The presentation discusses these developments and other topical issues under six headings:-

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1 Introduction This morning s presentation is intended to cover, at a fairly high level, recent developments affecting the taxation of property. Certainly over the last number of years, there have been various restrictions in the reliefs/capital allowances available to landlords and property owners, most notably the restriction of reliefs known as specified reliefs, but there have also been positive changes, such as the reductions in Stamp Duty rates and the recent introduction of an exemption from Capital Gains Tax to promote investment in property. The presentation discusses these developments and other topical issues under six headings:- 1. Update on property reliefs 2. Interaction of capital allowances and specified reliefs 3. Topical issues for landlords and property owners 4. NPPR and the Household Charge 5. Recent Stamp Duty developments 6. CGT exemption Update on Property Reliefs There was a significant amount of concern when the Finance Act, 2011 changes to the various schemes for property based tax reliefs and allowances were published. At the time there was widespread public perception that the various reliefs were excessive and that some level of restriction needed to be introduced, notwithstanding that the restriction of specified reliefs for high net worth individuals had already been introduced. The last year for which figures are available showing the cost to the Exchequer of these various reliefs is The schemes which appear to have given rise to the greatest cost to the Exchequer are as follows:-

2 - Hotel schemes 102m - Urban/town/rural renewal schemes 57m - Nursing homes 22m - Holiday cottages 14m It was in that context that the changes in the Finance Act, 2011 were introduced. At the time the Minister indicated that the intention was to restrict the availability of these reliefs and to introduce a phased abolition. The proposed changes applied to Section 23 type reliefs, (including student accommodation) but also to all of the usual accelerated capital allowances schemes, such as the ones highlighted above. Specifically, the following changes were proposed in 2011:- - All forms of relief (Section 23 or industrial buildings) were to be ring-fenced and offset only against the rental income arising from the specific property from which the relief was derived. - Any unused reliefs could not be carried forward beyond the 7 year or 10 year tax life of the building. Effectively, these changes amounted not to a phased abolition of these reliefs, but to an immediate abolition of the reliefs. The reason for this statement is because of the typical structure that was put in place for investors in these types of properties. For example, assume that an investor made an investment of 400,000 in a hotel. Typically, the investor would provide personal equity of 100,000 (say) to be matched by non-recourse borrowing of 300,000. Assume that the investor would be entitled to claim capital allowances over a 7 year period on an amount of approximately 320,000 ( 48,000 per year for the first 6 years and 32,000 in year 7), which could be used to shelter other rental income of the investor. On an annual basis the investor s rental income computation would look something like the following:-

3 Rental income from the hospital 15,000 Interest on borrowed funds ( 15,000) Capital allowances ( 48,000) Excess capital allowances ( 48,000) As can be seen from the figures above, excluding the deduction claimed for capital allowances, there is no net rental profit arising from this property investment. Therefore, by restricting the capital allowances to the amount of rental profit arising from the property, there was no way for the investor to utilise those capital allowances. For this reason, the Finance Act, 2011 proposals were in effect of immediate termination of the reliefs. The situation was similar for Section 23/Section 50 investors, though not quite as severe. In those cases, the Section 23 type relief was restricted to the gross rent arising from the property which meant that losses created by interest relief and other expenses relating to the property would still be available for offset against other rental income. The proposals were subject to a Commencement Order, which was not to issue until after the publication of a report on the economic impact of the Finance Act, 2011 proposals. Significant representation and engagement with Government was carried out in The Institute made strong representations on the likely negative effect on jobs and the economy of curtailing reliefs. The report on the economic impact assessment was published on the same day as the Finance Bill 2012, and didn t receive a great deal of publicity at the time. Nonetheless it is clear from the content of the report that it shaped the Finance Bill, 2012 proposals in relation to property reliefs. Some of the points made in the report were as follows:- - The proposals in the Finance Act, 2011 would have amounted to an effective termination of reliefs for many individuals (as explained above). - The report differentiated between Section 23 type investors and professional investors.

4 - For Section 23 type investors the ability to use rent heretofore sheltered by Section 23 type relief to make mortgage repayments was critical to this group of investors. - Professional investors participated alongside non-professional investors, albeit with far greater individual expenditure. These investors already suffer restrictions under Section 485E of the Taxes Consolidation Act, Further restrictions could put enterprise and job creation at risk by diverting cash flow to meet additional tax costs caused by those further restrictions. - In the course of the economic impact assessment, some examples of possible threats to business failures were uncovered. - A termination of property related tax reliefs may compound this effect. Finance Act 2012 Changes As a result of the findings of the Economic Impact Assessment, the Finance Act, 2012 abolishes the changes introduced in Finance Act Specifically:- In relation to Section 23 and Section 50 type reliefs, these will not be restricted in any form under the Finance Act, 2012 proposals. The proposed ring-fencing of the reliefs has been scrapped and any unused Section 23 or Section 50 relief carried forward may continue to be claimed beyond the 10 year tax life of the relevant property. In relation to industrial buildings allowances a number of changes are being introduced which will effectively mean the phased abolition of the reliefs as originally intended back in However, the implementation is being phased in an easier format:- - Ring-fencing of the allowances restricting a deduction for the capital allowances against income arising from the property from which the capital allowances are derived is not going ahead.

5 - Unused capital allowances can continue to be used up to the end of the tax life of the building, or 2014 (whichever is the later date). So, if a building has a tax life ending in 2016, those allowances can be claimed up to Restrictions will not apply where a person is using the industrial building for the purposes of a trade carried on. Where the building is sold in circumstances which give rise to a balancing charge, any unused capital allowances which were restricted because of the tax life/2014 cut off point, and which were carried forward, may be used against the balancing charge (but only against the balancing charge). In addition, the capital allowances carried forward are not treated as a specified relief for the purpose of section 485E (high earners restriction). This prevents a situation where the imposition of the clawback could cause a person to be subject to the restriction of specified reliefs because the income including the balancing charge exceeded the income threshold and any Case V losses forward which were utilised to shelter the income were in excess of the relief threshold. - New rules have been introduced for the calculation of the clawback that arises when a section 23 property is sold or otherwise ceases to be a qualifying property within 10 years of acquisition. The clawback is calculated using a simple formula:- A - B, where A = the amount of the original Section 23 relief B = the amount of the unused Section 23 relief carried forward

6 The following example illustrates how the new rules will operate Case V loss b/f (130,000) (110,000) Case V Profit 20,000 Section 23 Relief (150,000) Case V loss b/f 130, ,000 90,000 Clawback of Relief under S372AP(7) This is deemed to be an amount of rent equal to the difference between the following: A 150,000 - total S23 Relief claimed at outset B (90,000) - S23 Relief b/f under S384 60,000 - Clawback The following table is a simple comparison of the main 2011 proposals and the final version introduced in Budget 2011 FA 2011*1 FA 2012 Section 23 type reliefs and capital allowances ring-fenced to rental profit from specific property investment X Unused relief cannot be carried forward beyond 7 or 10 year holding period (applies to Capital Allowances only) Abolition of all property reliefs from 2014 X *2 *1 FB 2011 was subject to a commencement order *2 Except s23 and some schemes which have not yet reached the end of their tax life

7 Certainly the Finance Act, 2012 provisions are a significant improvement compared to the proposals originally introduced in last year s Finance Act. However, a simple example illustrates the impact of the changes over the last number of years, comparing the position of an investor in 2006 and in 2015 (assuming that no relief will be available in 2015). Admittedly the example includes changes such as the introduction of the Universal Social Charge and the imposition of PRSI. There is however no doubt that the changes over the last few years have had a significant impact on such an investor ? Net rent 600k 600k 600k Tax shelter 600k 120k NIL Taxable profit NIL 480k 600k Tax (197k) (246k) USC NIL ( 60k) ( 60k) PRSI NIL ( 19k) ( 24k) Net Cash 600k 324k 270k? Effective tax rate 0% 46% 55%? Universal Social Charge 5% surcharge on property reliefs While the Finance Act 2011 proposals may have been eased somewhat, there was a sting in the tail in Section 3 in the form of a 5% surcharge imposed as an increased Universal Social Charge. The effect of the surcharge is to create a marginal rate of tax of 60% in relation to some income. An owner occupier of a residential property is not subject to the surcharge. Aggregate income is defined in the same terms as income for USC purposes. Essentially this means that it is a person s gross income that is being measured to determine if the surcharge applies. The surcharge applies where a person has aggregate income of 100,000 or more in the year of assessment and has availed of property reliefs (area based capital

8 allowances or Section 23/50 type relief). The surcharge applies to the part of the person s income that is sheltered by the specified property relief. A simple example illustrates how the surcharge will apply. Aggregate Income of 120,000 in 2012 (comprising 100,000 of salary and 20,000 of rental income) and Case V losses forward of 13,000 created by Section 23 relief. The taxable income for that person would be 107,000. That is, salary of 100,000 PLUS 7,000 of taxable rental income after deducting the Section 23 relief. The 5% surcharge will only apply to the rental income of 13,000 that has been sheltered by the Section 23 relief. The surcharge applies only to the extent that full effect has been given to the specified relief. So, in the above example, if the client also had rental expenses of 9,000, the net taxable rent before (Section 23 relief) would be 11,000. In that case, only 11,000 of the Section 23 relief would be fully used and the surcharge would be limited to 5%. For the purpose of calculating the preliminary tax calculation for 2012, if the calculation is to be based on 100% of the 2011 liability, the % surcharge must be taken into account as if it had applied in Interaction of Capital Allowances and Specified Reliefs For this morning s session I want to highlight the importance of Section 485C(3) based on an actual case that has subsequently been agreed with Revenue, is to highlight the importance of Section 485C(3). Section 485C(3) sets out the order in which capital allowances and loss relief etc., are to be allowed when dealing with a calculation involving specified reliefs. Specifically Section 485C(3) provides that loss relief, which is not related to a specified relief, is to be allowed in priority to a specified relief for the purposes of a calculation of an individual s taxable income.

9 Over the last few years property developers have seen substantial reductions in the value of land held as trading stock. When the accounts of the sole trader are adjusted to reflect that diminution of value by way of an impairment charge, a loss arises in the Case I trade, which is deductible in arriving at the individual s taxable income. So, based on the following example, in the absence of Section 485C(3), you would have the following situation. Loss relief from building trade (say) ( 1m) Rental income from investment properties 1m Capital allowances (hotel scheme) ( 1m) Adjusted income under Section 485C is calculated using the formula T+(S-Y), where:- T = the taxable income after taking account of specified reliefs S = the amount of the specified relief Y = 80,000 or 20% of the taxpayer's adjusted income, whichever is the greater figure. In this case that gives us a formula which reads as follows:- 0 m + ( 1m - 200,000) = 800,000 Therefore, in the absence of Section 485C(3), you would have a situation where an individual has 1m of income from one source and 1 m of losses from a separate source (i.e. no net income), but the specified relief adjustments are creating a taxable income of 800,000. What Section 485C(3) allows you to do is to claim the loss relief in the first instance, which means that none of the capital allowances are being used to shelter rental income in the relevant tax year.

10 Topical Issues for Landlords and Property Owners Landlords Interest As I mentioned in the introduction to this presentation, there have been quite a number of changes introduced over the last few years, which restrict various reliefs and deductions that may be claimed by property owners. Many investors took advantage of cheap bank loans to invest in property, with repayments based on interest only terms as part of the package or, at best, with people reliant on strong rental returns to be able to fund the mortgage. In this regard, relief for interest on borrowed money is a crucial factor in reducing the tax cost of the rental income arising from the investment property. Over the last number of years entitlement to interest relief has been restricted in relation to residential lettings in two ways:- - Restriction in all cases to 75% of the amount of the interest paid during the year - Denial of interest relief if the landlord did not register with the Private Residential Tenancy Board The PRTB requirement has been around for quite a number of years at this stage. However it is still surprising how often this requirement is missed by landlords. Loan obligations Landlords are under constant pressure from tenants to reduce the level of rent, whether that arises under the terms of the lease relating to commercial premises or a private residence. Where this impacts directly is in circumstances where the landlord (particularly with some rental tax shelter) needs to maintain the level of rental income in order to meet capital repayments on the loan. If the tenant can t/won t pay the existing level of rent (or vacates the premises) the landlord may be faced with an inability to meet his repayment obligations on the loan used to finance the investment. Even, if the landlord is in a position to secure a new tenant for the premises, it is likely that the level of rent that can be charged will be at a reduced level. There are two issues that arise from the situation:-

11 - The need to discuss with the financial institution at the earliest possible opportunity how the landlords obligations are to be met, particularly in circumstances where the loan had originally been on an interest-only basis for a period of time and that period has now lapsed. - Discussions with valuers to determine the rental value of the property, both from the point of view of establishing a current market rent for the premises (i.e. to negotiate with the existing tenants, or to get a feel for the level of rent that might be achievable if a new tenant could be secured) or as part of the negotiation process with the bank. Owner/Occupier V s Lessor In the current environment it is not unusual for businesses that have managed to continue in existence to be operating on a smaller scale. In those cases, there may be spare capacity in the business and a potential opportunity to rent some of that premises to an interested party. Where a premises is rented in circumstances where capital allowances had been claimed under one of the area-based tax schemes, the client needs to be aware that the cut-off points for the carry forward of capital allowances will have an impact in relation to the portion of the building that is being leased. Temporary letting of a portion of the business premises In the UK, where a business has surplus accommodation because the business has contracted, and that portion of the premises is let temporarily, the rent arising may be treated as part of the trading income. Any scope for a similar concession in Ireland? Clawback of relief/balancing charge Investors in tax based property schemes are, to a great extent, dependent on the promoter/operator of the property continuing to use the property for the qualifying purpose so that it still qualifies as an industrial building. In some circumstances, investors have been forced to take substantial cuts in the rental income being generated from the property simply to keep the business running. Clearly this creates difficulties in terms of having to finance part of the interest only element of the loan used to complete the purchase of the property.

12 If the hotel/nursing home etc. ceases to trade, the investor may be protected from any claims by the bank because of the non-recourse nature of the loan. However, if the building is sold there may be a balancing charge imposed on the investor (depending on the value obtained for the building). Put/Call Option not enforceable Another factor that will be facing many investors is whether or not the promoter has the ability to honour the put/call option to acquire the property from the investors at the end of the tax life of the building. If not, the investor is faced with the prospect of continuing in ownership of a property that he or she had never planned on owning. Now, the investor will be faced with the responsibility of ownership of a property he or she doesn t want. In addition, the investor will be left with the problem of dealing with the financial institution after the expiry of the 7 year tax life, at which point the debt was intended to have been cleared. There are no magic solutions for these difficulties facing landlords/property investors. All parties need to be working together to try to reach a solution (promoter, investor and financial institution). The original documentation will be crucial in establishing the extent of the problems/responsibility/exposures for the various parties involved. Consider whether or not the sinking fund, which may have been established at the beginning of the whole process, might be available to help fund part of the debt. Talk to the bank at an early stage to determine whether or not there is any scope for renegotiating the terms on which the facility was granted in the first instance. The loan would have been designed to be renegotiated anyway at the end of the 7 year tax life of the building, and a revised facility put in place to allow the promoter to exercise the put/call option. Above all, the investor needs to be working with the promoters to ensure that the facility continues to operate as a qualifying building for the purposes of the industrial buildings allowances for the required tax life of the building. Transfer to a company One solution which is being discussed quite a lot at the moment is the option for an investor to transfer his/her interest in the tax based property into a company controlled by the investor.

13 Certainly there is merit in arranging for a company to acquire the property from the point of view of servicing any debt associated with the property in the future. For every 100 of loan repayment, a company needs to generate 133 (assuming a corporation tax rate of 25%), whereas the individual investor has to generate income of 222 to service the same amount of debt (assuming a 55% rate of tax). However, there are other factors that need to be taken into account:- - The company cannot simply take over the property and the associated debt at the same time. For example, if the property originally cost 1m and a debt of 800,000 was taken out to acquire the property, but the property is now worth just 500,000, the company cannot simply take over the debt of 800,000. That is the equivalent of the company paying consideration of 800,000 for the property and the difference of 300,000 would be deemed to be a distribution in the hands of the investor/owner of the company. To deal with this potential income tax charge, the company needs to be purchasing the property from the investor at market value. That gives the investor the opportunity to clear a substantial portion of the original debt and renegotiate with the bank for the balance of the debt of 300,000 and hopefully make arrangements with the bank for settlement of that (reduced) debt. - There is also the potential for close company surcharge issues to arise in the company. While the rental income may be sufficient to allow the company to meet the loan repayments, that may deplete all cash reserves available in the company. There is however a difference between cash reserves and profit reserves. If the company has profit reserves derived from rental profits arising from the property, the company will still be faced with close company surcharge obligations, notwithstanding the fact that there may not be cash reserves in the company to pay that liability.

14 Property Owners Geared property investments Many individuals invested in geared property investments, both in Ireland and abroad. At the time, with the ever increasing value of property, such an investment had the potential to generate substantial returns on the initial equity investment for the individual concerned. The problem, of course, is that when the property values dropped, the impact of the loss is just as significant. In many instances investors were not aware of the precise nature of the debt taken on by them as part of the property investment. In circumstances where the investor does not expect to generate any return on his/her investment, they may seek to claim tax relief for the loss suffered. The loss relief would typically arise in the form of a negligible value claim or indeed a loss on the deemed sale of their investment following liquidation of the relevant structure. Where the investment takes the form of a loan no relief is available for the loss suffered. This is because a loan (i.e. a pure debt) is not a chargeable asset for Capital Gains Tax purposes and therefore when, and if, the loan is written off no loss arises for Capital Gains Tax purposes. The exception to that rule is where the loan is considered to be a debt on a security. There are many cases both in Ireland and in the UK dealing with the meaning of the phrase "debt on a security". In simple terms, for a loan to be considered to be a debt on a security it must have some additional characteristics which, potentially, would enable the debtor to realise more than the value of the loan at some point in the future. So, for example, debentures which are convertible into ordinary shares in a structure might be considered to be a debt on a security. Unless the debt can be considered to be a debt on a security, a Capital Gains Tax loss will not be available to the investor. Impairment Charge Trading or not trading As mentioned already in the context of Section 485C(3), over the last number of years many clients who were involved in property development have seen substantial depreciations in the value of their trading stock. The accounting

15 treatment of that diminution has been to recognise the diminution by way of an impairment charge resulting in loss relief for property developers. Where a person has been involved on a small scale in property development and has had little or no activity over the last few years, there is a risk that Revenue could seek to argue that the individual has not been trading for a number of years. Therefore, any diminution in the value of the land after the date on which Revenue consider the trade to have ceased may not give rise to a deductible Case I loss. Clearly the circumstances in every case will be different. However, in circumstances where the client has always been involved to a certain extent in property development/building work of some sort of other, it may be easier to argue that the property development trade has continued in existence notwithstanding the fact that there have been of sales of property. It will be more difficult where someone was involved as a property developer on a small (possibly part-time) basis to start with. If the only indication of the existence of the trade is the holding of some parcels of land with no apparent prospects of selling the land/carrying out building activity, it may be more difficult to argue that the trade has continued. There are indications at the moment that Revenue are selecting cases for review where relief for losses has been claimed based on impairment charges caused by diminution in trading stock values. At the time of writing, it is not clear what the focus of the review will be and whether or not it will lead to any investigation of the circumstances in which trading activity has been carried on or might any attempt to argue that in some cases, the trade has ceased.

16 NPPR and the Household Charge NPPR the charge This is a tax charge on second homes that has been with us now since 2009 having been introduced originally under the Local Government (Charges) Act There were a number of amendments made in the Local Government (Household Charges) Act 2011 (16 pages in total) but most of that related to administration issues and clarified the position in relation to penalties. In summary, the NPPR involves a charge of 200 per property payable on 30 June every year. It is payable by individuals and corporate alike. Failure to pay will involve a penalty of 20 per month and the Local Authority is empowered to prosecute someone who fails to pay. The tax has come to be known as "The Holiday Home Tax" but this is a dangerously simplistic description. It applies to any premises that is capable of being used as a dwelling (whether or not so used) and extends to much more than holiday homes. Some properties are excluded from the tax. As the name of the tax suggests, a person is not liable to pay the charge in respect of that person s principal private residence. Other exclusions include:- - New and unused trading stock of a builder - Mobile homes Also excluded are any non-irish properties. So, holiday homes in Spain, Portugal or investment properties in similar locations outside Ireland are not subject to the charge. Section 19 of the 2011 legislation clarifies the position in relation to penalties. Penalties A penalty for failure to pay the NPPR runs at the rate of 10% per month ( 20 per month). At that rate it does not take long for a significant charge to arise if someone has failed to pay the charge.

17 For example, if a property was subject to the NPPR since 2009 and the owner has failed/forgotten to pay the charge, the total amount outstanding up to the end of March 2012 is now as follows - each year shows the 200 charge plus the penalties running to date Total 2,040 Household Charge This charge was introduced as a precursor to a full Property Tax and is set out in the Local Government (Household Charge) Act The amount of the charge is 100 or such an amount as maybe prescribed by the Minister. This latter phrase suggests that the legislation may be used as the basis for the charging mechanism for any new Property Tax. The charge applies to all property owned on 1 January each year (other than excluded property) and is payable on 31 March each year. If the charge is not paid that charge maybe levied on the title to the property for the outstanding amount. Similar to the NPPR certain properties are excluded including: - Non-Irish property - New and unused trading stock of a builder - Mobile homes - Local Authority houses - Houses in Voluntary Housing Associations - Certain Charities - Homes vacated by a person because of physical or mental infirmity

18 It should be noted that if a person wishes to claim exemption from this Household Charge then a Certificate of Exemption must be applied for to the Local Authority outlining the reasons why the exemption will apply. A second point to note is in relation to charities. There are many charities operating within the State that have charitable status for the purposes of exempting them from tax on income and gains. However, in order to be exempted from the Household Charge, the Charity must be an approved Charity for the purposes of Section 848A of the Taxes Consolidation Act This is the section that allows an individual to claim tax relief on donations to a Charity (or allows the Charity to reclaim tax deemed to be deducted at source by a PAYE tax payer). Technically, if the Charity is not an approved Charity for the purposes of Section 848A, the exemption from the Household Charge does not apply. Although they are included as an exempt person on the Departments FAQ document on their website, Voluntary Housing Associations are not specifically exempted from the Household Charge in the legislation. In many instances some of the larger Housing Associations around the country would have a large stock of homes on their balance sheets which are rented mainly to Local Authorities and Local Authority tenants. If the Housing Association has a Charity number but is not registered as an approved Charity for Section 848A, the exemption technically does not apply. Penalties The penalties regime for the failure to pay the Household Charge is substantially less onerous than the penalties applying for the NPPR. Failure to pay the Household Charge within the first 6 months after the due date is If the failure continues for up to 12 months the penalty is increased to 20. If the failure continues beyond 12 months after the due date the penalty is increased to 30. In addition, interest is charged at the rate of 1% per month on the outstanding balance including the penalty. NPPR and the Household Charge - Tax Deduction The section that sets out what may be claimed as a deduction against rental income under Schedule D Case V rules is set out in Section 97(2) Taxes Consolidation Act

19 1997. Among other deductions, that section allows for a deduction for "any rate levied by a Local Authority". The Institute made representations to Revenue seeking that the charge be deductable as a Case V expense. To date Revenue have indicated that in their view the Household Charge and the NPPR are not equivalent to a rate levied by a Local Authority. On that basis a deduction may not be claimed for either charge against rental income derived from property in respect of which the charges have been paid. The same restrictions do not appear to apply in relation to income which is deemed to be a Case I source. So, for example, where a person operates a guesthouse business or runs a holiday cottage scheme, the income from which is taxed under Case I rules, it would appear that the charges may be deducted in arriving at the net profit from the business. Recent Stamp Duty Developments The recent changes in Stamp Duty essentially are part of the good news story for property investors and property owners. There are two main changes proposed in the Finance Act, For instruments executed on or after 7 December 2011 the rate of Stamp Duty is reduced to 2% for all non-residential property (stocks and shares continue to be liable to tax at 1%). - In addition, the Finance Act contains proposals to move the administration of Stamp Duty to a self-assessment basis from a date to be announced by the Minister. One of the interesting aspects of the self-assessment provisions is the reference to expression of doubt which mirrors the proposed changes in relation to an expression of doubt under other self-assessment rules. Essentially, if the Revenue

20 Commissioners are not satisfied that the expression of doubt is genuine, then the protection against interest charges and penalties will not apply. The Revenue Commissioners will not accept an expression of doubt as being genuine where:- - the Commissioners have issued general guidelines concerning the application of the law or, - are of the opinion that the matter is otherwise sufficiently free from doubt or, - are of the opinion that the accountable person was acting with a view to evasion or avoidance of duty. It remains to be seen how those new guidelines will be applied in practice by Revenue. CGT Exemption The other "good news story" in the Finance Act, 2012 was the proposal to introduce an incentive to encourage investment in property. In some respects, given the public perception of any form of tax incentive to invest in property, this was somewhat unexpected. Nonetheless, the incentive is a welcome attempt to stimulate investment in all forms of property and it remains to be seen whether it will have the desired effect. The details of the proposal are as follows: - For the exemption to apply the property must be purchased between 7 December 2011 and 31 December The property must be retained for at least 7 years. - Any income derived from the property must be liable to either Income Tax or Corporation Tax. Subject to meeting those conditions any gain arising on the property will be exempt from Capital Gains Tax to the extent of 7 years out of the total period of ownership.

21 One issue to note is that there are provisions allowing for the property to be sold to a relative provided consideration is paid equivalent to at least 75% of the market value of the property. In addition, there does not appear to be any restriction in the proposed legislation to prevent the property being sold to a company owned by the individual concerned. This would allow the individual to extract funds from a company by selling the property to a company for market value and using proceeds to clear outstanding debts. The company would then claim the exemption by meeting the various conditions. Conclusion The presentation this morning has been designed to touch on as many issues as possible that have affected landlords/property owners over the last couple of years, particularly dealing with changes in the Finance Act, 2012 and the introduction of the Household Charge. Undoubtedly, there are many other factors including the ongoing diminution in the value of properties, negative equity issues, obligations to financial institutions etc. However, I hope that the issues discussed in the paper have been of some help in addressing your client's concerns regarding tax issues affecting them as landlords or property owners.