This guide will tell you what you need to know if you are organising to have construction work done on your house and would like to avail of the tax credit provided in Budget 2014. Complete with useful examples showing the cost benefit this scheme will have on a typical renovation.
The Home Renovation Incentive and why it was introduced.
In Budget 2014, Minister for Finance Michael Noonan introduced the Home Renovation Incentive (HRI). The scheme is effective from 25 October 2013 and will expire on the 31 December 2015. The Home Renovation Incentive (HRI) provides a tax credit for homeowners on repairs, improvements
and renovations carried out on their principal private residence. One of the main reasons this new incentive was introduced was to reduce the competitive advantage that non – tax compliant building contractors have over tax compliant ones.
Other benefits of procuring the services of a registered building contractor reduce the risks regarding health and safety. For further information regarding recent health and safety regulations contact Declan Noonan & Associates.
It is widely accepted that hiring the non- tax compliant contractors increases the risks regarding health and safety. Homeowners must also be aware that from 1st August 2013, health and safety regulations were introduced which will see additional obligations imposed on the homeowner.
How the new incentive works
The Home Renovation Incentive will provide an income tax credit on the VAT paid by homeowners carrying out work on their home in the subsequent two years.
The credit will be calculated at 13.5pc on qualifying expenditure between €5,000 and €30,000. Where the cost of the work exceeds €30,000 (exclusive of VAT), a maximum credit of €4,050 will apply.
The scheme will support fully tax-compliant builders as the spending and relief will have to be registered with the Revenue Commissioners.
Please note that homeowners can only claim the relief under the Home Renovation Incentive if their
Local Property Tax (LPT) and Household Charge obligations are up to date.
Qualifying expenditure
• Windows
• Extensions
•Attic conversions
• Plumbing
• Tiling
• Supply & fitting of kitchens
• Plastering
• Garages
• Rewiring
• Insulation
• Landscaping
Items including furniture, white goods and carpets are NOT included in the HRI.
Examples of the savings from the Home Renovation Incentive
Please note: All Costs are indicative only. Full costs are available by contacting Declan Noonan & Associates.
Case Study 1 – Extension to 3 bed semi-detached home built in 2000
A Item Total €
| Demolition works | €3,000 |
| Excavation, foundations, rising walls, hardcore, radon barrier, insulation, reinforcement, concrete slab | €4,200 |
| External blockwork walls, rendered, insulated | €3,600 |
| Internal walls | €1,300 |
| Windows and doors | €2,900 |
| Heating and plumbing and electrical installation modification | €4,800 |
| Floor finishes (tiling) | €2,600 |
| New timber roof, roof finish and insulation | €4,300 |
| New kitchen and appliances | €6,000 |
| New plastered ceilings and walls | €4,800 |
| Painting and Decoration (Internal and External full house) | €8,000 |
| External works (paved paths, drainage alterations, topsoil) | €2,500 |
| Total Refurbishment Costs – excluding VAT | €48,000 |
| B HRI Calculation – Case Study 1 | Total € |
| Total Refurbishment Costs – excluding VAT | €48,000 |
| Less Costs not applicable under HRI scheme:- | |
| New kitchen appliances | (€1,500) |
| Total Allowable Costs under HRI Scheme- excluding VAT | €46,500 |
| HRI Scheme maximum tax credit (€30,000 x 13.5%) | €4,050 |
| C Total Cost of Refurbishment by Homeowner | |
| Total Cost of Refurbishment (including ineligible costs) | €48,000 |
| Less Tax Credit under HRI Scheme (€30,000 x 13.5%) | (€4,050) |
| Net Total Cost to Homeowner after HRI Credit is applied | €43,950 |
Case Study 2 – Refurbishment of an existing four bedroom semi-detached residential property built circa 1950’s.
| A Item | Total € |
| Removal of existing windows and doors and replacement with new | €11,200 |
| Removal of existing attic insulation and replacement | €2,100 |
| Replacement floor finishes (timber floors and tiling | €10,800 |
| Rewiring existing house | €8,450 |
| Replacement of plumbing and heating system | €10,500 |
| Re-roofing existing house | €12,350 |
| New kitchen appliances | €6,000 |
| Painting and Decoration (Internal and External) | €8,000 |
| Total Refurbishment Costs – excluding VAT | €69,400 |
| B HRI Calculation – Case Study 2 | |
| Total Refurbishment Costs – excluding VAT | €69,400 |
| Less Costs not applicable under HRI scheme:- | |
| New kitchen and appliances | (€1,500) |
| Total Allowable Costs under HRI Scheme- excluding VAT | €67,900 |
| HRI Scheme maximum tax credit (€30,000 x 13.5%) | €4,050 |
| C Total Cost of Refurbishment by Home Owner | |
| Total Cost of Refurbishment | €69,400 |
| Less Tax Credit under HRI Scheme (€30,000 x 13.5%) | (€4,050) |
| Total Cost to Home Owner | €65,350 |
Case study 3 – Insulation upgrade to existing three bedroom terraced residential property built circa 1980’s.
| A Item | Total € |
| Re-Insulating attic space and pumping existing cavity wall | €4,800 |
| Painting and decoration (internal and external) | €3,900 |
| Total cost of insulation upgrade – excluding VAT | €8,700 |
| B HRI Calculation – Case Study 3 | |
| Total Refurbishment Costs – excluding VAT | €8,700 |
| Less Tax Credit under HRI Scheme (€8,700 x 13.5%) | (€1,175) |
| Net Total Cost to Home Owner after HRI Credit is applied | €7,525 |
| Please note that the minimum expenditure to qualify for the relief is €5,000 (excluding VAT). The tax credit is payable over a 2 year period following the works and all properties must be the Principle Private Residence with an up-to-date Local Property Tax payment made. |
Steps involved in a Home Renovation Project
Step 1 – Planning your ideal home
The first step is to draw up your wish list, and list your requirements in order of priority. Next, set a realistic budget on what you want or have to spend. They may not match — and you may have to reduce or adjust the wish list — but it is the best starting point.
Decide what you want from the project. You should identify and list your requirements, prioritise them and note how much you have to spend.
Step 2 – Design and Budgeting
Next you need to obtain the services of the professionals here at Declan Noonan & Associates as we will help you make the most of the space you have. Once a design scheme is agreed upon, we can put real costs on the renovation and/or extension. This should all be done before you submit the project for planning permission (if required).
If the proposed project comes in over your budget, we will bring a lot of value by suggesting areas of possible savings/reductions. There are two main ways in which a Quantity Surveyor can assist you at this stage. We can apply rates from similar projects to the areas being refurbished and/or extended to give you an indication of cost for the project. The overall building cost can be adjusted as much as possible to reflect the actual design and client requirements.
If more detailed information is available, i.e. plans and elevations, a more detailed cost plan can be put together. This document provides the client/homeowner with the tools of knowing the costs associated with the build when the project is being tendered to registered building contractors. This is the only real way of giving you the full information you need to control costs.
Next you can work with our design team. They will make the most of the space you have and will advise on whether planning permission is required (generally minor changes, rear extensions under 40m2/430 sq ft are exempt). Click here for more information on planning permission.
Declan Noonan & Associates can also organise a list of suitable builders, tender the works, manage costs and guide same through to completion. Click here for more information on our building services.
In terms of choosing a builder, it is often a good idea to take a look at other projects they have completed if possible. Your decision on which builder to appoint should not be based solely on the lowest price but rather quality of previous work and reputation. In terms of costs, it really depends on how far you want to go with the renovation and extension to the property. Many people undertaking projects also decide to upgrade other parts of their property which would include adding insulation to the floors, attic and external walls, re-wiring, upgrading the heating and plumbing system, new doors, joinery, kitchen, sanitary ware, decoration and external patios.
Step 3 – Agreeing a Building Programme
An overall budget needs to be determined, together with a breakdown of the budget into the various cost elements. The budget should include build costs, utility costs, fees, charges and levies. Include a contingency sum in your calculations.
The cost for renovation works can vary in the order of €60 to €95 per square foot depending on the requirements and specifications. A single storey ground level extension could vary in cost between €140 to €200 per square foot, depending on varying items such as architectural design features, the extent of glass, heights of walls, overhangs, quality of kitchen units, bathrooms etc.
To give an example, refurbishment and extension of a typical detached 3 bedroom house, of 1,100 sq ft, built in the 1970s, with roof, walls and structure in good condition, which requires an upgrade with a small extension could cost in the region of €90-€130,000.
Remember that if you extend your house your insurance reinstatement value will increase and should be adjusted upon handover.
Also note that if it is a highly-serviced extension, ie. a kitchen or bathroom extension, they can cost more than a living room, as you would have higher plumbing and fittings costs which would increase your rate per square foot. A typical architectural-designed medium level extension, with standard kitchen, say 40m2, would be around the €65,000/€70,000 level.
Our advice would be to contact Declan Noonan & Associates. We can help you prioritise your spend.
Step 4 – Appointing a Building Contractor
You should do your research when appointing a contractor. You should ask to see the building contractor’s up to date (within the last 30 days) Notification of Determination of RCT Rate showing zero or 20% RCT Rate which means they are tax compliant.
If the building contractor is not tax compliant, they are not eligible to operate under the incentive and any work carried out by them will not qualify under the incentive.
How to apply for the Home Renovation Incentive
The HRI is administered by the Revenue Commissioners. The Revenue Commissioners have produced some useful guidance on their website for the homeowner and the building contractor.
This can be viewed at the following link; http://www.revenue.ie/en/tax/it/reliefs/hri/index.html
It should be noted that homeowners must pay for the full cost of the work and that the tax credit is payable over the two years following the year in which the work is carried out and paid for.
In order for the building work to qualify for this incentive, the work must be carried out and paid for on or after 25th October 2013 and up to 31st December 2015. Homeowners must ensure that the building contractor is tax compliant.
In order to ensure this, the homeowner needs to do the following;
• You need to see and keep a record of the building contractor’s up to date (within the last 30 days) Notification of Determination of RCT Rate showing zero or 20% RCT Rate which means they are tax compliant.
• When you have the building contractor secured and work is progressing, you can view the Revenue Commissioners’ website to check that all the payments received by the building contractor from you are entered onto their system.
Claiming the HRI tax credit and SEAI Grants
You cannot claim a tax a tax credit under the incentive as well as claiming and receiving an SEAI Grant or an Insurance settlement. Any grant paid or insurance settlement will be excluded from “qualifying expenditure”. Qualifying expenditure will be reduced by three times the amount of the grant payment or the full amount of the insurance payment. For example, the total HRI scheme maximum qualifying expenditure as a result of receiving an SEAI grant or insurance payment would be €22,320, based on expenditure of €30,000 and calculated as follows:-
Total maximum expenditure under HRI scheme €30,000
Less SEAI grant received (€2,560 x 3)= (€7,680)
Total Maximum qualifying expenditure under HRI scheme is (€30 ,000- €7,680)= €22,320
If you have any other questions regarding the Home Renovation Incentive or indeed anything to do with renovationad and extensions contact Declan Noonan & Associates.
For further information please consult our House Extension Design Guide.
