Generous taxation breaks for heritage properties have been abused writes John McManus

The Government has closed a tax loophole based around the Republic's 113 privately owned heritage properties. The 2002 Finance Bill - which is making its way through the Dáil - contains a measure aimed at ending the misuse of the generous tax breaks given for restoring and maintaining heritage properties.

The Department of Finance became aware last year that the owners of a small number of these properties were "temporarily transferring" them to wealthy individuals who were using the tax break before transferring the property back. Other owners were taking in passive investment partners who were availing of the tax breaks to reduce their income tax bills.

Although legal these activities were not considered to be in keeping with the spirit of the measure, which was intended to assist the owner-occupiers of important buildings to renovate and maintain them.

The Department decided to close the loophole after the Revenue Commissioners received what one source described as an anonymous tip off that a firm of professional tax advisers were promoting schemes based around the loophole. The measure was announced by the Minister for Finance, Mr McCreevy on Budget Day but the Department has refused to release any documents relating to the changes under the freedom of Information Act.

Section 482 allows the owners of "significant buildings" to claim back expenditure on the repair, maintenance or restoration of an approved building or garden. In order to qualify the building has to be judged to be of intrinsic horticultural, scientific, historical, architectural or aesthetic interest by the Department of Arts, Heritage, Gaeltacht and the Islands.

Once the property has been approved by the Department, the owners then have to apply to the Revenue Commissioners for further approval. The Revenue Commissioners have to satisfy themselves that the public is afforded "reasonable access" to the building or that it is used as a "tourist accommodation facility".

A list of the qualifying buildings and the times they are open to the public is published on the Revenue Commissioners internet site and also by Bord Fáilte.

The Government has put an annual limit of €31,750 (£25,005) on the amount of expenditure that "passive individual investors" in these properties can offset against their income tax. This brings the relief into line with the amount that investors can claim if they invest in non-heritage property.

The limit does not apply to owner-occupiers or companies that use heritage buildings as their premises. Department of Finance sources said it was not possible to establish how many investors had availed of the loophole or the amount of tax foregone by the State as a consequence. "We think it was only just beginning," said one official.

There are 113 significant buildings on the list currently published by the Revenue Commissioners. Most of them are large country properties, many of which are owned by well-known individuals.