I can advise the Deputy that there is already a capital allowance scheme available to lessors of residential accommodation. The scheme, the Living City Initiative, was extended by Finance Act 2016 to allow capital allowances to be claimed by lessors of residential property on conversion or refurbishment expenditure incurred on property situated in a special regeneration area. The areas coming within the scheme are designated areas within the cities of Dublin, Cork, Galway, Limerick, Waterford and Kilkenny. Expenditure must be incurred in the qualifying period which at present runs from 1 January 2017 to 4 May 2020. The main features of the scheme are as follows:
- The property being converted or refurbished must have been built prior to 1915,
- The property must be located within a special regeneration area,
- Expenditure of at least €5,000 must be incurred,
- A letter of certification must be obtained from the relevant local authority, and
- After refurbishment/conversion the property must be let on bona fide commercial terms.
Further information on the scheme is available on the Revenue website www.revenue.ie.
Under the VAT Consolidation Act, VAT recovery is available on costs that are incurred in connection with a taxable supply. The sale of residential property by the person who developed it in the course of a property development business (i.e. a property developer who developed the property for sale) is always subject to VAT and a person engaged in such development activity is entitled to recover the VAT on construction costs.
In contrast, the letting of residential property is exempt from VAT. Where a person incurs VAT on construction costs of a residential property developed for letting and lets that property upon completion, the person is not entitled to recover the VAT on construction costs nor will they be liable for VAT on the rental income. Under the VAT Directive, there are no provisions that would permit VAT recovery in these circumstances, nor is there provision for VAT deductibility for persons that are not registered for VAT.