Investment Proposal
INVESTMENT PROPOSAL
This development consists of 27 Associated Residential Units to Ard na Greine Care Facility, Enniscrone, Co Sligo. It comprises of 22- Two Bed and 5- One Bed Houses and the majority have beautiful sea views. Purchaser can claim Tax Relief under Section 268 of TCA 1997 and Section 33 FA 2002 in respect of expenditure incurred on the construction costs of these Housing units associated with our registered nusring home. The illustrative price is as follows:
These are special prices for Contracts that are closed by 31/11/2009
Highlights | 2 Bed Unit | 1 Bed Unit |
| Price (incl VAT) | € | € |
| Building | 220,000 | 206,800 |
| Fixtures & Fittings | 10,000 | 8,200 |
| Total Cost | 230,000 | 215,000 |
| Sample Tax Savings* | 87,039 | 81,240 |
Overall net cost of Investment Property over 15 years (excl Stamp Duty) | 142,961 | 133,760 |
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Investment Structure
It is intended that the Investors will purchase the units under a site contract and building agreement.
The Associated Residential Units will be leased back to the Nursing Home operator for an initial period of up to 10 years.
The Nursing Home operator will then lease these units to medically certified individuals over the tax life. The marketing and letting of these units will be undertaken by the operating company. It will be the operator’s responsibility to manage these associated units and to provide services to the occupants.
Lease Rentals
The lease rent has been set and guaranteed for the first five years. All additional rent received for a specific unit above the guaranteed level will be paid to the investor.
One Bed Unit Two Bed Unit
Year 1 to Year 5 €8,000 €10,000
For years six to year ten a rental pooling agreement will be in place whereby the rent from all the individual unit will be collected and split between the all investors.The rent will be paid to investors quarterly in arrears, less of the management charge. Investors, on acquiring a unit, will automatically become a member of the Management Company. Current Rent €160/week for a One Bed Unit & €190/week for a Two Bed Unit. Current Annual Management Charge is €1,800.
Tax Incentives
Capital allowances are available in respect of the qualifying construction cost provided that certain conditions are met. The rate of allowance available is 15% per annum for the first 6 years and 10% in year 7. The qualifying cost of the residential units is calculated based on the “net price formula” as per Revenue guidelines. The qualifying expenditure on both the one and two units is approximately 80.5%.
The capital allowances for a given year are firstly deducted from the Investor’s share of rental income from the housing unit assessable for that year. The balance of the capital allowances may then be deducted from the Investor’s total Irish source rental income assessable for that year. Any excess capital allowances may be carried forward for offset against Irish source rental income arising in subsequent years.
Alternatively, the excess allowances may be set off against the Investor’s income from other sources assessable for the same year of assessment, up to a cap of €31,750. Where all the allowances cannot be set off in this manner, the excess may be used as outlined above against Irish source rental income.
Qualifying Conditions
These residential units will qualify for 100% of the available capital allowances, as all the expenditure has been incurred prior to 25 March 2007.
The following conditions must be met for the unit to qualify as Associated Residential Units under Section 268 of TCA 1997 and Section 33 FA 2002:
The residential units are operated or managed by the registered nursing home and the nursing home will provide back-up medical facilities (including nursing) to the occupants of the units when required, and an onsite caretaker must also be available.
There will have to be a minimum of 10 housing units that are single-storey houses or a house that consists of a building of one or more storeys, for which a fire safety certificate is required and is granted by the building control authority in whose functional area the building is situated prior to the commencement of the construction works on the building.
The units and any building they consist of must be designed and constructed to meet the needs of persons with disabilities, including, in particular, the needs of persons confined to wheelchairs.
Each unit must contain one or two bedrooms, a kitchen, a living room, bath or shower facilities, toilet facilities, and a nurse call system linked to the nursing home.
The units must be leased only to those who are certified by a medical doctor as requiring such accommodation by virtue of old age or infirmity.
There must be a day-care centre on site that complies with the local Health Service Executive requirements (although any development cost of providing this centre will not qualify for capital allowances).
Not less than 20% of the residential units must be made available for renting to persons who are eligible for a rent subsidy from the local Health Service Executive in whose functional area the units are situated, and the rent to be charged must be discounted by at least 10%.
The residential units are operated or managed by the registered nursing home and the nursing home will provide back-up medical facilities (including nursing) to the occupants of the units when required, and an onsite caretaker must also be available.
There will have to be a minimum of 10 housing units that are single-storey houses or a house that consists of a building of one or more storeys, for which a fire safety certificate is required and is granted by the building control authority in whose functional area the building is situated prior to the commencement of the construction works on the building.
The units and any building they consist of must be designed and constructed to meet the needs of persons with disabilities, including, in particular, the needs of persons confined to wheelchairs.
Each unit must contain one or two bedrooms, a kitchen, a living room, bath or shower facilities, toilet facilities, and a nurse call system linked to the nursing home.
The units must be leased only to those who are certified by a medical doctor as requiring such accommodation by virtue of old age or infirmity.
There must be a day-care centre on site that complies with the local Health Service Executive requirements (although any development cost of providing this centre will not qualify for capital allowances).
Not less than 20% of the residential units must be made available for renting to persons who are eligible for a rent subsidy from the local Health Service Executive in whose functional area the units are situated, and the rent to be charged must be discounted by at least 10%.
Tax Relief
A purchaser who is an individual should be entitled to claim capital allowances as follows. Please note that the tax savings illustrated are for a taxpayer who shelters all of the capital allowances against Irish rental income at the top rate of income tax plus PRSI and levies.
Building Allowances* | Fit out Allowances 12.5% | Total |
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| | € | € | € |
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Year 1 Allowance 15% | 26,278 | 1250 | 27,528 |
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Year 2 Allowance 15% | 26,278 | 1,250 | 27,528 |
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Year 3 Allowance 15% | 26,278 | 1,250 | 27,528 |
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Year 4 Allowance 15% | 26,278 | 1,250 | 27,528 |
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Year 5 Allowance 15% | 26,278 | 1,250 | 27,528 |
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Year 6 Allowance 15% | 26,278 | 1,250 | 27,528 |
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Year 7 Allowance 10% | 17,519 | 1,250 | 18,769 |
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Year 8 Allowances |
| 1,250 | 1,250 |
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Total | 175,190 | 10,000 | 185,190 |
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Self Employed ** | 82,339 | 4,700 | 87,039 |
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Total Tax Savings @ 47%
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Non self employed ** |
|
| 76,528 |
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Total Tax Savings@ 41% |
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| Tax Saving |
| Tax Saving | ||
|
| ( at 41%) |
| ( at 47%) | ||
Annual Relief | PAYE Income |
| Rental Inc. |
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Year 1=27,528 | 26,278 | 10,774 | 1,250 | 588 | ||
Year 2=27,528 | 26,278 | 10,774 | 1,250 | 588 | ||
Year 3=27,528 | 26,278 | 10,774 | 1,250 | 588 | ||
Year 4=27,528 | 26,278 | 10,774 | 1,250 | 588 | ||
Year 5=27,528 | 26,278 | 10,744 | 1,250 | 588 | ||
Year 6=27,528 | 26,278 | 10,744 | 1,250 | 588 | ||
Year 7=18,769 | 17,519 | 7,183 | 1,250 | 588 | ||
Year 8=1,250 |
| 0 | 1,250 | 588 | ||
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Year 1-8 Allowances =185,190 | 175,190 |
| 10,000 | 4,700 | ||
Tax Saving Year 1-7on PAYE Income |
| €71,828 |
|
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Tax Saving Year 1-8 on All Income |
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| €76,528 | ||
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- Based on a qualifying cost
- 2 Bed Houses of €185,190 being €230,000 acquisition cost)
** - It is assumed that the investor has sufficient Irish rental income / total income at the marginal rate to absorb the capital allowances each year. The tax savings are calculated based on the prevailing rates at the time of writing.
Investors utilising excess rental capital allowances subject to the cap of €31,750 against employment income will save tax at their marginal rate of income tax as the allowances will not be deducted for PRSI/Levy purposes as these will already have been deducted from that salary.
VAT
On the basis that the units will be let under lettings of less than 10 years, VAT will not be recoverable. The capital allowances will be available on the VAT inclusive cost.
Stamp Duty
Stamp duty is payable on the full cost of the unit excluding the Vat and Fit-out.
( We calculate that the Stamp Duty on a 2 Bed is €4,818 & €4,004- 1 Bed Unit ) .
Interest Relief
Interest relief is available on borrowings used to acquire the residential unit; it can be deductible against the rental income from the unit for tax purposes. Interest relief is available at the taxpayer’s marginal rate of tax against all Irish source rental income.
Fit-Out of Unit
Wear and tear allowances should also be available in respect of expenditure incurred on the fit-out of the residential unit at a rate of 12.5% per annum for 8 years. The wear and tear allowances are available for offset against Irish source rental income. Any unused capital allowances may be carried forward to subsequent years.
Capital Gains Tax
Capital Gains Tax is likely to be chargeable on any gain arising on the disposal of the residential unit (being the difference between the original cost price, including stamp duty, legal fees and the sale price).
Clawback of Relief
A clawback of industrial building allowances will occur if the building is sold within a period of 15 years from the date of first use.
Exit Mechanism
At the end of the 15 years the purchaser of the unit have the option of re-letting the unit to the Nursing Home, let it privately, occupy it themselves or sell it on the open market.
Disclaimer
The information contained in this document is based on our understanding of the tax legislation and the current interpretation thereof. Investors should be aware that legislation and practice are subject to change without notice. The calculations are prepared using the tax rates prevailing at the time of writing. As with any property transaction each investor should seek independent legal and tax advice.
The developer and its advisors cannot accept any responsibility for any loss or damage however arising including failure to obtain capital allowances occasioned by any person acting or refraining from acting as a result of the information contained herein. The particulars are issued on the understanding that they will not form part of any contract. The document is confidential and is for use only by the person to whom it is addressed.
