Lower rate of stamp duty on commercial may have been more appropriate to remain competitive
There was a clear focus in Budget 2018 on a range of property related measures, including a significant hike in the commercial stamp duty rate, as well an increase in the vacant site levy.
Commenting on these measures, Padraic Whelan, Tax and Real Estate Partner at Deloitte commented:
“A rate increase in stamp duty on commercial property was viewed as needed in the light of tax cuts in other areas which had to be funded. It had been mooted that the rate would be increased to 4%, as opposed to 6%. This may have been fairer and would keep us competitive in our offering to foreign investors. The impact that this will have on transactions remains to be seen.
“There were limited measures in the budget to retain investors in the market or drive supply. In fact, the vacant site levy is to be increased to 7%, which in turn will have to be passed on to purchasers of residential units. Most developers and funds who buy lands with a view to developing it have to go through a long planning process and fund it from their own equity and even then a bank will not lend on an entire site but more likely to do so in phases. In the meantime it looks like the levy will have to be paid. This measure may need further thought and we await further detail in the Finance Bill.
“There was a change in the seven year capital gains tax exemption for investors which allows for an exit after four years. This will help straddle the exit for some investors who want to sell earlier. It’s interesting that some commentators generally felt this measure was being used to hoard land for sale; however a developer or fund buying land to develop and sell would not be entitled to claim it.
“It will be important to closely monitor the overall impact of the tax and non-tax measures announced today in terms of outcomes on the commercial and residential property sectors.”
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