John Perry
Ceist:245 Mr. Perry asked the Minister for Finance if he will clarify the position regarding tax relief on interest on second houses in rural parts of the country; and if he will make a statement on the matter. [11991/98]
Written Answers. - Tax Reliefs.
It is assumed that this question refers to residential premises in rural areas which are let and the effect of the recent Finance Act "brought in as a result of the Bacon report" on the tax treatment of the rental income from such houses.
Under the tax law relating to rental income, a person may claim a deduction from gross rent in respect of such items as: ground rent, rates, the actual cost of maintenance, repairs, insurance, and management fees, wear and tear on furniture and fittings, and the interest on borrowings used in the purchase, improvement or repair of the premises, in arriving at the taxable rent. As regards the interest on borrowings, no distinction was made up to now between rented residential premises and other rented premises. However, under the Finance (No. 2) Act, 1998, the interest on borrowings used to purchase, improve or repair premises will not in certain circumstances be allowed as a deduction in arriving at the taxable rent.
Subject to certain transitional arrangements for pipeline cases, the Finance (No. 2) Act, 1998 provides that interest on borrowed money used on or after 23 April 1998 — 7 May, 1998 in the case of foreign properties — in the purchase, improvement or repair of a residential premises cannot be offset against rental income in arriving at the taxable rent, or allowable loss, in respect of that premises. The restriction covers individuals, companies, trusts and partnerships.
A person who owned rented residential property on 23 April 1998 and had up to that date been entitled to offset loan interest against the rents from that property can continue to claim the loan interest as a rental deduction. However, if the person used the rented house as his or her main residence after 23 April 1998 and subsequently lets it again, the loan interest would not thereafter be allowable as a rental deduction.
The new restriction will not apply to residential premises in qualifying resorts under the seaside resort scheme. Such premises include accommodation for letting to tourists and in respect of which capital allowances may be claimed, and other accommodation for renting to tourists in respect of which "section 23 type" relief is available; rented residential accommodation — both "section 23 type" and non-section 23 type premises — in areas to which the new rural renewal scheme applies. These areas cover parts of Cavan, Roscommon and Sligo as well as the entire counties of Leitrim and Longford; some holiday cottages and other self-catering accommodation outside of qualifying resort and rural renewal areas. The premises in question are those in respect of which an application for planning permission was received by a local authority before 23 April, 1998 and where the planning permission when received includes a condition that the premises cannot be let for more than two consecutive months to any one person-and such condition is still in force in the tax year in which rents are receivable. As regards the condition that the premises cannot be let to the same person for two consecutive months, it is accepted that local authorities may use different wording in imposing what is essentially the same condition in planning permission. The Revenue Commissioners will not be taking a literal interpretation of the twomonth rule and will allow exemption in any case where the premises is clearly confined, as part of the planning permission, to short-term lettings.
I am informed that the Revenue Commissioners have prepared an explanatory leaflet on the new changes regarding loan interest as a rental deduction and this will be available next week. This leaflet will include details of the transitional arrangements for pipline cases.
I will arrange to have copies of the leaflet placed in the Library as soon as it is available.