Help To Buy Scheme – What You Need To Know

Couple with new house keys

In July of this year, the Government announced that, as part of the stimulus package, there would be an increase in the amount of relief that first time buyers may obtain on purchasing or self-building a newly constructed dwelling house under the Help to Buy Scheme.

Under this scheme, the maximum relief available has been temporarily increased from €20,000 or 5% of the property value to €30,000 or 10% of the property value between now and 31 December 2020.

For those looking to get on the property ladder, this is a very valuable relief and is only available for a limited period. Due to this we have been receiving a lot of enquiries about how it all works so we have now selected some of the most frequently asked questions and answered them below for your reference:

1. What is the Help to Buy incentive?

Basically the name gives it away; it’s a government tax refund scheme, which was enacted in order to help purchasers get the deposit for their home. It also incentivizes developers to build new homes so that the scheme can keep running.

Many people will have heard about Help to Buy given its prevalence in the news, when the July stimulus package offered by the government extended the scheme as and from the 23rd July this year. Before the July stimulus package, you could avail of Help to Buy when certain satisfying criteria were met. You could avail of the lesser of a €20,000 rebate, five percent of the value of the property or the amount of income tax or deposit interest retention tax you paid in the previous four years.

The criteria are quite strict in that the property must be your home and your principle private residence, but the benefit of it is that you will get money back from tax you have paid over the previous four years.

2. Who is eligible for Help to Buy and what type of property qualifies for the scheme?

The eligibility criteria are specific to both the person and the property. To become eligible, you must first and foremost be a first-time buyer – that’s key to it. Secondly, as mentioned, the property must be your home – your principle private residence.

You must buy and build your property between the 19th July 2016 and the 31st December 2021. The claimant must live in the property for five years after getting the rebate and you must be tax compliant. If any of those criteria aren’t met, the applicant will be unsuccessful.

To qualify, you can’t have previously owned a property, as explained above. If you did, you are automatically excluded. If you’re buying or building as a couple, both applicants have to be first-time buyers. Some people have queries regarding the inheritance of a property in the last number of years and that doesn’t automatically preclude you, because you wouldn’t have been the first-time buyer in that instance. Another query we see coming in is if you’re a first-time buyer and you’re required to have a guarantor on your loan and that guarantor isn’t a first-time buyer, again you’re not automatically precluded from applying.

When it comes to eligibility criteria for the property, the house in question needs to be your home, it must be built subject to VAT and it can’t be used for any other reason other than a residence. The legislation is very strict when it comes to defining what is a residential property. If it’s a refurb or you’re doing renovations to a property, that won’t satisfy the criteria. To qualify for the Help to Buy scheme, it has to be a new build or a self-build.

So while you as an individual may qualify for the scheme, the property you are looking to buy may not, so there are numerous steps just to tick the box.

3. What is the purchase value?

It’s a rebate, so you’re not going to get money for nothing – you have to be tax compliant, meaning you’ll have to have made your tax returns for the previous four years. Revenue won’t even entertain a claim unless all your tax affairs are in order. The rebates that are available to you are based on what is called the ‘purchase value’. It’s quite straightforward for a new build; the purchase value is going to be your contract price, which is the price that you’re told by the contractor you have to pay. For a self-build, it’s a little different in that the purchase value is going to be the approved valuation you get when you apply for your mortgage from the bank. You must take out your mortgage with an approved lending institution and the criteria is very specific. For example, the loan you take out can’t be used for any other purpose other than that of building your home. Also, the loan must be a minimum of 70 percent of the completion value and this is known as the ‘loan to value’ ratio. Let’s say the purchase value of the house you built was €450,000, your loan would have to be a minimum of €315,000. It is more straightforward for a new build because the contract price is on your contract for sale, but when it comes to ‘loan to value’, that’s what purchase value then means.

4. How much can you claim?

The most important bit! If you sign a contract for sale or if you drew down the first-stage payment of your mortgage between the 19th July 2016 or the 22nd July 2020 – the date prior to when the enhanced Help to Buy scheme came into effect – you can claim the lesser of the following: €20,000, five percent of the purchase value, or the amount of income tax or deposit interest retention tax you’ve paid in the previous four years. That’s from the 19th July 2016 to the 22nd July 2020 as mentioned or after the 1st January 2021, because this enhanced scheme will be operational between the 22nd July 2020 to the 31st December 2020 and then it ends. There is talk that the government might extend this scheme, but who knows? For now, we’re giving these timeframes to act in between.

If you draw down between the 23rd July this year and the 31st December, you can avail of the higher rates. These will see a jump from five percent to 10 percent of the purchase value and it goes from €20,000 to €30,000, so it’s quite a substantial increase, but it’s only if you sign a contract for sale or draw down the first-stage payment of your mortgage within that strict time period. Unfortunately, if you applied for a drawdown of funds on the 22nd July, you’re not going to avail of the advanced Help to Buy scheme – you could lose out on €10,000 when there might only be 24 hours in the difference, but there has to be a cut-off point.

5. If you have already submitted an application under the old rate are you entitled to the new rate?

You are, under the assumption that your contract has or will be signed between 23rd of July and 31st of December this year. You simply need to cancel your application and resubmit it. Revenue are moving quite quickly in the sense that they are processing the applications and the claimants will be able to see that they have been approved for the higher rate almost overnight. So ‘yes’ is the short answer; it’s just a matter of cancelling and reapplying. 

6. How will the refund be paid?

Again, it’s to do with time scale. If you bought or built the property between the 19th July and 31st December 2016, the refund was paid directly to the claimant. If you bought or built after the 1st January 2017, it gets paid to the qualifying contractor, who is basically the developer.

I know I’m sidetracking a little bit, but for anyone thinking of applying for it, it’s important to note that not every contractor can avail of this scheme – it has to be a qualifying contractor. You can log on to the Revenue website and you’ll find a list of these qualifying contractors, so if you’re looking to buy or build, it’s important to make sure that you’re not going to lose out on the scheme if the contractor building the property is not registered. If it’s a self-build (built after the 1st January 2017) the refund gets paid directly into your bank account.

We, as solicitors, also need to be registered with Revenue in the case of self builds because we will be verifying the claimant’s application. Essentially what that means is we will be telling Revenue that ‘Yes, they drew down on the 1st August 2020’, so if you’re applying for the Help to Buy scheme make sure that the solicitor you are employing is registered – which we are!

7. How do you work out the rate on a self-build home?

Again, that comes back to the loan to value ratio. It’s the purchase value, which is approved by the bank. The bank will give you that valuation and as I mentioned already, your loan has to be a minimum of 70 percent of the purchase value.

8. When does the HTB end?

The original Help to Buy scheme with the lower rates is in effect until December 2021. The enhanced Help to Buy scheme is from 23rd July 2020 to 31st December 2020, so if you want to avail of the higher rate, all contracts must be signed or your first-stage payment draw down must occur by the 31st December 2020. If you draw down on the 1st January 2021, you’re not going to lose out completely; you just revert back to the original Help to Buy scheme, which is five percent of the purchase value or €20,000.

9. What do you need to do before you apply?

Most importantly, make sure all your tax affairs are in order. If you’re applying as a couple, you both have to be tax compliant. The application is done through Revenue, so you need to log on to www.revenue.ie. There are different applications for PAYE and self-employed. If you’re PAYE, you go to the myAccount section and if you’re self-employed you apply through ROS – the Revenue Online System. The application stage is basically an inputting exercise where you must input details such as your PPS number. Once you’ve submitted the application, you’ll get a six-digit application number that you really need to retain carefully, because those access codes are passed either to the contractor in the case of new builds or the solicitor in the case of self-builds. It’s all a verifying process; I would need that number for my client in order to verify their claim.

The claim stage only comes into effect once the contract has been signed, so you upload a copy of your contract for sale onto Revenue through myAccount or you provide proof that you’ve applied for your first-stage payment draw down. Once again, this all needs to be verified by your contractor or solicitor. If anyone is thinking of applying at the moment, the process is slow because they’re issuing the passwords by post, so it might be important to keep this in mind if you want to avail of the enhanced Help to Buy. Time passes quickly so it would be a good idea just to get the application set up. It can sit there until you’re ready to sign contracts or draw down, but as long as that application stage is done you’re on the front foot.

10. Can Revenue clawback refund?

Yes, unfortunately! If, for some reason, you weren’t actually entitled to the refund, Revenue can come back and claim it. The rates of refund are outlined on the Revenue website and that is one of the conditions. As I previously mentioned, one of the qualifying criteria is that you live in the property for five years. If you vacate the property within anything less than that five-year period, they can come back and claw back the rebate. If you didn’t proceed to purchase the property they can come back for a refund or if you didn’t finish building the property, again they can claim it back. If the property isn’t built within two years after the time you get the rebate, the Revenue can claw it back.

 

An important note from McCarthy and Co. Solicitors:

The subject of fees is a very important issue to touch on. It’s the bottom line, what we want to know. We have a tool called the Conveyancing Calculator on our website, which is available here. A lot of the time there is a grey area around legal fees and ‘hidden costs’ when you’re looking for a self-build, a sale or a purchase, so we offer a full breakdown of costs that will show you your VAT, your stamp duty and basically any associated outlay involved. If you’re querying what such fees might amount to, this is a very accessible tool that might be a big help.

*In contentious business, a solicitor may not calculate fees or other charges as a percentage or proportion of any award or settlement.

Clíodhna O’Regan is an associate solicitor with McCarthy + Co. LLP, specialising in conveyancing and probate.