How much does Section 23 add to value of a property?

[podd]

As an example, if a property is not a section 23 property and it has a guide price of €200,000

how would the guide price be effected if an identical property in the same area was a section 23 property?

I presume because it's a section 23 property the property value would therefore increase. What percentage would it add to the guide price?

 

[Howitzer]

There is no easy forumla for the information you want. The value of S23 units can be broken down as the inherint value of the property + the available S23 tax break. The amount that can be allocated to the break is "I think" the final price - the cost of the site. Obviously the cost of the land varies quite considerably depending upon location, I've seen S23s advertised in rural location where almost the entire price of the unit can be offset as the inital cost of the land is peanuts. It all depends.

You are effectively paying the developer for a tax break, paying the developer money up front to avoid paying the same money to the govt in tax over the lifetime of the unit. Assuming you are taking out a mortgage you are then paying the bank interest on the original sum you paid the developer.

[broken link removed]

 

[aetius]

Depends on the purchaser !

House price € 200k with 90% s.23 attaching.

As an example; a FTB with no intention of buying another property must pay an equivalent of €200k to purchase the house - the section 23 is irrelevant.

A landlord with a high taxable rent-roll will look at the property like this;€ 200k x 90% = € 180,000 @ his marginal rate of tax+prsi i.e. 47% = 84,600.

€ 200k less the benefit of s.23 i.e. € 84,600 = € 115,400.

Therefore, using this example, the landlord will be paying an equivalent of € 115,400 as compared with the FTB.

 

[clarecelt]

Sorry dont still get it...

How much of a rent roll would a landlord need to have to gain any benefits from section 23 property. Would you need to be a landlord with 10 properties ??

f

 

[Howitzer]

Sorry dont still get it...

How much of a rent roll would a landlord need to have to gain any benefits from section 23 property. Would you need to be a landlord with 10 properties ??

f

Quite a few anyway as anyone buying a new property now for investment purposes will be unlikely to get much, if any, more in rent than they'd be paying in interest. Since all interest is deductable that property would probably have no liability for income tax anyway so the S23 break that you paid for would be wasted.

 

[Satanta]

How much of a rent roll would a landlord need to have to gain any benefits from section 23 property. Would you need to be a landlord with 10 properties ??

No way it can be simplified to this extent.

The potential savings from a S23 are as detailed above.

So using the example given if you sell for €200k with 90% available as relief the buyer has a potential saving (which may be offset against the other profitable properties they own) of €180k from the property.

How many properties a landlord would need to make a saving from this is again totally dependant on the individual properties they hold. If they have ten properties and are just barely covering the rent on each property the saving will be small as the profits are small. If they have five properties but have excellent yields on each property they may have a large profit, which can then be written off against the S23 available saving. (So for the example given for a buyer to maximise the saving from the S23 they would need to be making a €180k profit from other properties)

Take some time going through the S23 details so you understand how it works. It's all relatively simple but takes time to read through the details.

 

[dancarter]

you should be able to get a valuation of the property without the tax reliefs, I work for a commercial bank and we always request this

We discount values by 20% as a matter of course to the normal 85% of purchase price financed is reduced to 85% of 80% of purchase price

 

[podd]

Do you mean, as a rule of thumb, that the value of a residential property without section 23 tax relief is 20% less than if it does have section 23 relief?

 

[aetius]

No, he doesn't mean this.

How a bank values a property is based upon itrs consideration of the borrowers ability to repay based upon that property.

I tried to point out above that there are many different ways of valuing a property, or values attaching to the property depending upon the type/status of investor/purchaser.

I suggest you take the above poster's advice and read up on it.

 

[antoinolacht]

A lot depends on your interest relief situation. If you have a big mortgage and are paying plenty of interest, the S23 relief on your income won't be much good to you because you already have the interest to set against tax (called the 'tax shield' in the jargon). Unless you have a lot of properties, it won't be worth your while having the S23.

If, on the other hand, your mortgage is nearly paid off, even on a single property, it may be worth having the mortgage interest relief. This may make it possible to buy and rent the new property without having to put up any more cash than you are putting up at the moment to pay the tax.

The tax relief does have value, and you can sell it with the property if you can't use it all. It potentially has the value of the amount you can save in tax (i.e., top rate of tax x percetage relief on property x value of property), in practice it is going to be a bit less than this, maybe 10 or 20 percent less.

But you can't untie the tax relief from the type of property. Section 23 property is by its nature non-prime to some degree, so you have to be taking into account how you think that particular area is going to appreciate.

If you have another property nearly or mostly paid for, then the fact that you can only get a lower LTV on the new property is basically moot. You can borrow against the existing property.

You just have to work out the cashflows and decide if it is worth doing for you. If you don't know how to do this, find an adviser who does. (Although in my experience, this is hard to do.)