Tuesday, September 18, 2012

What are the benefits of buying a house this year? - Independent.ie

Can you explain to me the benefits of buying a house this year over next? My girlfriend and I are renting and have a deposit saved. She says the tax breaks are worth it, but I believe we'll save money by waiting until next year.

To mangle Shakespeare," to buy or not to buy" is still the perennial question. Have house prices more to fall?

Undoubtedly, although recent evidence has seen settling of some house types in some urban areas. If you are getting a decent interest rate on your savings, you should balance this off against taking the plunge.

Susan Cosgrove, of Cosgrove Gaynard Solicitors, explains the tax benefits of buying this year.

"First-time buyers who buy in 2012 get tax relief (TRS) at 25pc for the first two years, reducing to 22.5pc for 2014, 2015 and 2016 and 20pc for 2017, when interest relief is abolished entirely.

"The applicable maximum mortgage interest is €10,000 for an individual and €20,000 for a couple.

"Non-first time buyers also benefit with relief at 15pc from 2012 until 2017 with a max €3,000/€6,000 interest. TRS will not be awarded on any mortgages drawn down after 31 December 2012.

I understand the new property tax will be collected "by deduction". I am self-employed and pay tax each October. I usually budget monthly for this in a separate account. Should I make provisions from January for additional tax and if so, how much? I can't wait until the middle of next year to find out.

There is much we don't know about the proposed property tax, including when it will be introduced, although it's unlikely to be before the middle of 2013.

The most likely valuation basis will be self-assessed "bands". If your house is worth €100,000- €249,000 you pay X, and over €250,000 you pay Y etc.

While this has the merit of being simple, some commentators have criticised it as an urban tax as small houses in Dublin will pay the same tax as much larger ones in rural areas.

Mindful of the debacle over the household charge where a third of property owners have yet to pony up the €100, the Government will be handing over the collection of tax to the Revenue as it believes fewer people will threaten to default on it.

"By deduction" means PAYE workers will have tax taken directly out of their salary, much the same way as other taxes are. For self-employed people, it will simply be calculated along with your income tax, PRSI and USC by your accountant.

So, in the same way you are sensibly putting away money monthly for those charges, you may need to include an extra amount for this tax.

Unfortunately, I can tell you no more on how much it should be than anyone else, but the Government needs to give advance notice rather than expect people to pay retrospectively.

More could be revealed in the Budget in early December.

- siryan@independent.ie

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