Urban Renewal Relief - IT26
Introduction
The Finance Act 1994 introduced an incentive scheme for designated areas and designated streets which will operate for the three year period commencing on 1 August 1994 (the qualifying period).
The scheme provides for tax relief and rates remissions where work on urban renewal is carried out on buildings:
- located in areas designated by the Minister for Finance after consultation with the Minister for Environment, or
- existing at 1 August 1994 which front onto streets (including parts of streets) designated by the Minister for Finance after consultation with the Minister for Environment.
Full details of the rates remission may be obtained from the local authority concerned.
A summary of the tax reliefs available for the two separate categories is as follows.
Designated Areas
Rented Residential Accommodation
Usually known as 
"Section 23 Relief" (PDF, 247KB) it allows the lessor of a newly constructed house, flat or maisonette to set against rental income (including income from other lettings) the cost of construction (excluding site costs) of the qualifying unit.
In the case of expenditure on the conversion of existing buildings into qualifying units or on the refurbishment of existing units in a building of two or more residential units, the deduction is the amount of the conversion or refurbishment cost.
To qualify, the floor area of the unit must be greater than:
- 30 sq. metres in the case of a flat or maisonette (newly constructed or refurbished/converted) in a building of 2 or more storeys, or
- 35 sq. metres in any other case
and must not exceed 125 sq. metres.
In the case of expenditure incurred before 12 April 1995 on a newly constructed flat or maisonette in a building of 2 or more storeys the maximum limit was 90 sq. metres.
In addition, the unit must conform to the Minister for Environment's guidelines on design and construction, internal dimensions, facilities and amenities. Any enquiry on these guidelines should be addressed to:
Urban & Rural Development Section,
Department of the Environment,
Custom House,
Dublin 1.
Telephone (01) 6793377.
Owner-Occupier Relief
This relief is available to owner-occupiers of newly constructed or refurbished residential units. To qualify, the unit must be within the floor area limits mentioned above for Rented Residential Accommodation. Equally, it must conform to the Minister for the Environment's guidelines. The relief is given as a deduction for income tax purposes.
The amount of the deduction:
- in the case of new construction, is 50% of the cost (excluding site costs and grants) allowed at the rate of 5% p.a. for each of the first 10 years.
- in the case of refurbishment expenditure, is 100% of the expenditure, (excluding grants) allowed at the rate of 10% p.a. for each of the first 10 years.
To qualify, the individual must occupy the unit as his/her sole or main residence for each year of claim, and must be the first owner and occupier of the unit after the construction or refurbishment expenditure is incurred.
Building in use as a Mill, Factory or Similar Premises
100% of expenditure on new construction (excluding site costs) or 100% of expenditure on refurbishment of an existing building may be deducted for tax purposes as follows:
- Owner-occupier (trader)
- 25% initial allowance in year 1 with a 4% annual allowance thereafter, or
- 50% free depreciation with a 4% annual allowance thereafter.
- Lessor
- 25% initial allowance in year 1 with a 4% annual allowance thereafter.
Note: Free depreciation allows a taxpayer the option of increasing the amount of annual allowance for any year, subject to the aggregate amounts of the allowance so increased not exceeding the percentage of the expenditure available for free depreciation.
Commercial Premises Retail shops etc.
50% of expenditure on new construction (excluding site costs) or refurbishment of an existing building may be deducted for tax purposes (capital allowances) as follows:
- Owner-occupier (trader)
- 25% initial allowance (year 1) and thereafter 2% annual allowance
- 50% free depreciation (see "Note" above).
- Lessor
- 25% initial allowance (year 1) and thereafter 2% annual allowance.
Office Accommodation
In the qualifying period, expenditure on office accommodation in designated areas [subject to certain exceptions] is eligible for capital allowances. Those exceptions are the designated areas in the county boroughs of Dublin, Cork, Limerick, Galway and Waterford. In those particular designated areas expenditure on office accommodation is excluded from relief unless it forms an ancillary part (10% or less) of expenditure on a premises which otherwise qualifies for Urban Renewal Relief.
Withdrawal of Relief
Tax allowances granted for expenditure on these industrial or commercial buildings may be withdrawn in whole or in part if the premises is sold within 13 years.
Double Rent Deduction
In the qualifying period, a deduction of twice the rent paid by a lessee may be made in computing the profits of his/her trade/profession, provided:
- the lessor qualifies for capital allowances under the scheme
- the lease is executed in the qualifying period and,
- the letting is for bona fide commercial purposes.
The double rent deduction is available for a maximum rental period of ten years for each premises.
It is available for a commercial premises, and for a building in use as a mill, factory or similar premises.
It is also available for hotels where the lessor disclaims the "write-off" of capital expenditure incurred in the qualifying period.
Designated Streets
Rented Residential Accommodation
Usually known as "Section 23 Relief" (PDF, 247KB) it allows the lessor of
- a residential unit (house, flat or maisonette) which is refurbished, or
- a residential unit in a building which is converted into two or more residential units and which was not previously a dwelling or was a single dwelling, or
- a residential unit in a building which was not previously a dwelling
to set against rental income (including income from other lettings) the cost of refurbishment/conversion.
To qualify, the floor area of the unit must be greater than:
- 30 sq. metres in the case of a refurbished/converted flat or maisonette in a building of 2 or more storeys, or
- 35 sq. metres in any other case
and must not exceed 125 sq. metres.
The unit must also conform to the Minister for Environment's guidelines on design and construction, internal dimensions, facilities and amenities. Any enquiry on these guidelines should be addressed to:
Urban & Rural Development Section,
Department of the Environment,
Custom House,
Dublin 1.
Telephone (01) 6793377.
Owner-Occupier Relief
This relief is available to owner-occupiers of residential units refurbished as outlined above for Rented Residential Accommodation. To qualify, the unit must be within the floor area limits mentioned above, and must conform to the Minister for the Environment's guidelines. The relief is given as a deduction for income tax purposes. The amount of the deduction is 100% of the expenditure (net of grants) on refurbishment, allowed at the rate of 10% p.a. for each of the first 10 years.
To qualify, the individual must occupy the unit as his or her sole or main residence for each year of claim, and must be the first owner and occupier of the unit after the refurbishment expenditure is incurred.
Building in use as a Mill, Factory or Similar Premises
100% of the expenditure on refurbishment of a mill, factory or similar building may be claimed for tax purposes. However, the amount on which an accelerated allowance can be claimed is limited to the lower of:
- expenditure on refurbishment of the industrial part of the building, or
- the equivalent of the expenditure on refurbishment/conversion of residential units as outlined above under Rented Residential Accommodation and Owner-Occupier Relief.
The balance of the expenditure qualifies for a 4% annual allowance.
The rates of allowances are:
- Owner-occupier
- 25% initial allowance, with a 4% annual allowance thereafter, or
- 50% free depreciation, with a 4% annual allowance thereafter.
- Lessor
- 25% initial allowance, with a 4% annual allowance thereafter.
Tax relief on Commercial Premises is available where expenditure is incurred on the refurbishment of the premises and on the conversion / refurbishment of residential units as outlined above under Rented Residential Accommodation and Owner-Occupier Relief.
The amount of expenditure on the commercial premises which may be allowed for tax purposes is 50% of the lower of:
- expenditure on refurbishment of the commercial part of the building, or
- the equivalent of the expenditure on refurbishment / conversion of residential units as outlined above under Rented Residential Accommodation and Owner-Occupier Relief.
The rates of allowances are:
- Owner-occupier
- 25% initial allowance and 2% annual allowance thereafter
- 50% free depreciation.
- Lessor
- 25% initial allowance and 2% annual allowance, up to a maximum of 50%
Office Accommodation
In the qualifying period, expenditure on office accommodation in designated streets [subject to certain exceptions] is eligible for capital allowances. Those exceptions are the designated streets in the county boroughs of Dublin, Cork, Limerick, Galway and Waterford. In those particular designated streets expenditure on office accommodation is excluded from relief unless it forms an ancillary part (10% or less) of expenditure on a premises which otherwise qualifies for Urban Renewal Relief.
Withdrawal of Allowances
Tax allowances granted for expenditure on these industrial or commercial buildings may be withdrawn in whole or in part if the premises is sold within 13 years.
Double Rent Deduction
This is not available for designated streets.
Office of the Chief Inspector of Taxes, Customer Service Unit, Issued March 1996
