Ireland's Minister for Finance, Brian Cowan, has provided details of the much-awaited restrictions and extensions to the tax incentives relating to property in the Finance Bill 2006.

The restrictions follow on from a report prepared by Goodbody Stockbrokers and Indecon Economic Consultants. The consultants were asked to carry out an in-depth review of the various tax incentive schemes and tax exemptions. The report is very detailed, running to 178 pages, and the executive summary goes through each form of relief in detail.

An extract from the summary in relation to the Urban Renewal Scheme is illustrative: "The tax benefit of the scheme has accrued to relatively few higher income individuals. There has been significant inflation of property prices as a result of the tax incentive and this has benefited a small number of landowners and developers".

It is clear from the report that the consultants were recommending that most of these tax breaks should be discontinued. The Minister, in reacting to public pressure and given the conclusion of the report, could not find justification in extending most of the schemes.

In amending the Bill, the Minister explained the restriction on the use of tax reliefs by high income tax payers; and the phasing out of various existing tax schemes and exceptions.

Restriction on tax allowances

The list covers the following:

. capital allowance incentive schemes (urban, rural and town renewal schemes, park & ride, living over the shop, student accommodation and university buildings);

. all properties qualifying for accelerated allowances such as hotels, holiday cottages, nursing homes, convalescent homes, sports injury clinics, qualifying residential units and childcare facilities; and

. relief for the restoration of heritage buildings.

The restrictions will operate by limiting the amount of relief available by the higher of 50% of the person's income before reliefs or €250,000 (£174,000). The person's income is then re-computed, taking account of the reduced relief and taxed in the normal manner. Any un-utilised reliefs can be carried forward.

An important point to note is that the rule will not automatically halve the amount of relief, but rather, will require the individual to recognise enough other taxable income in his return in order to match the level of relief being claimed. It is also important that reliefs can be carried forward into the future.

Extension of qualifying periods Where 15% of qualifying construction costs (excluding site cost) are incurred by 31 December, 2006, then the qualifying period is extended to July 2008, but at the reduced rates set out in the table below (Table 1).

This extension only applies to projects which have already met the necessary conditions to avail of the 31 July, 2006 extension in the first instance. Also, the extension of qualifying period for commercial capital allowances is subject to obtaining European Union approval and accordingly, will only commence by way of ministerial order.

Hotels which have already met the 31 July, 2006 transitional rulings should be in a position to avail of the seven-year capital allowance regime for expenditure incurred up to 31 July, 2008. Expenditure incurred post-31 July, 2008 will only be able to claim relief at the normal rate of 4%.

Table 2 shows the termination date for the various reliefs: the next 18 months will see a finishing-out phase for most of the developments, such as hotels, nursing homes and student accommodation. Many commentators have taken the view that in allowing the extension as far as 2008, even with the restrictions to 75% of relief, the Minister was being quite generous.

Certainly, in the hotel sector, the view was that any further extensions would result in an oversupply of space in the market and would have a detrimental effect on the value of existing hotel stock. For lawyers and tax plan-ners, this will mark the end of schemes which have been around in various forms since the early 1990s. It is unlikely this area of work will be as fertile for lawyers in Ireland compared with previous years.

Mark Walsh is a partner at Eugene F Collins in Dublin.