in Ireland. There are few people willing to think of what is good for Ireland as a whole- rather you have every TD, and councillor wondering what bacon they can bring to their home constituencies. The entire system is based on voters having their man or woman in the Oireachtas, and petitioning their man or woman for whatever they want. Thus we have ridiculous developments of tax designated villages in the middle of nowhere, motorways built to nowhere, a social welfare system that actively discriminates against working, a tax code that while flawed, is functional, but requires serious tuning- and an electorate who are still wholly delusional about how bad things really are.......

We really are incapable of governing ourselves- without dissolving the country and rebuilding it from the bottom up. Political dynasties be damned- alongside parochial politics. We need to grow up- we are a small very open economy on the far flung corner of Europe. We should be ashamed of ourselves.

Darlughda

smccarrick wrote: »

I do not support the assumption that the government are corrupt-


..... We need to grow up- we are a small very open economy on the far flung corner of Europe. We should be ashamed of ourselves.

Agreed with the most of the rest of your post. But gosh-you cannot see the evidence that the government is corrupt?? What?

Nope. I have nothing to be ashamed of. However our government has.

Actually I am getting off topic. I think investing in property is immoral, and one of the best things about this 'recession' is it is now acceptable to question greedy people who did this.

interpoint

ricman wrote: »

if you are in negative equity by say 100k, and can just pay your mortgage ,or pay most of it ,it makes no sense to go bankrupt.I think you,d need to owe alot to consider bankruptcy as its a complicated process ,most people only do it as a last resort.The government get abit more tax,but they will lose the trust of potential investors.

I agree with you. However, nobody invests with the intention to go Bankrupt. You always weigh up the risks of things going wrong v's things going right before you dive in. There are some things you are in control of and some things that you are not.

Politics or the well being of the economy is not a reason to reverse legally binding agreements that were made in the past. I fully support the ending of any future similar agreements as they were flawed for many other reasons.

I totally agree that the entire political system and politicians are corrupt. The tax breaks and the use of them have damaged the economy by creating a property bubble that was fueled by greed etc etc. This subject is very well discussed in the media.

Many many non corrupt everyday people invested into Section 23 and 50 properties based on this government promise/contract. Any reversal of this agreement must be challanged legally.

Regarding the nineteen children.. If you really did have that many children so that you could avail of social welfare or child allowance AND the government allows this then you should continue to get these payments. But there are probably much easier ways to get money

The problem is not you or your ninteen children. The problem is the Government encouraged you to take advantage of the welfare system. These types of policies are flawed and should be discontinued for future unborn children. Just like the section 23 or section 50 tax breaks.

Tax is a tool that has many uses in an economy, but enforcing it or changing it in an illegal way / retrospective way just does more harm than good.

interpoint

Darlughda wrote: »

Agreed with the most of the rest of your post. But gosh-you cannot see the evidence that the government is corrupt?? What?

Nope. I have nothing to be ashamed of. However our government has.

Actually I am getting off topic. I think investing in property is immoral, and one of the best things about this 'recession' is it is now acceptable to question greedy people who did this.

I really do not understand your point on immorral investing. When someone buys a house to live in they are investing in themselves. It allows them to get away from renting. The price of property increased because of tax breaks etc. The government introduced these tax breaks. So the government created the environment for a property bubble to evolve. Don't blame the participants, blame the people that drew up the rules.

The people who invested in these properties paid huge levels of tax. Stamp Duty and Vat being the biggest ones. They also funded the county councils, the builders and the thousangs of tradesmen and women that were involved in the construction industry. All this money ended up the government coffers and was mismanaged and squandered by political people, senior civil servants and advisors that did not plan for any potential downturn.

The result: The Government now wants to reverse backtrack and U turn in the name of a recession and is unfair and unjust on the people that took a risk based on the same policies that were also incorrect in the past. It is not the investors job to invent the rules. The investor must adhere to their end of the equation and in this case the government needs to do the same.

Back to topic..

Retrospective taxation is wrong doesn't matter who is affected.

BTW, Merry Christmas to all

The_Conductor

Whether or not there is a legally binding agreement- is irrelevant when you are talking about an agreement with a sovereign state. Governments change, rules change. We used have the death penalty here once upon a time- everyone is relieved it was rescinded. We used have numerous tax breaks here- the bulk of the populace are happy they have been rescinded. Are people going to get burnt because of this? Certainly they are. Was property a good investment for these people- for most it was (depending on when they purchased). As an investment strategy though- normal rational investors spread their risk by investing in different types of assets. There is no such thing as a 'sure bet' and anyone who imagines there is, is delusional.

interpoint

smccarrick wrote: »

Whether or not there is a legally binding agreement- is irrelevant when you are talking about an agreement with a sovereign state. Governments change, rules change.

Sorry, I disagree with you. Ireland's economy is built on trust and law. It is what makes us an attractive country for foreign direct investment and inward investment. I agree that rules can change but not at the expense of these principles. Retrospective taxation is wrong.

smccarrick wrote: »

We used have the death penalty here once upon a time- everyone is relieved it was rescinded.

Interesting comparison. You are right it was lawfully recinded in 1990. So by that logic hypothetically if the death penalty was then re-introduced today then all criminals that should have been given a death sentence in the past 20 years must now be executed as part of retrospective justice.

The recent changes in the Budget is effectively giving a retrospective death sentence to the thousands of Irish investors that bought section 23 and section 50 properties.

smccarrick wrote: »

We used have numerous tax breaks here- the bulk of the populace are happy they have been rescinded. Are people going to get burnt because of this? Certainly they are.

I agree with you 100% on that. However, the removal of existing tax breaks need to be done over a period of time. If you bought a section 23 property beginning in 2007 then you must keep it until end of 2016. If you sell the property within that period then there are tax claw backs by the government. Anyone who invested would be aware of this.

smccarrick wrote: »

Was property a good investment for these people- for most it was (depending on when they purchased).

The actual property or the value of it is completely irrelevent to most investors that actualy bought them. They simply wanted the tax break to offset their other existing Irish rental income and this could be done lawfully if you purchased a section 23 property.

However, the section 23 properties themselves were often very expensive and in less than ideal locations. Their potential to be viable investments on their own was often non-existant. They were simply a vehicle or a means to an end. They were simply a tax shelter.

I am not arguing whether tax shelters are right or wrong. It was the policy of the Irish government to introduce these tax shelters to encourage development and construction projects around the country. The initial result was a property boom and huge tax windfalls. The end result is what we have now, a country on its knees.

I do believe that tax shelters are a usefull instrument to stimulate an economy but they are also extremely dangerous when they get out of control. They can create a false non-viable world where clarity & reality is removed and replaced by blind greed.

The stupidity of the Irish Government has resurfaced again with the retrospective Section 23 changes in the Budget. This is only going to make things alot worse as now we are dealing with the future credability (or lack of it) in the Irish economy.

Darlughda

interpoint wrote: »

I really do not understand your point on immorral investing. When someone buys a house to live in they are investing in themselves. It allows them to get away from renting. potential downturn.

Someone buying a house to live in is a very different kettle of fish to somebody looking to maximise profits on 'a business investment.'

interpoint

Darlughda wrote: »

Someone buying a house to live in is a very different kettle of fish to somebody looking to maximise profits on 'a business investment.'

You are missing the point and do not seem to understand the motivation behind investors and tax designated properties.

Section 23 and Section 50 designated properties were never suitable for first time buyers or owner occupiers without other Irish rental income as they would be paying for the Tax break and not have any use for it.

Builders knew that if they built them then they could get a higher price for them and also had a better chance to sell them. Remember they were often located in less than ideal locations.

The actual property or the value of it is completely irrelevent to most investors that actualy bought them. They simply wanted the tax break to offset their other existing Irish rental income and this could be done lawfully if you purchased a section 23 property.

However, the section 23 properties themselves were often very expensive and in less than ideal locations. Their potential to be viable investments on their own was often non-existant. They were simply a vehicle or a means to an end. They were simply a tax shelter vehicle.

Morality had nothing to do with it. Remember nobody complained when all the Tax money (Vat, Stamp etc) from the property boom was flooding into the government coffers. Now the government wants to change the game in their favour and a soft target for them are the small investors that are percieved by the general public as the root cause of the downturn.

Nothing could be further from the truth.

What would have happened if property tax incentives had not been introduced ?

who_ru

interpoint you remind me of the hillbillies & yokels that 'invested' in eircom when it was privatised. they believed they just couldn't lose because the gubbermint told them they couldn't. well they did. and they never stopped complaining for about 10 years after that they were shaffted by a treacherous government. The precedent was set then my friend.

there's a burning a comin' and looks like it's a comin' your way. what about all the junior bondholders in anglo etc - they're getting screwed. why are you so special?

interpoint

who_ru wrote: »

interpoint you remind me of the hillbillies & yokels that 'invested' in eircom when it was privatised. they believed they just couldn't lose because the gubbermint told them they couldn't. well they did. and they never stopped complaining for about 10 years after that they were shaffted by a treacherous government. The precedent was set then my friend.

Sorry no complaints from me on that one.

The government never told anybody they couldn't win or lose on Eircom. It's the stock market after all. You pay your money and you take your chances. Free choice & Let the dice roll etc.

Anyway thats a bit off topic.

interpoint

There seems to be confusion on how these tax breaks work.

Here is a simple example.

BTW.. I am not by any means an expert on this subject and am open to correction. For simplicity purposes I have also disregarded mortgage interest relief from the calculations.

Anyway here goes...

Private Person A ownes a Commercial building in Dublin O'Connell Street (mortgage free) that is fully rented.The rent per year from this building is say 200k before tax and they must pay 42% on this rental income.

This equals 84k.

So they send a cheque to the revenue for this amount each year.

Simple right ?

However, Person A then buys three small Section 23 Holiday Homes in say Rural Co Leitrim for 245k each or 735k in total.

Person A probably has never even seen the Holiday Homes but doesn't really care as they create a tax break of 73.5k or 1/10th of the purchase price per year (for 10 years).

The holiday homes in Leitrim also create a 15k rental income for the investor per year.

Now person A can send a cheque to the Revenue for his entire Irish rental income minus the tax break. (200k + 15k) x 42% - 73.5k (tax break) = 16.8k

But remember, they must now pay the mortgage on the three Holiday Home properties in Leitrim. Say for example this is 4.5k per month or 54k per year.

Nett result investor pays out 54k (to bank) + 16.8k (to taxman) = 70.8k in total.

Now..

Budget 2010 kicks in 1st Jan 2011

Person A can no longer use the Section 23 tax credits against the 200k commercial property rent they are getting in O'Connell Street Dublin and can only apply the tax credits to the rental income they are actually getting directly from the Holiday Homes.

So, at the end of December 2011

Net result investor pays out 54k (to bank) + 84k (to taxman) = 138k in total.

And to make matters worse, if they try to off-load the Leitrim properties before the 10 year tax break expires the government will claw back the historical sheltered tax. Nice eh.. Remember the value of the Leitrim properties was highly over valued in the first place because of the S23 status. Now they are only worth a fraction of their origional value.

The amount of people that this scenerio affects is in the 10's of thousands across the country.

The_Conductor

There are numerous variants on this.

First of all- the cutoff for most of these schemes (and there are several different schemes) is the 31st December 2014, only a minority of them are 31st December 2010 (and there are other cutoffs between these two dates depending on the scheme).

Secondly- the scenario you used assumed no allowable deductions before calculation of net tax due. Even in a commercial scenario- this simply is not true. At present the single biggest deduction is depreciation of the asset- aka using the paper loss on the value of the building as a 'cost' on which the tax could be dissipitated. In a commercial context valuations until recently only tended to occur very rarely- as in once every 20 years, or on the disposal of the asset, and the gain (and it would have been a consistent gain given the time span) was booked as a one off gain at that point in time. This changed with the change in accounting rules about 4 years ago- however its not being universally applied (thus far).

Thirdly- That the holiday homes in Leitrim (or where-ever) were vacant is neither here nor there. There are very few investors out there who would willingly have left a property vacant, unless the cost associated with keeping the property tenanted, exceeded any cost of leaving the property vacant (which ironically was the case almost universally in Ireland up to July 2006).

The big issue in an Irish context is that all fundamentals of investing were tossed out the window- and Joe the Taxi driver was considered a more accurate barometer of investment sentiment and opportunity, than were seasoned investors, or economists. Unfortunately our bankers listened to Joe the taxi driver too- which has left us in the carnage of a country we're currently in..........

Certainly people who invested in Eircom at the time should have known that investing fundamentals state that prices can and do rise as well as fall. The sad fact is these same folk then got a bee in their heads about property being some sort of cast gold investment, on which they were entitled an annual appreciation of ~10% in asset value, irrespective of where the property was, or whether anyone would ever want to live in it.

We can debate who to blame until the cows come home- and certainly property was hyped three ways to kingdom come by the media, by politicians, by estate agents, by bankers- but ultimately the time has come for people to take responsibility for their own actions. I lost 10k on Deutshe Telekom shares a decade ago- mea culpa. I got out of Eircom by noon on the day of their launch and remade the 10k I had lost on those Deutsche Telekom shares- I never intended to subscribe to the lunacy and frenzy of the frothy reviews, because I didn't believe in the substance, I did believe there was money to be made there if you got in and out as quickly as possible and so I did.

Personally- I have very little sympathy for the investor with their commercial property against which they were offsetting the purchase cost of a couple of holiday lets in the backend of Leitrim, Kerry or Donegal. Perhaps they can offload them at some stage to locals at their true market value, which would be the fairest outcome, however even this is circumspect. The people who do have my sympathy are not those with the holiday homes- but those who bought apartments or other property- as far back as 1996, as they needed accommodation, and it suited their needs at the time, however now with spouses, children and other commitments, they are now living in wholly unsuitable accommodation that is for all intents and purposes unsaleable, irrespective of whether its nominally in negative equity or not (and for those who are selling at the moment- prices from 1996-1998 are not unusual- and even then prices were inflated........)

So is the investor who got burnt because their Section 23 tax break is not going to be extended (yet again) to be pittied, or is Mr and Mrs Jones with their 2 kids in a 2 bed apartment in the (luxurious according to the estate agents) but incomplete estate outside Portlaoise whose kids run the risk of playing in derelict buildings, or worse still open holes in the ground where soakage was supposed to go, before the Greens nuked that idea.........

Our country is in a mess- and I sure as hell am not going to get hung up over the couple of thousand who are freaking because they're not going to get further extensions to their tax shelters.............

interpoint

Thanks smccarrick for your comments. My example was only a simple illustration on a potential situation and was not supposed to be a full on tax case study or a debate on the fundamentals of investing.

I would like to steer the conversation back to topic.

There should be an impact assessment into the effects of the phased abolition of the property base measures and the ‘guillotine’ provision.
Any assessment should highlight the following points:

1. This attack on property owners is unfair, unjust and is again disproportionally targeting a sector that has been hit the hardest in recent years, e.g. reduction in mortgage interest allowable, NPPR, negative equity, rent reductions, compliance with new standards of rental accommodation with no interest relief on borrowings.

2. On the purchase of these properties, over 40% of the price of all schemes went as tax to the exchequer. Stamp duty was also paid. The State's benefit was immediate and the landlord's benefit was for the agreed period. The landlord has a legitimate expectation that the State will honour its agreement.

3. The abolition of these incentives will undermine the country as a whole who would enter into a partnership when their partner goes back on their word and changes the contract? This action will not encourage growth or investment in Ireland; it will ensure that people invest more safely outside the country.

4. Restricting the Section Relief to the Section Property ensures that most people will not be able to use the relief at all. Property Owners who purchased these schemes for the most part borrowed the funds and require the tax incentives to service these borrowings. It will be a question of paying the banks or paying revenue, resulting in arrears and bankruptcy.

5. It is understandable that money needs to be raised but this is not the way to do it. It unfairly targets the people who invested and entered into contracts, will cause breach of contract, will result in bankruptcy, and will see defaulting loans which are currently performing. By all means withdraw the incentives for the future, but not where people have already entered into enforceable contracts.

6. If the action is carried out, property owners will have no option but to challenge the abolition and this will incur costs on individuals who can ill afford it - and result in the State incurring legal costs to defend an action which is both immoral and unacceptable.

Seasons wishes to all

not even wrong

interpoint wrote: »

1. This attack on property owners is unfair, unjust and is again disproportionally targeting a sector that has been hit the hardest in recent years, e.g. reduction in mortgage interest allowable, NPPR, negative equity, rent reductions, compliance with new standards of rental accommodation with no interest relief on borrowings.

Plenty of more deserving people have seen "unfair, unjust and disproportionate" attacks on their livelihoods over the past few budgets -- but you want special treatment for the investors who helped get us into this mess, and never mind the rest of society?

2. On the purchase of these properties, over 40% of the price of all schemes went as tax to the exchequer. Stamp duty was also paid. The State's benefit was immediate and the landlord's benefit was for the agreed period. The landlord has a legitimate expectation that the State will honour its agreement.

That phrase doesn't mean what you think it means.

3. The abolition of these incentives will undermine the country as a whole who would enter into a partnership when their partner goes back on their word and changes the contract? This action will not encourage growth or investment in Ireland; it will ensure that people invest more safely outside the country.

Who's going to invest in a country whose government is so corrupt and beholden to special interests that it slashes and burns public services in order to protect private sector landlords from the consequences of their poor investment decisions? Who's going to invest in a country whose infrastructure and education system has been decimated by cutbacks because we decided that the poor landlords deserved tax breaks instead?

6. If the action is carried out, property owners will have no option but to challenge the abolition and this will incur costs on individuals who can ill afford it - and result in the State incurring legal costs to defend an action which is both immoral and unacceptable.

Immoral and unacceptable is threatening the State with legal blackmail to protect your own dodgy investments which have gone down the toilet.

interpoint

not even wrong wrote: »

Who's going to invest in a country whose government is so corrupt and beholden to special interests that it slashes and burns public services in order to protect private sector landlords from the consequences of their poor investment decisions?

This is a ridiculous comment.. Do you really think that is why the government is slashing public services ? To protect private sector investments ?

The point of this thread is about the government trying to "reverse" out of a deal they made with the private sector in the name of a recession.

** Off topic **

What about benchmarking and croke park agreement etc..

In the past the public sector unions have threatened strikes, civil disruption and legal challenges to potential pay cuts. Should this scenario repeat, the Government must introduce emergency legislation to carry through the measures. The public sector unions must be made realise that a ‘national plan’ to address the catastrophic public finances cannot avoid pay cuts in the public sector. They more than shared the gains through Benchmarking and now must share the pain.


** On topic **

There are plenty of other threads where you can discuss the government and the public sector spending spree.

edanto

The point about slashing public services is very relevant. You are campaigning for a reversal of this government decision, so as to save property investors from extra tax, a tax that they did not expect to have to pay. A tax they didn't budget for, so to speak.

The government is of course making this decision because of the gaping hole in the public finances. Let's assume that their decision to close off these tax reliefs prematurely will net between €0.5 and 1bn for the public purse, and in the process will unfortunately make some landlords incur a loss or become bankrupt.

That is of course unpleasant, and you are saying that it is wrong and it seems like you would like to challenge it legally.

In these grey days where nothing is really right or wrong and we only have 'more right' or 'more wrong', my assertion would be that is it 'more right' to spring these extra charges on property investors than it would be further reduce other areas of government spending such as health, education or social welfare.

But you disagree - and presumably you have a plan for somewhere else in the budget that we should cut back so as to spare the Sec 23&50 investors?

Where would you make those savings?

(ps there are plenty of precedents for tax legislation changing unexpectedly, so I think any effort to get a judge to agree with you on that one would be an expensive mistake)

johndaman66

Darlughda wrote: »

I think investing in property is immoral, and one of the best things about this 'recession' is it is now acceptable to question greedy people who did this.

I just have to post a reply to the above comment as I feel you are so very very wrong Darlughda. Any well functioning and healthy property market will have a certain amount of investors. Think about it, if there were no invetors whatsoever there would be no rental property on the market and just to live somewhere you would need to buy a house or appartment...now that would hardly work would it? Not full sure if perhaps you are referring to our current situation and meant greedy investors who bought multiple properties in order to avail of flawed tax breaks (albeit flawed tax breaks derived by incompetent governments down through the years) but reading your comment in the context of the manner you put it accross appears just wrong to me. Remember too that when you choose to buy your own home as oppossed to renting you are investing in property too whether you like it or not....to put quite a literal spin on it.

I feel that people are to readily dismissing or even perhaps do not fully appreciate the over-riding point that interpoint is putting across. My understanding of it is that he is not necessairly making the point that Section 23 or other such tax shelters are or indeed ever were good or bad things per se. Rather that for the government to retrospectively renage on the terms is stupid and incompetent to say the least or even immoral or illegal perhaps as its probably breach of contract. To me it seems people are not making the distinction. Apologies if I myself am taking you up wrong interpoint but to me that seems to be the general spirit of your argument which I'd agree.

Moreover I feel we need to look at the broader picture. A government who renages retrospectively on an agreement is hardly going the do a country any favours with regards to investment in said country...be it IT, pharmaceuticals, financial services, government bonds, construction and infastructure etc etc.

interpoint

johndaman66 wrote: »

...I feel that people are to readily dismissing or even perhaps do not fully appreciate the over-riding point that interpoint is putting across. My understanding of it is that he is not necessairly making the point that Section 23 or other such tax shelters are or indeed ever were good or bad things per se. Rather that for the government to retrospectively renage on the terms is stupid and incompetent to say the least or even immoral or illegal perhaps as its probably breach of contract. To me it seems people are not making the distinction. Apologies if I myself am taking you up wrong interpoint but to me that seems to be the general spirit of your argument which I'd agree.

Moreover I feel we need to look at the broader picture. A government who renages retrospectively on an agreement is hardly going the do a country any favours with regards to investment in said country...be it IT, pharmaceuticals, financial services, government bonds, construction and infastructure etc etc.

Thanks johndaman66 that is exactly the point I have been trying to make. It is all about confidence in the market. It is in so very very short supply at the moment.

Political acts like this will make a quick buck for the Government (probably 60M) but the negative consequences for the country is going to be huge (1000x) across all sections of the economy.

We must start to see beyond the short term gain. There is enough damage done already. It is time to start repairing our reputation as a country and to stop ripping it apart at every opportunity.

The_Conductor

Ok- back on topic.

Section 23 propery reliefs have been in existence since 1965, and at varying times had their period of relief varied up to 25 years duration (though 10 year reliefs were the norm). This particular scheme was wound up in 2006- and while I accept that people who applied for this relief in 2006 could be said to have a reasonable assumption that they would have 10 years of relief, they are instead being afforded 8 years of relief.

The entire price of the property was never allowable as a relief- the site cost, which in many cases was a significant portion of the cost, was normally excluded from the equation.

So- purchasers have an allowable period of 8 years in which to offset their rental income against the section 23 relief- instead of the 10 (and note- the relief could potentially be claimed all in the one go in year 1- if they had sufficient income on which to offset against the relief).

The whole purpose of Section 23 was to encourage regeneration of city centres and gentrification of run-down areas, alongside upgrading of rental accommodation. As a rule these properties had to be let on the open market for a 10 year period (though relatives were allowed live in them, providing the transaction continued to be at open market rates). In this respect- the relief was a great success- however in the period from 1994 to 2006- it became a tool which was much abused by politicians to bestow favours particularly in marginal constituencies- hence Kerry South, Leitrim and Donegal have a totally disproportionate number of these properties.

As a scheme- it had a lot going for it- the big issue however is the manner in which it became abused by politicians in their practise of parochial politics.

While some investors in S23 properties might feel hard-done-by as a result of the shortening of the period in which the relief can be offset against rental income- the simple fact of the matter is that the scheme had lived long beyond its original purpose, and should in fact have been wound up years previously (as per the Bacon reports).

I don't accept that some sop should be made to placate investors who feel they are getting their fingers burnt as a result of the shortening of the relief period. We're all in trouble- and were these properties to reflect prevailing market prices, it would be another step towards normalisation of the Irish property sector. Certainly we'll end up with possibly thousands of bankruptcies- however we're also reforming our personal bankruptcy laws- admittedly decades late, but better late than never. No more will we have the 12 years of personal bankruptcy- it looks likely that the common 3 years will instead be the case (and will end people nipping over to the UK to declare themselves bankrupt over there instead........)

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interpoint

smccarrick I agree with your last post.

Everyone understands that we are living in very different economic times. However, we must protect the fundamentals of doing business in Ireland.

Budget 2010 is a Government Political statement that goes something like this "Lets kick the private investors because nobody will feel sorry for them and we will look like we are doing the right thing in the eyes of the general public"

Politically they are right - Economically they are wrong

It is worrying when confidence is eroded and threatened for such short term political gain.

In reality there is no real scapegoats because everything the government does will affect someone else. Our only option is to grow out of this recession and that requires confidence in the market and once this is protected anything is possible.

There is a way to wind down the Section tax breaks so that investor confidence is not distroyed.

However, if I was running the country I would do everything possible to encourage growth and the biggest issue right now IMHO is that we do not have the skills in government to undertake the required work. It is all about cuts and more cuts and nothing about growth. Parochial Politics rules the day..

In fact anything that undermines confidence will stifle growth even more and force more cuts.

The issue is not about penelising a few greedy investors just to give us all a feel good factor. The resulting loss of confidence will inflict economic shock waves way beyond our wildest dreams. Forcing more cuts.

Public & Private cooperation is vital for growth but we need to eliminate the small parocial politics that call the shots throughout the country. Electorial / Political reform maybe.. But that is a subject for another day.

Pkiernan

smccarrick wrote: »

I don't accept that some sop should be made to placate investors who feel they are getting their fingers burnt as a result of the shortening of the relief period.

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In the same vein of thought, would you for example have a problem with the Government introducing increased taxes on monies earned in previous years?

For example, say you were lucky enough to have a good job and a 150k salary in 2006. Do you think the govt should be able to go back now and demand that you pay more tax on that years salary today?

I imagine you would think that this type of retroactive tax increase would be wrong.

It is EXACTLY what they are doing to Section 23 owners now.

The "everyone must take the pain argument" is bogus and is being used to foist potentially unconstitutional laws upon us.

If they want to balance the books, eliminate the waste in the public service, simple as falling off a log.