Losing out on tax relief for refurbished rental property

I inherited a house about 21 years ago that was in a very dilapidated and dangerous condition. I had it totally refurbished (effectively rebuilt except for outer walls).

I rented it out and claimed income tax relief on the rent under the Countrywide Refurbishment Scheme. There is still in excess of €45,000 in unclaimed rental income tax relief to cover the full amount spent on the refurbishment.

If I sell the house, will I be liable for capital gains tax? And if so, doesn’t this effectively negate the Countrywide Refurbishment Scheme?

Mr J.K.

The Countrywide Refurbishment Scheme was designed to improve the quality of homes offered for rent. It was introduced in 2001 and applied across the State, providing tax relief for the property owner by offsetting refurbishment costs against rental income.

The conditions were fairly relaxed around the scheme, certainly compared to more recent incentives, so it proved quite popular at the time.

I’m somewhat surprised to hear anyone is still claiming. All work had to be completed by July 2008, when the scheme was terminated, and the main condition was the property would be rented out for a continuous period of 10 years – or near continuous allowing for inevitable “reasonable” gaps between tenancies.

The intention was that the spending would be deducted at a rate of 15 per cent against rental income for the first six years and the last 10 per cent in year seven. However, in some cases, like yours, rental income was not strong enough to meet those targets.

But if you still have €45,000 in eligible costs outstanding 16 years after the window for the scheme closed, it raises the question as to whether undertaking such refurbishment was a sensible approach for you in the first place.

So what now, if you sell the property? As this isn’t your home – it couldn’t be under the terms of the tax relief – any sale will be liable to capital gains tax, as you suspect. And no, there will be no provision for the outstanding refurbishment costs.

There is nothing stopping you from retaining ownership of the property and claiming the relief as long as you continue to rent it out. It remains available to you until you offset the outstanding balance of €45,000.

The choice not to do so is yours. That does not negate the incentive under the Countrywide Refurbishment Scheme. You have simply decided that, at this point, selling the property makes more financial or other sense for you.