THE Finance Bill has closed a loophole in the Seaside Resort Scheme whereby developers were manipulating reliefs and claiming double reliefs on investment schemes in holiday cottages.

The changes are also desirable, according to the Department of Finance, as the scheme was designed to promote investment in public tourist projects rather than holiday dwellings.

Both the double rent allowance and the capital allowances cannot now apply in relation to holiday cottages and apartments at the same time.

The Finance Bill has also ring fenced the capital allowances for apartments and listed holiday cottages to rental income or the income from the trade of the cottages or apartments as is the case already for registered holiday cottages.

The changes will apply from yesterday except in cases where an application for planning permission has been received or a binding contract for acquisition or construction has already been entered into.

The Finance Bill has also introduced tax relief to encourage the construction or refurbishment of residential accommodation on the Republic's 21 inhabited offshore islands.

The population of the 21 inhabited islands has fallen from 4,835 in 1960 to 3,121 in 1990 and the reliefs are aimed at combating this decline.

The main relief is an allowance against income tax of 50 per cent of the expenditure on the construction or refurbishment of permanent accommodation for owner occupiers at a rate of 5 per cent a year for 10 years. Construction, conversion and refurbishment costs of rented accommodation can also be offset against rented income if the lease is for at least 12 months.

The reliefs will apply to qualifying expenditure for a period of three years from August 1st.

The second secretary at the Department of Finance, Mr Michael Tutty stressed that the relief was not designed so that people could merely build holiday cottages. "It's to encourage permanent living on the islands," he said.