The government’s help-to-buy income tax rebate, intended to assist first-time buyers to get new homes, could be used by EU nationals to buy outside Ireland, warned Department of Finance officials before the scheme was introduced.
Officials said the practice “could become a significant issue” but little could be done to challenge it because of freedom of movement rights in European treaties. “Any use of the relief for home purchases in other countries could obviously have little or no impact on housing supply in Ireland,” they warned.
Briefing documents released under the Freedom of Information Act note that anyone buying a home in the EU who had paid income tax in Ireland for four years could not be stopped from claiming back €20,000 in income tax to buy an overseas property, as long as they met the definition of first-time buyers.
This was one of several policy concerns raised by officials prior to the rebate being introduced on a two-year basis. Officials estimate the cost of the scheme to the exchequer will be €40m.
Officials advised Michael Noonan, the finance minister, against introducing the tax rebate because of these uncertainties, noting that the measure may have “little or no impact on supply” but could result in driving up the price of land and housing, “potentially offsetting the benefit of the relief to the prospective purchaser”.
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This weekend the department said the scheme would be reviewed next year and would be discontinued if it were not achieving its aims. “The scheme is temporary in nature,” it said. “It is intended as a short-term intervention to kickstart the building of new starter homes.”
The FoI documents show officials advised the purchase price of properties be capped at €400,000, to make the scheme “less regressive” and to support the purchase of “modest homes”, but Noonan capped it at €600,000. Following complaints by Fianna Fail that the scheme amounted to a “mansion grant”, this cap was lowered to €500,000.
Officials warned the scheme could be considered “regressive” because only those on relatively good incomes would have paid enough income tax to benefit from it.
They advised the scheme should last for three years “if it is to have any effect”, although Noonan put an end-date of 2017 on the tax rebate. Officials also warned that withdrawing the scheme would be “very difficult”.
“If the price of homes continues to increase and the Central Bank of Ireland’s rules remain as they currently are, then there will be even more pressure for the state to assist home buyers in reaching the larger deposits required going forward,” they note.
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A strict cap on the purchase price, with houses priced even a euro extra not qualifying, could lead to “under-declaration of the price of sales, tax evasion and under-the-table payments”, Noonan was also warned.
Officials said the scheme should be limited to those taking out mortgages, as many first-time buyers were cash buyers, with 10 first-time buyers purchasing houses worth more than €1m last year and 250 buying properties worth more than €500,000.
They added that it would be important to protect against wealthy first-time buyers taking out a “small mortgage” solely to qualify for the tax refund. To avoid this, the scheme was designed so that only those with mortgages of at least 80% of the value of the property could qualify.
A five-year occupancy clause was also attached to guard against people buying and then flipping the property.
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THE government’s help-to-buy income tax rebate, intended to assist first-time buyers to get new homes, could be used by EU nationals to buy outside Ireland, warned Department of Finance officials before the scheme was introduced.
Officials said the practice “could become a significant issue” but little could be done to challenge it because of freedom of movement rights in European treaties. “Any use of the relief for home purchases in other countries could obviously have little or no impact on housing supply in Ireland,” they warned.
Briefing documents released under the Freedom of Information Act note that anyone buying a home in the EU who had paid income tax in Ireland for four years could not be stopped from claiming back €20,000 in income tax to buy an overseas property, as long as they met the definition of first-time buyers.
This was one of several policy concerns raised by officials prior to the rebate being introduced on a two-year basis. Officials estimate the cost of the scheme to the exchequer will be €40m.
Officials advised Michael Noonan, the finance minister, against introducing the tax rebate because of these uncertainties, noting that the measure may have “little or no impact on supply” but could result in driving up the price of land and housing, “potentially offsetting the benefit of the relief to the prospective purchaser”.
Advertisement
This weekend the department said the scheme would be reviewed next year and would be discontinued if it were not achieving its aims. “The scheme is temporary in nature,” it said. “It is intended as a short-term intervention to kickstart the building of new starter homes.”
The FoI documents show officials advised the purchase price of properties be capped at €400,000, to make the scheme “less regressive” and to support the purchase of “modest homes”, but Noonan capped it at €600,000. Following complaints by Fianna Fail that the scheme amounted to a “mansion grant”, this cap was lowered to €500,000.
Officials warned the scheme could be considered “regressive” because only those on relatively good incomes would have paid enough income tax to benefit from it.
They advised the scheme should last for three years “if it is to have any effect”, although Noonan put an end-date of 2017 on the tax rebate. Officials also warned that withdrawing the scheme would be “very difficult”.
“If the price of homes continues to increase and the Central Bank of Ireland’s rules remain as they currently are, then there will be even more pressure for the state to assist home buyers in reaching the larger deposits required going forward,” they note.
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A strict cap on the purchase price, with houses priced even a euro extra not qualifying, could lead to “under-declaration of the price of sales, tax evasion and under-the-table payments”, Noonan was also warned.
Officials said the scheme should be limited to those taking out mortgages, as many first-time buyers were cash buyers, with 10 first-time buyers purchasing houses worth more than €1m last year and 250 buying properties worth more than €500,000.
They added that it would be important to protect against wealthy first-time buyers taking out a “small mortgage” solely to qualify for the tax refund. To avoid this, the scheme was designed so that only those with mortgages of at least 80% of the value of the property could qualify.
A five-year occupancy clause was also attached to guard against people buying and then flipping the property.