Calculating and claiming the deduction

Filter	Effect
Eligibility of the expenditure	Determines which items enter the calculation
Spending cap	Limits the amount to which the rate applies
Rate	Determines the amount of deduction due
Tax capacity	Determines how much of the deduction is actually used

The order is binding and must be followed in the calculation. Applying the rate to the total cost of the works without first filtering eligible expenditure and applying the cap produces an overstatement that can be considerable.

The cap is not a single figure and its structure differs between deductions. Some caps are single, others differentiated by type of work.

The renovation deduction has a cap of 96,000 euros per property unit, applied to the whole of the expenditure incurred on the project. The number of units is counted at the start of the works.

The energy efficiency deduction has no single cap but caps differentiated by type of work, from whole building energy upgrading to the replacement of heating and cooling systems, each with its own limit. Each limit must be checked against the actual type of work.

The seismic upgrade deduction has a structure of its own, consistent with the nature of the works it supports. The spreading arrangements should be checked against the text in force.

The furniture allowance has a cap of 5,000 euros applied to the purchase of furniture and large appliances. The cap is independent of the one for the building works.

Two operational points accompany these limits. They concern the reference to a property unit and the combining of reliefs.

The reference to a property unit means that a project covering several units has several caps, and that correctly identifying the units concerned bears directly on the overall benefit. The count should be documented with the land registry plan.

Several deductions on the same property call for care. Different works may attract different deductions with distinct caps, but the same expenditure cannot be relieved twice. Separating the items in the accounts then becomes a requirement of the bill of quantities rather than a presentational choice.

Eligibility does not concern the works alone. It also covers professional services and the connected charges.

It typically covers, alongside the works themselves, the professional services connected with the project and the charges necessary to deliver it, within the scope each regime identifies. The scope should be checked against the rules of the deduction claimed.

It does not cover items unconnected with the eligible works, nor those a specific provision excludes. One technical exclusion introduced recently concerns the replacement of winter heating systems with single boilers fuelled by fossil fuels.

The practical point for a professional concerns the structure of the bill of quantities: eligible items should be identified and separated from the outset, because reconstructing afterwards which operations are eligible from a bill not prepared for that purpose costs more than preparing it correctly. Eligible items should be separated while the bill is being drawn up.

A deduction is not used in one go but spread over equal annual instalments, and this turns a benefit into a flow. The flow should be presented to the client over the whole horizon.

For the main deductions the relief is spread over ten annual instalments. Some situations have their own arrangements, and this should be checked against the deduction claimed.

The effect on the financial plan of a project is substantial. A deduction used over ten years is not equivalent to an immediate discount of the same amount, and presenting it as such overstates the advantage a client perceives.

This is the last filter and the one most often overlooked. It is the claimant's tax capacity.

A deduction reduces tax due and therefore presupposes that tax exists. A taxpayer without sufficient gross tax loses the unused annual instalment, which is neither refundable nor carried forward.

Because the relief is spread over several years, the check concerns not one tax year but all those over which the deduction runs. A client with sufficient tax today may not have it in five years.

To this is added the overall cap on deductions applying to taxpayers with higher incomes, which operates independently of tax capacity and reduces the amount available. The cap takes account of the composition of the household.

The right way to communicate the outcome follows directly from the structure just described. Each element should be shown with the assumption it rests on.

Present the eligible expenditure, the cap applied, the rate and the assumption it rests on, and the resulting annual instalment. State that actual use depends on the client's tax capacity and falls to their tax adviser to assess.

What should not be presented is a single net figure. It is the format clients ask for, and it is the one exposing the professional to a challenge on a matter outside their competence.

One final observation on comparing quotations. Two quotations may differ in gross amount and coincide in net benefit, or the reverse, depending on how items are split between eligible and ineligible. The structure of the bill of quantities then becomes part of the proposal rather than a technical detail.