PROPOSALS TO restrict property-based tax reliefs will result in more mortgage defaults and insolvencies, according to the Construction Industry Federation.

The Government is reviewing a proposal in last December’s budget to restrict section 23 tax relief to income from properties that qualify for the tax break.

Under current rules, people who own properties that qualify for the relief can claim it against all rental income.

In a submission to the Department of Finance, the federation,which represents the State’s building industry, warns that the proposed change will seriously dent investors’ ability to repay bank borrowings.

As a result, the federation says the move will lead to an increase in defaults on property-based loans, receiverships and possibly bankruptcies.

It could also leave promoters of section 23 developments with unexpected liabilities, as many of those who developed bigger schemes guaranteed the availability of capital allowances.

The federation says the move will raise little or no additional revenue, while an increase in bank defaults could hit the State’s taxpayers. As an alternative, it is proposing that the Government introduce a phased reduction in the amount that can be claimed while allowing people to continue to claim the relief against income from properties other than those to which the section 23 relief applies.

The organisation argues that many section 23 investors are “ordinary individuals” who bought the properties in question to aid college-going children or as a supplement to their pension.

The restriction to the relief was announced in the budget last December. But as a result of concerns raised immediately after the budget, the previous government agreed to postpone the measure pending a review.

The Department of Finance is currently carrying out that review.