Investment Proposal

Capital allowances of approx 90% of the purchase prices are available over seven years.  The tax relief each year is   available for offset against profit rent from the retirement home and then against total income to a maximum of €31,750 p.a. with the balance going against Irish source rental income.  A pre signed lease for all the retirement units will be in place with The Lakes Nursing Home Group prior to sale, to investors.  A Bank guarantee will be given by the   developers for the first five years Rent.  Investors, on        acquiring a unit, will automatically become a member of the Estate Management Company.  There will also be a special purpose investor-owned Company to hold unique investment features on behalf of the Owners.

2 Bed Apartment

Building                     €368,000

Fixtures & Fittings         €7,000

Total                         €375,000

Tax savings on

Capital Allowances     €164,265

Overall Net Cost of

Homes over 10 years  €210,735

Tax Incentives

Capital allowances are available in respect of the qualifying construction cost.  The rate of allowance available is 15% per annum for 6 years and 10% in year 7.These allowances are available firstly for offset against profit rent from the retirement home and then against total income to a maximum of €31,750 p.a. with the balance against Irish source rental income. 

It is planned that this development will be ready in November 2006 and the capital allowances will be available for offset for the tax year for 2006 onwards.  If the capital allowances exceed income in any year, the excess can be carried forward for offset against future rental income only.

ASSUMPTIONS 

Investor has sufficient total income and rental income at the marginal rate to absorb the building allowances and fit out allowances respectively each year

No significant changes in the taxation legislation

Tax rate is 42% plus PRSI and levies @ 5%

Based on estimated qualifying construction costs of 90%

These calculations are the current basis of capital allowances

Exit Mechanism

At the end of 10 years the purchasers of the units have the option of re-letting the retirement unit to the Nursing Home, let it privately,  occupy it themselves  or sell it on the open market.

Qualifying Condition

The retirement homes qualify for capital allowances provided certain conditions are satisfied.  This will enable the retirement home to be deemed a building in use for the purposes of a trade consisting of the operation or management of a registered nursing home under Section 268 Taxes Consolidation Act 1997.  In order to qualify for capital allowances, the retirement homes must be operated or managed by a registered nursing home, which will provide back-up medical facilities (including nursing) to the occupants of the homes when required.  An on-site caretaker must also be available.  These services will be provided by their subsidiary company of the Nursing Home. 

At least 20% of the residential units in a development must be made available for renting to persons who are eligible for a rent subsidy from a Health Service Executive (formerly known as a Health Board), and the rent charged for such units cannot exceed 90% of the rent which is charged for units by persons not eligible for a rent subsidy.

Furthermore, in order to qualify for capital allowances, the retirement homes must be leased only to those who are certified by a medical doctor as requiring such accommodation by virtue of old age or infirmity. 

Interest Relief

Interest relief is available on borrowings to acquire the retirement homes at the taxpayer’s marginal rate of tax against all Irish source rental income.

Tax on Disposal of Retirement Home

Capital Gains Tax may be payable on any gain arising on the disposal of the  retirement home.  A claw back of capital allowances will occur if the retirement home is sold in the 10 year period from the date of first letting.  A total clawback of allowances claimed will also occur where the retirement home ceases to be a qualifying retirement home in the 10 year period.

Stamp Duty

Stamp Duty is payable on the Purchase Cost of the retirement home, excluding fit-out at 6%.

Disclaimer

The information contained in this document is for illustrative purposes only.  The developer and the advisors cannot accept responsibility for any loss or damage, however arising including failure to obtain any tax saving or allowance or otherwise occasioned by any person acting or refraining as a result of the   information enclosed herein.  These particulars are issued on the understanding that they will not be   construed as forming part of any contract