Finance Bill 2017
Stamp Duty rate increase on commercial property, and other property related measures.
The rate of stamp duty on commercial property has been increased from 2% to 6% with effect from midnight on 10 October 2017 subject to transitional measures provided in the Finance Bill as follows:
To avail of the 2% rate, purchasers must have binding contracts in place before 11 October 2017 and the instruments for the transfers must be executed before 1 January 2018. The instrument
must contain a statement to this effect. It is a revenue offence where an incorrect statement is furnished.
The minister announced that a stamp duty refund may be available in respect of land for development of houses under a refund scheme. He mentioned that this would be subject to developers commencing within 30 months of land purchase. We understand that this scheme will be brought forward during the committee stage of the Bill. It is not in the Bill as initiated.
Assets transferred between family members
Consanguinity relief for transfers of property between certain relatives is changed from half of the normal rate of stamp duty which would otherwise apply, to a fixed rate of 1% of the market value of the property being transferred. The Bill also extends the consanguinity relief provisions for a further 3 years to 1 January 2021 and removes the age limit of 67 years for availing of the relief. This is to encourage gifts and sales of farmland to family members who do not qualify for the exemption available under the Young Trained Farmer scheme.
There is an increase proposed for the threshold below which certain residential leases are chargeable to stamp duty from €30,000 to €40,000. These are leases for an indefinite term or not exceeding 35 years. Commercial lease premiums are subject to the increased stamp duty rate of 6%.
Assets transferred intra Group
Associated Companies Relief for transfers of property (real estate and any other property subject to Stamp Duty) between associated group companies has been amended to allow stamp duty relief on mergers of companies by absorption. This means that the normal 2 year clawback period for retaining the group relationship will be disapplied where a company is merged by absorption where the transferor is dissolved and liquidated and where the transferee holds the beneficial interest in the property for 2 years. It is also subject to certain anti avoidance provisions.
Stamp Duty reorganisation reliefs have also been amended to take account of a merger that is undertaken in accordance with the Companies Act 2014.
Capital Gains Tax Relief on land and buildings
This is a relief from Capital Gains Tax in respect of land or buildings which were purchased in the EEA area between 7 December 2011 and 31 December 2014 where such land or buildings are held for a minimum period of 7 years.
The proposal in the Bill is to give effect to the announcement in the Budget statement to grant a full exemption from Capital Gains Tax if the taxpayer has acquired the land or buildings within the required period and owned it for at least 4 years and no more than 7. Where a building is owned for more than 7 years the relief is tapered. For example if the asset is owned for 8 years before disposal, 7/8ths of the gain would be exempt.
The amendment is proposed to apply to disposals made on or after 1 January 2018.
Vacant Site Levy
The Vacant Site Levy can apply to sites which have the potential to provide housing to meet local housing need and demand. It is calculated on the market value of a site determined by the local authority.
The Minister announced that the levy rate of 3% which will apply from 1 January 2019 for property which has been held in 2018, will be increased to 7% for each subsequent year. The vacant site levy rules are contained in the Urban Regeneration and Housing Act 2015.
Landlords - Interest Relief and Pre-Letting expenses on rental residential property
The restriction on interest relief on money used to buy residential property will continue on a phase basis so that 85% of interest payable which otherwise would be allowed, is available as a deduction against rental income received, from 1 January 2018 and 90% for 2019, 95% for 2020 and 100% et seq. for 2021.
Pre-letting expenses relief is proposed in the Bill. This is to encourage owners of vacant residential property to bring the property into the rental market. The relief applies to property vacant for 12 months or more. There is a cap of €5,000 per property. The relief will be clawed back if the property ceases to be a residential property within 4 years of first letting.
The Bill includes transitional provisions for the increase in the rate of stamp duty for commercial property from 2% to 6%.
Essentially where a contract is binding before 11 October 2017 and the instrument is executed before 1 January 2018, the lower 2% rate of stamp duty will apply for the purchaser.
We understand that measures for the introduction of a stamp duty refund scheme in respect of land for development of houses, will be brought forward during the committee stage of the Bill.
On balance and in line with our predictions, the Bill as it relates to Property, contains little in terms of tax measures. The stamp duty increase may bring more share sales to avail of the lower rate. The stamp duty refund scheme may provide some relief in respect of the housing market. However given the cost of the land has to be financed upfront this will serve as an additional cost for purchasers. It remains to be seen what impact this will have on the market.
A lot of property has been bought over the past 4 years and many are now in asset management mode. A lower rate of duty in our view would have been more measured and would assist in keeping ourselves competitive in the Real Estate international markets.
There was no movement in VAT, no change in the interest relief for rented residential, no deduction for LPT all of which were flagged for discussion by many commentators.
The proposed change in the 7 year capital gains tax exemption for investors which allows an exit after 4 years, which will help straddle the exit for some investors who want to sell earlier.