The lure of a seaside cottage with a built-in tax break is continuing to attract investors to designated coastal resorts - although some owners who bought them thinking they could slip over to them for a summer holiday have been worried by reports of raids by tax inspectors.
Many of the tax break schemes stipulate that the houses must be available for letting between April and September. Those thinking of investing in a holiday home should know exactly what they are buying into. Agents have expressed concern that people with a few bob to spare are rushing like lemmings to buy without a clear idea of how the scheme works.
"You have to be paying tax of around £25,000 to get the maximum benefit. For anyone else I'd say `locality, locality and locality' and forget about the tax," advises Fergal Hopkins of The Lansdowne Parnership, which handles several resort schemes. Tax incentives are certainly generous. Most of the properties currently on the market carry relief against all rental income and a coveted few pre-Bacon report schemes allow tax relief against an owner's total income.
As 50 per cent of this relief is given in year one however, this will mostly suit people on very high salaries. Surpluses can be off-set against rental income over the following 10 years but with a seasonal market, rental income is small. Resorts Scheme properties must be registered for letting with Bord Failte and available for rent all summer. This means owners are not permitted to use it themselves in summer for the first 11 years.
In practice, management companies sometimes turn a blind eye to owners slipping down to their holiday homes for the odd weekend, but this in a risky business. Rumours in the Co Clare area that tax inspectors are currently carrying out spot checks could not be confirmed by the Revenue Commissioners.
A spokesman did say however, that local Revenue inspectors in designated areas are policing the scheme and may turn up unnanounced to examine visitor books and management records. Owners fall into two categories - those who buy a property virtually unseen for tax purposes and view it as a purely financial transaction. Others target a particular resort and plan on using the house themselves once the 11 year period is over. Sean Collins bought a three bedroom house with Section 48 tax relief in Bundoran Holiday Village a year ago. He paid £100,000 - reasonable value they believe, as property values have risen in the area since then. Unlike many investors, Sean Collins drove over to see his house before deciding.
"It's a mistake to buy blind. We were wary of paying too high a price and wanted to make sure the developer's income projections were realistic." Sean Collins was fortunate that most of the houses on his chosen development were completed by the time their sale was closed, so they didn't have to wait until the bulldozers had gone before letting their house.
Letting potential in the west is good, with a surprising number occupied on winter weekends. Some Achill holiday developments are already completely booked out for the millennium. The scheme relating to resort areas is due to run out at the end of the year. This is currently under review, however, and may be continued in some other form. There is a limited number of Section 48 properties still available with tax relief against all income - up to 400 according to one selling agent - and all of these will come on the market this year. A few canny agent/developers are holding onto their stock until the end of the summer, expecting windfall profits as the December deadline draws nearer. These include furnished apartments in Bundoran with The Lansdowne Partnership from £120,000 plus VAT. There is also a range of apartments and houses in Achill, Courtown and Bundoran with Gunne Estates and houses in Courtown with Hamilton Osborne King.
