Pension Property and Vacant Home Tax

Investing in property through your pension scheme has many tax advantages. You may be able to avail of tax relief on contributions made to your scheme and the rental income is not subject to Income Tax nor will Capital Gains Tax be payable on the sale of the property. There are some taxes that continue to apply such as Local Property Tax (LPT), the impending Residential Zoned Land Tax and Vacant Homes Tax. This blog explores the application of Vacant Homes Tax.

Vacant Home Tax (VHT) is an annual self-assessed tax which was introduced in response to a need to increase the supply of homes for rent or purchase.  It came into effect on the 1st November 2022.

A residential property comes within the scope of the legislation where the property was ‘not in use as a dwelling’ for a period of 30 days or more in any chargeable period unless:

• The property was subject to a ‘relevant tenancy’ for a period of not less than 30 days during the chargeable period (a ‘relevant tenancy’ is one is that is registered with the Private Residential Tenancies Board and is not between connected persons), or  

• The property was the subject of a sale or transfer during the chargeable period, or  

• The property is exempt from LPT.

While not statutorily defined, Revenue have stated that ‘in use as a dwelling’ for a day is determined by what the property was used for, and that it should be used for normal activities of eating, sleeping, relaxing and so on and should be occupied overnight subject however to certain exceptional circumstances. 

A chargeable period runs from the 1st November to the 31st October in the following year. Where a residential property comes within the scope of the legislation it is necessary for the chargeable person to file an online return with Revenue on or before the return date (i.e. on or before 7th November immediately following the end of the chargeable period).  It is necessary for the relevant tax to be paid by the 1st January in the year immediately following the end of the chargeable period. 

Various exemptions from VHT may be claimed under the legislation.  For instance, an exemption from VHT is available where the property was ‘actively marketed’ for sale or rent in the chargeable period but this is subject to qualifying conditions. Revenue indicate that ‘actively marketed’ means a genuine and sustained effort to promote the property for sale/rent to potential buyers/tenants.  Under the legislation, the purchase price/rent sought must not exceed its market value/market rent and there can be no conditions attached to the sale/tenancy which is designed to impede the transaction. 

An exemption from VHT is also available where the property underwent structural works, substantial repairs or substantial refurbishment for a period of not less than 6 months in the chargeable period.

VHT applies in addition to LPT.  

The rate of VHT is also dependent on the amount of base LPT rate (which excludes any local adjustment factor). 

• For the first chargeable period 01/11/2022-31/10/2023, VHT is based on three times the base LPT rate for 2023.

• For the chargeable period 01/11/2023-31/10/2024, VHT is based on five times the base LPT rate for 2024.

• For the chargeable period 01/11/2024-31/10/2025, VHT is levied at seven times the base LPT rate for 2025.

A VHT liability is not a charge on the property unlike LPT.  Interest applies to the late payment of VHT.  Surcharge penalties also apply for failure to deliver a return by the filing date and equals 5% of the tax where the return is delivered within 2 months of the return date and 10% of the tax where delivered 2 months or more from the return date.

If you are thinking about purchasing property in your pension scheme, the risk of VHT being applied should be considered by you and your financial advisor. A strong rental yield will not only benefit your pension scheme but will assist in keeping your scheme compliant with Revenue and pension rules and ensure that your scheme is not liable for VHT. Our Property Manager Panel gives you access to agents from around the country who are familiar with the requirements and structure of property in pension schemes.

For further information, please speak to your financial advisor or email JustAsk@independent-trustee.com.

Author - Angela Glynn, ITC Solicitor

This information piece is for guidance purposes only and does not purport to outline all available exemptions or rules applicable to VHT.  The legislation should be reviewed to assess each individual case.