Commercial property – new tax approach is needed

The last number of years have been difficult ones in terms of property.

However it appears as if the market is beginning to improve and may be a more sustainable investment based on the current prices and rents achieved.

Buyers spent about €939 million on Irish commercial real estate in the first quarter of 2014, almost as much as they paid during the four years through 2012 combined.

Some new thinking may be required around the tax aspects of holding property, during the years of the property boom investors were not concerned with rent or taxation, as their investment model was based on significant capital appreciation with little thought of annual yield or income generation.

On the taxation front significant, gearing and tax breaks often meant that tax was not a factor either.

However in the new market conditions, yield and keeping tax costs to a minimum are a real factor that needs to be addressed.

One clever and often forgotten way of managing the annual tax cost is to claim capital allowances on the plant and machinery embedded in most properties.

Irish commercial property values fell two-thirds between 2007 and 2012, while yields rose to 7.5% from 3.75%.

The lower prices and Ireland’s improving economy has encouraged investors including Elena Baturina, one of Russia’s richest woman, Donald Trump and now Wilbur Ross to look to Ireland for valuable opportunities.

Baker Tilly Ryan Glennon’s tax experts have recently contributed to a ‘Guide to Property for SMEs’, which is available to download from bakertillyrg.ie

■ Aidan Byrne is Baker Tilly Ryan Glennon’s Lead Tax Partner and is responsible for the delivery of all tax services to the clients of the firm. He specialises in advising corporate clients on optimum tax structures.