Tax Relief - Hotels

[Schuhart]

In essence yes, but what they were complaining about back then was the reduction to 4% over 25 years (previously 15% in year 1 to 6 and 10% in final year) for expenditure from 4th December 2002 (excluding the transitional arrangement upto 31 Dec 2003). What they want now is for legislation to be changed so that anyone who purchased Capital Allowances in Hotels to be allowed not to have any clawback. These Capital Allowances are allowed to be offset against Case V income (apart from a few counties who had it allowed against all income), thus reducing the amount of tax paid by the purchaser of the Capital Allowance.

Ok, is it possible to make that clearer to someone who isn't a tax professional.

Like, what I'm hearing out of that is in 2003 the IHF's only problem with tax relief for hotels was it wasn't generous enough after 2002. The State, unsurprisingly, made the tax relief for hotels subject to the provision that the entity was (cough) a hotel. So now the IHF (if what I'm getting from what you are saying) still think the only problem with the relief is that it wasn't generous enough, but want a change that says tax relief for hotels should be given even if the yoke you are claiming for isn't still actually a hotel.

Is this essentially what you are saying? If so, the IHF deserve an instant pineapple up the rectum. Simple as.

[Barnacle]

Ok, is it possible to make that clearer to someone who isn't a tax professional.

Sorry to be confusing. I am not a tax professional but have worked in the industry for quite some time and have dealt with Section Relief extensively.

Can you post a link to the entire article you are quoting from so I can consider exactly what they are saying but in the meantime, I will give you some details as to how they work, hope I am not being presumptuous.

Capital Allowance scheme such as these were generally purchased on a lump sum basis whereby the purchaser bought say €200k worth of Allowance for €50k. Basically, pre 1997, Capital Allowance for hotels where offsetable agianst all income and I think it was spread over 10 years. Then it was against Case V (Rental Income) with the exception some border counties and it was then reduced to 7 years. The relief granted in these 7 years was 15% in year 1 to 6 and 10% in the final year. So for example, if someone had net rent of €50,000 and purchases a Capital Allowance scheme of €200k, in the first year their taxable rent would have been reduced to €20,000. The purchaser would then use up their Capital Allowances over the following years until all gone. There would generally be a put and call option when the scheme expired and the purchaser would have no ownership in the hotel. All they bought was the Allowances. Now if the hotel did not run as a hotel for 7 years, all the allowances claimed would be supbject to clawback.

Year 1 Net rent €50k - less Capital Allowance €200*15% €30,000 = Taxable rent €20k - Tax payable €9,200 (Tax @41% plus 5% PRSI) - Tax Saved €13,800

Year 2 - Net rent €50,000 - less CA €200k *15% €30k = Taxable Rent €20k - Tax payable €9,200 plus 5% PRSI on the CA €1,500 - Tax Saved €12,300

(Capital Allowances after the first year are converted to losses which are not subject to PRSI Relief)

And so on until all the Capital Allowance is used up.

If the Hotel did not operate as a Hotel for the relevant period, then all the allowance previouly claimed would need to be repaid, i.e. all the saving in tax by the person who purchased the allowance.

In 2002, the spread of the allowances was extended to 25 years at a rate of 4% per annum, therefore making the schemes more costly. The clawback still existed and I am not sure if the term of clawback was extended. This is what the IHF were complaining about back in 2002, the fact that a 4% claim per annum over 25 years was not attractive compared to the previous 15%/10% over 7.

The problem is now, the hotels should be closed down as they are not viable and therefore will not be run as a hotel for the required term meaning that the capital allowances claimed will need to be repaid (i.e. the Tax and PRSI savings). The banks are propping up these hotel until such time that the required term is expired and the put and call option is effected. What they are looking for is a change in the legislation so no claw-back can be made in respect of previous capital allowances claimed.

[Schuhart]

Can you post a link to the entire article you are quoting from so I can consider exactly what they are saying

The article is here. Its a Word document on the IHF website.

The problem is now, the hotels should be closed down as they are not viable and therefore will not be run as a hotel for the required term meaning that the capital allowances claimed will need to be repaid (i.e. the Tax and PRSI savings). The banks are propping up these hotel until such time that the required term is expired and the put and call option is effected. What they are looking for is a change in the legislation so no claw-back can be made in respect of previous capital allowances claimed.

But, in fairness, when you say these hotels are not viable, isn't that really just saying that the present owner is insolvent. If the hotel was sold on cheaply, then presumably someone could run it profitably.

This is what gets me about the IHF position. They seem to assume that the taxpayer will pay to take this extra competition out of the picture. The tax wedge may distort the finances more than a little. But, whatever happens, the IHF must face the reality that hotel rooms are now a plentiful resources, because of the tax relief that they were cheerleaders for.

As another poster said, these hotels are either getting a State Aid or they are not. If they are not, then they are simply a legimate source of competition for other hotels.

[Barnacle]

Its a Word document on the IHF website.But, in fairness, when you say these hotels are not viable, isn't that really just saying that the present owner is insolvent. If the hotel was sold on cheaply, then presumably someone could run it profitably.

This is what gets me about the IHF position. They seem to assume that the taxpayer will pay to take this extra competition out of the picture. The tax wedge may distort the finances more than a little. But, whatever happens, the IHF must face the reality that hotel rooms are now a plentiful resources, because of the tax relief that they were cheerleaders for.

As another poster said, these hotels are either getting a State Aid or they are not. If they are not, then they are simply a legimate source of competition for other hotels.

Problem is there are too many hotel rooms and these zombie hotel are putting other viable hotels at risk. In the normal course of events when a business such as this is no longer viable the loan is called in the business folds. The banks are propping up these loans for the purpose of maintaining the Capital Allowances which should not be allowed. If the Hotels were closed because insolvent the outstanding loan would remain but nobody wants to take them over. And the owners do not want to sell as this triggers a clawback, they want to rent. And if they are closed for this reason, the clawback kicks in then passed on the the new purchasers, but nobody wants to take over the hotels. Effectively the hotel have no other use. I would not count one of these zombie hotels a legitimate source of competition for other hotels.


Maybe some of these hotels could be bought for the purpose of schools and converted for this purpose. Make a savings on all the money paid out on portacabins.

End of the day, what they are looking for, i.e a change of legalisation sole for Capital Allowances for Hotels should not be allowed. If they use this as an argument, what's to stop it being extended to Section 48 and then Section 50 properties, and then to various others. It represents a loss to the taxpayers.

[Schuhart]

Problem is there are too many hotel rooms and these zombie hotel are putting other viable hotels at risk.

Grand. At what point did the IHF complain there were too many hotel rooms. Instead of cheerleading this precise tax break.

Clearly all tax breaks distort markets. But this is one the IHF demanded, so its really just their tough.

The banks are propping up these loans for the purpose of maintaining the Capital Allowances which should not be allowed.

Grand, there's a branch of the European Commission that enforces competition rules. This practice is either against the rules, or it isn't. If the IHF really think this tax break (that they were cheerleaders for) is anti-competitive, that's where they should take their case.

If the Hotels were closed because insolvent the outstanding loan would remain but nobody wants to take them over

Well, nobody wants them at a price that would repay the outstanding loan. That's quite different to nobody wanting them.

What the IHF want is for the Government to take this capacity out of the industry, so they can charge more for hotel rooms. That would be good for hotel owners, and bad for tourism and everyone else.

Maybe some of these hotels could be bought for the purpose of schools and converted for this purpose. Make a savings on all the money paid out on portacabins.

Actually not a good idea, when you dig into it. Another poster suggested that a while back. Think about it for more that two minutes and the idea falls apart. Another poster had a similarly daft idea about using them as step-down beds. That's another idea that collapses under any kind of scrutiny.

These hotels own money to banks. Thanks to the bank guarantee, that means they owe money to all of us. I want them to repay that money to us. They can do that by charging whatever rates will actually get people staying in them.

The IHF propaganda is just special pleading. Its really just someone putting their hand in your pocket and taking money out of it. And, looking at the document I discovered on their website, they want to rob your money to cover up the costs of their own greed, same as all the other Gombeens. They can kiss my hairy white ass.

[Barnacle]

Grand. At what point did the IHF complain there were too many hotel rooms. Instead of cheerleading this precise tax break.

They never did unfortunately, as you say they just cheerleaded the tax breaks.

Clearly all tax breaks distort markets. But this is one the IHF demanded, so its really just their tough.

Tough luck imo too. Same goes for Section 48 & Section 50 properties. All of these section properties including Section 23 distorted the market. But thoses are where the indiviudal actually purchased a propety, in the case of Hotel, nursing homes, it generally was only the Capital Allowance that was purchased by the investors.

Grand, there's a branch of the European Commission that enforces competition rules. This practice is either against the rules, or it isn't. If the IHF really think this tax break (that they were cheerleaders for) is anti-competitive, that's where they should take their case.Well, nobody wants them at a price that would repay the outstanding loan. That's quite different to nobody wanting them.

I can see your point but not sure how this would fit into these rules but would interesting on any views on this. I am sure that some of the hotels could be of interest so some, many have no future whatsoever. Those which have would still need to be wound up and resold, thus triggering the clawback.

Actually not a good idea, when you dig into it. Another poster suggested that a while back. Think about it for more that two minutes and the idea falls apart. Another poster had a similarly daft idea about using them as step-down beds. That's another idea that collapses under any kind of scrutiny.

The hotels which will have to be wound up eventually will have not further use, so the choice is to demolish them or use them as something else. What other use can these building be. I think that there might be a few, albeit, very limited, that could be used or converted for the purpose of school. Better then demolishing them.

These hotels own money to banks. Thanks to the bank guarantee, that means they owe money to all of us. I want them to repay that money to us. They can do that by charging whatever rates will actually get people staying in them.

The IHF propaganda is just special pleading. Its really just someone putting their hand in your pocket and taking money out of it. And, looking at the document I discovered on their website, they want to rob your money to cover up the costs of their own greed, same as all the other Gombeens. They can kiss my hairy white ass.

Completely agree, but I would doubt if they can even service their loan so they are not repaying and the chance that they will is slim and they can kiss my hairy white ass too. These zombie hotel are a big problem in the whole scheme but this no reason whatsoever to allow a backtrack on the clawback provisions to make matter even worse. At least clawbacks will repay part of the debt.

[Christel]

Many of the hotels built in the countryside had also houses or "lodges" or however they called them attached with the same planning application. I know of at least two cases regionally where the developers argued that the hotel alone would not be viable without these. They also came under section 23 ? So why are we talking of hotels, not about the complete developments?

[hammer]

Keep the Hotel open. Cut your staff to the bone. Reduce price of beer. Reduce your prices to about €50 per night per room. Clean up

Obviously provided there are some tourist attractions near by.

Alternatively have loads of single nights

[Barnacle]

And there are many with Section 48 property on the sites, and Pub/Restaurant with Section 23 Apartment. Not too sure as to how it would affect the Section Properties. It may be that the purchase of the Section Properties involved a purchase within the Hotel Capital Allowance or they may be totally separate contracts but not sure as to how these would be separated in terms of closure. Think the overall land situation (footprints) may have an effect on some but there would be variants of the schemes. Each would have to be looked at individually.