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16 things you didn’t know about the Help to Buy Scheme

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14 Mar 2017

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The Help to Buy scheme is the government’s answer to housing affordability in Ireland, and will be a big part of Budget 2017. The scheme will swoop in and give aid to first time buyers in the form of a tax rebate. This is much needed cash they can put towards their deposit– 5% of the price of the home they have their eye on (but only if it is a new build).

So what’s it all about then? Why new builds, eh? Who qualifies, and can second time buyers apply? Well, just hang on to your horses!

We’ve taken the 16 burning questions about the scheme, the ones you’re just dying to find out about. Read on for all you need to know.

What is the Help to Buy incentive?

The straightforward, no nonsense definition: The Help to Buy incentive helps first time buyers who are buying or building their own home to pay their mortgage deposit by giving them a 5% tax rebate based on the value of their house.

Who qualifies for the incentive?

Initially, to qualify for the incentive – you needed to be a first time buyer buying or building a new home that was worth up to €600,000. This was then amended down to €500,000.

However, for buyers or self-builders who signed a contract for a new home between 19 July 2016 to 31 December 2016, then the new homes may be valued at up to €600,000.

Basically, the limit as it stands now is at €500,000 but if you signed a contract between 19 July 2016 and 31 December 2016 for a house valued at up to €600,000 (or drew down the first tranche of your mortgage loan if you are a self-builder) then the initial upper limit of €600,000 applies to you.

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.

How much can I save?

You can claim 5% of the value of a property back in income tax and Deposit Interest Retention Tax (DIRT). The maximum amount you can claim is €20,000 (5% of €400,000). You can also get the maximum tax rebate of €20,000 if your property is valued between €400,000 and €500,000 (or €600,000 for those who signed a contract between 19 July and 31 December 2016). The rebate you can claim will depend on the amount of income tax and DIRT you’ve paid in the previous four years.

Can I get any rebate if my house is worth more than €600,000?

No, the cut-off point is €500,000 for new houses and new builds. The only exception is for buyers or self-builders who signed a contract for a new home between 19 July 2016 to 31 December 2016; then the new homes may be valued at up to €600,000.

Why is it only available on new homes?

So why new builds eh? This will hopefully be a juicy incentive for developers to start building more houses and will kick start supply in the market. Which is what we need!

This scheme is designed to increase the number of new houses being built and to tackle the housing shortage. By limiting it to new houses, the government hopes the construction industry will build more new affordable houses to meet the increased demand that’s out there.

Can second-time buyers qualify?

Sadly not. It’s only available to first time buyers.

Can I still qualify if my partner previously bought a house?

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. However, the application will be based entirely on your individual circumstances so it will be more difficult.

Can you use it for buy-to-let properties?

Buy-to-let homes or other investment properties are excluded from the scheme. The property must be the first time buyer’s main residence.

Is there any tax rebate available on second hand properties?

The Help to Buy incentive is designed to stimulate the construction of more new homes so it’s only available on new builds. There’s no tax rebate for existing properties.

Can more than one buyer apply?

Yes, 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 the tax rebate be taken off me once I receive it?

There are some conditions that you’ll need to meet if you want to hang on to the rebate. If it’s later discovered that you failed to meet these conditions, you may be asked to repay the tax rebate. These clawback provisions include a failure to live in the house for at least five years, the non-completion of a purchase, or a contractor not completing a new house within two years of the rebate being issued.

Will self-builds qualify for the Help to Buy scheme?

Yes, self-builds will qualify for the Help to Buy scheme as long as they meet all the conditions. So first time buyers building a new house with a mortgage that’s a minimum of 70% of the house valuation can qualify. They will only qualify if they draw down the first tranche of the mortgage on or after July 19, 2016.

How will the value of my self-build be calculated?

You obviously won’t have a purchase price if you’re building your own home. The value of the home under the Help to Buy scheme will be based on an approved valuation from your lender.

How do my earnings affect the tax rebate?

The tax rebate is based on your income tax and DIRT payments over the previous four years. So you will only be able to claim back what you’ve actually paid in tax during that time. You can’t claim a tax rebate of €20,000 if you’ve only paid €7,000 in income tax and DIRT in the previous four years.

Can I apply for a tax rebate before I find a house?

Not everyone who wants to avail of the scheme will have decided which house they want to buy. However, you can submit an application and find out how much of a rebate you’re entitled to before you agree to buy a property.

The Revenue will process applications and notify you of the maximum tax rebate that you can claim based on your tax record. You can then tell your lender what your rebate will be before negotiating a mortgage.

How do I apply for a tax rebate?

The first step is to apply for a tax rebate application. If you meet all the conditions of the new Help to Buy scheme, you must also show that you’ve been fully tax compliant before any tax rebate is issued. So you’ll need to file tax returns for the previous four years, even if you’re a PAYE earner.

The Revenue will launch a new online system to process this in 2017. PAYE workers must register for myAccount and complete an eForm 12 for each year. Self-assessed tax payers must be registered for ROS and file a Form 11 for each year in question. Any outstanding taxes must be paid before a rebate can be issued.

Online applications can be made after January 3, 2017. Properties purchased or self-built after July 19, 2016, and December 31, 2016, can be processed as of January 3, 2017.

Does it matter who I buy the house from?

People buying new houses and looking to claim a rebate will need to purchase a house from a qualifying contractor. Qualifying contractors will be sellers who have registered with the Revenue and proven themselves to be tax compliant. Contractors who wish to benefit from the scheme will need to sign up once the system comes online.

When can I claim the tax rebate?

The Revenue will launch an online system to support the Help to Buy incentive on January 3, 2017, so eligible first time buyers can make a claim once that system comes online.

How can I get the tax rebate?

Anyone buying or building a house between July 19, 2016, and December 31, 2017, will be able to claim a tax rebate after the Revenue’s online system comes online after January 3, 2017.

If you’re entitled to a tax rebate and buying a new house after January 1, 2017, you can make a Claim for Rebate via the online system. Once you’ve settled on a house and negotiated your mortgage, you can make a Claim for Rebate. You’ll need to supply the Revenue with details of the property, the contract, the purchase price and the mortgage approval.

The vendor will need to confirm details of the contract to the Revenue so they can issue the tax rebate based on those details. The tax rebate will then be issued directly to the vendor so that it forms part of your deposit.

If you’re building your own house, your solicitor will need to confirm details of the contract with the Revenue. You’ll get the rebate when you draw down the first tranche of your mortgage to finance the build.

We’ve placed a deposit on a house in August 2016 but we won’t be signing the contract until February 2017. When can we claim the tax rebate?

You’ll only be able to claim the rebate once you sign the contract. At this point, you can make a Claim for Rebate from the Revenue, even if you paid a deposit before July 19, 2016.

What information do I need to Claim a Rebate?

You’ll need a copy of a signed contract, proof that the balance of the deposit is paid, property details, purchase details, lender information and mortgage approval details, personal details for the buyer/s, details of the portion of refund agreed between buyers (if there is more than one buyer), details of the contractor or developer (if the property is being purchased) or the drawdown of the first tranche of the mortgage (if it’s a self-build). These details will need to be verified before any refund is issued.

Can I qualify if I’ve been working abroad?

You can qualify for the incentive but your tax rebate will still be based on the income tax and DIRT you paid in the four years before you buy the house. So if you haven’t paid any tax in that time, you obviously can’t claim a tax rebate.

Why does my mortgage have to be at least 70% of the LTV of my home?

The Minister said that people borrowing less than 70% of the LTV of their home do not need the incentive. This happens to be the cut-off point so there’s not much you can do about it.

However, you can borrow more than 70% of the value of your home as long as you fulfil the Central Bank requirements to pay 90% of the LTV on a home.*

Does this mean my deposit will be smaller?

Yes. The tax rebate will be taken into consideration when calculating your deposit. The tax rebate will be paid to the vendor once it’s approved by the Revenue and you’ll then pay them the balance of the mortgage deposit to secure the house.

I’ve already bought my house. Can I qualify?

It depends. The incentive will be backdated to July 19, 2016, so you’ll only qualify if you signed your contract or drew down your first self-build payment on or after that date. Anyone who bought their house prior to that is out of luck.

How long will the scheme last?

You can take advantage of the Help to Buy incentive up until December 31, 2019. You can still qualify for the rebate as long as you sign the contracts for your house between July 19, 2016.

We put a deposit down before the start date but haven’t signed the contracts yet. Will we qualify?

Yes. You’ll qualify for the incentive as long as you sign the contract between July 19, 2016, and December 31, 2019.

Does an extension to an existing cottage or property count as a new build?

A new build will only qualify for the scheme if the property has never been occupied before. An extension to somewhere that has previously been occupied will not count.

We bought a house after the scheme started but our mortgage was less than 70% of the purchase price. Is there any way we can qualify?

No. You won’t be able to claim the rebate if your LTV is less than 70%, regardless of when you bought the house.

Is there a minimum amount of PAYE that needs to have been paid in the last four years to claim a rebate?

There is no minimum amount required but you can only claim back tax that you have already paid.

Can you claim tax back on Universal Social Charge (USC) or Pay Related Social Insurance (PRSI)?

USC or PRSI payments will not be taken into consideration when calculating the tax rebate. You can only claim a rebate on income tax and DIRT payments over the previous four years.

Thinking of buying your first home?

With the new tax rebate only available until the end of 2019, there’s no better time to see whether you could be eligible for a mortgage. If you’re thinking of buying/building your own home and want to know how much you can afford to borrow, why not book a mortgage meeting with one of our mortgage experts. Don’t forget to visit our Facebook page for the latest home inspiration, news and great competitions.

EBS d.a.c. is regulated by the Central Bank of Ireland.

 

The content of this blog is expressed in broad terms and is limited to general information purposes only. Readers should always seek professional advice to address issues arising in specific contexts and not seek to rely on the information in this blog which does not constitute any form of advice or recommendation by EBS d.a.c.

 

* From 1st January 2017 first-time buyers can borrow 90% of LTV for whole of loan.

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