Is the help to buy scheme for you? Liam Croke runs through the scheme
The controversial help-to-buy scheme looks set to run until the end of 2019, despite claims from some political parties and economists that it should be abolished.
It was introduced to help fast-track the home buying process for first-time buyers, and it has proved to be very popular.
If you are thinking of buying a property in the next 12 months, and should the scheme run for another year, should you take advantage of it?
Before you can make up your mind, you need to know what it’s all about and whether it even applies to you or not, so I’m going to outline below the key areas you need to be aware of.
What is the help to buy initiative?
It allows eligible first-time buyers to get up to 5% of the purchase price of a new house or apartment back in the form of a tax rebate. This can then be used towards the deposit on the purchase.
The total tax rebate is limited to the total income tax and DIRT paid over the previous four tax years and is capped at €20,000. If you have paid less than €20,000 income tax/ DIRT in the past four years, the maximum rebate possible will be the total amount of tax you paid.
What type of property qualifies?
To qualify for HTB, the property that you build or buy must be:
Newly built with the construction subject to Value Added Tax (VAT) in Ireland.
The property must never have been used, or have been suitable to use, as a residential home.
Who qualifies for the incentive?
You need to be a first-time buyer, buying or building a new property that is priced up to €500,000.
How big does my mortgage have to be?
Your mortgage must be a minimum of 70% of the total cost of the new house or 70% of the value of a new self-build. The house must be occupied by the buyer for at least five years after the house becomes habitable.
What’s it worth?
The amount that you can claim is the lesser of: €20,000; 5% of the purchase price of a new home. For self-builds this is 5% of the completion value of the property; the amount of Income Tax and Deposit Interest Retention Tax (DIRT) you have paid in the four years before your purchase or self-build.
The maximum payment is €20,000 per property. This cap applies regardless of how many people enter into a contract to buy a house.
You are a first-time buyer, but your partner isn’t, what then?
The incentive is only available to people who’ve never bought a property before. If either you or your partner have previously purchased a home by yourself or with someone else, you won’t qualify.
You can still claim the rebate if you’re a first-time buyer and you take out a mortgage in your own name, but you will have to exclude your partner’s income details, and the amount you will be mortgage approved for will be based purely on your income.
What if both of us are first-time buyers? Who applies then?
Both of you, if you wish.
More than one buyer can apply as long as all parties are first-time buyers. The maximum tax rebate of €20,000 applies per property, so the rebate can be claimed against more than one buyer’s income tax and DIRT payments over the previous four years.
Can you use it for buy-to-let properties?
No - buy-to-let homes or other investment properties are excluded from the scheme. The property must be the first-time buyer’s main residence.
What about 2nd hand properties?
The Help to Buy incentive was designed to stimulate the construction of more new homes so it’s only available on new builds. There’s no tax rebate for second hand properties.
How is my salary linked to the amount I am entitled to?
The tax rebate is based on your income tax and DIRT payments over the previous four years.
If you purchase a property costing €275,000, the maximum you can receive is 5% i.e. €13,750.
If you paid tax in the previous four years and it amounted to €18,000, you can only claim €13,750.
If you paid tax in the previous four years and it amounted to €7,000 then you are only entitled to €7,000.
You can quickly find out how much tax you have paid by locating your P60 for the previous four years and adding up the amount of tax you paid in each of the previous 4 years.
Even if you haven’t found a house, you can still apply to the Revenue using the MyAccount facility on ROS. Visit revenue.ie to see the process.
Liam Croke is MD of Harmonics Financial Ltd,
based in Plassey. He can be contacted at email@example.com or www.harmonics.ie