INVESTORS and even some home buyers should have look out for a number of hidden tax opportunities and hidden tax pitfalls when buying even non-tax incentive properties. For instance, some investors miss out on opportunities because they overestimate the stamp duty they will pay when buying a new home. Unlike second-hand homes, the stamp duty on new homes does not apply on the price quoted by the developer. This is because the developer's price includes VAT at 13.5%.

However the investor pays the stamp duty on the pre-VAT price. Say for instance a person is buying a € 255,000 home. If this was a second-hand, it would attract a stamp duty at 5% amounting to an extra € 12,750. However, when calculating the stamp duty on the pre-VAT price of only € 224,670, it attracts a stamp duty at only the 4% rate and generates a saving of € 3,763 for the investor.

Furthermore, when investors are seeking to negotiate prices with a developer, they should keep an eye on the real stamp duty thresholds on new homes. Thus by negotiating a price below these thresholds, they can reduce the stamp duty rate which is charge. Effectively, this also means that investors buying new homes priced at over € 381,000 will pay less stamp duty than anyone including first time buyers and owner occupiers, who buys a second-hand at the same price.

The combination of the increased VAT and the abolition of the first time buyers grant for new homes also means that it now makes more sense for parents to take a more pro-active approach to alleviating the VAT on new homes.

With the VAT rate currently standing at 13.5%, this can amount to as new home. Much as €32,500 on a €250,000 new home. Rather than simply providing the child with a lump sump towards the deposit, the parents could register for VAT before buying the property and reclaim this back within weeks if the purchase.

However, they will need to pay back the VAT by charging VAT on the rent. Nevertheless, it can be repaid over a period of nine or 10 years by charging a market rent to the children.

This really works best where the children are likely to live at home for at least a few years until they can take on the mortgage themselves.

In the meantime the property could be generating rent and paying back the VAT. Accountant Fergal O'Gara of LowEq financial consultants says that in effect this an interest free loan from the VAT man to help pay part of the price for the home.

Mr O'Gara points out that if they wish to pass the ownership of the home over to the children before all the VAT has been paid back to the VAT man, then the parents may need to ensure that the full VAT reclaim has been paid back and to deregister with the VAT man.

Furthermore, if the parent has paid off the mortgage and is gifting the house to the child, then the child may have to pay capital acquisitions tax on the value of the home worth more than € 365,000.

Another problem arises with stamp duty. Owner occupiers have no stamp duty on new homes of less than € 195,001 including VAT, and on homes priced at up to € 381,000 they pay a lower rate of stamp duty than investors. So while the child may pay lower or no stamp duty, the parent/investor will.

However, another advantage of this route is that it allows the parents to claim mortgage interest relief at the top 42% tax on all of the interest charged on the mortgage. In the contrast a first-home buyer can claim tax at only the standard rate 20p% rate.

One of the other advantages of this route is that it allows either parents or investors to alleviate other costs of property buying. For instance they will be able to reclaim VAT and capital allowances on the fit-out, including electrical appliances supplied by the builder.

However, there have also been changes here, since the last budget depreciation on fit-out is spread over eight years rather than five years. They also need to be invoiced separately by the builder.

But there also pitfalls which investors should be wary of. Any interest incurred between the time of purchase and the time of letting is not allowable for mortgage interest relief.

Furthermore, if you do register for VAT, there will also be the cost and hassle of making twice monthly VAT returns to the VAT man for the first year and annually thereafter which may require the services of an accountant.

Another difficulty is that these VAT returns will also reduce the net amount of the rent available to repay the mortgage. As a result, the investor may need to make up the difference from their other income-especially if rents fall.