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Finance Bill 2021
Zoned Land Tax
As signalled in Budget 2022, Finance Bill 2021 provides for a 3% annual tax based on the market value of certain specified land. Broadly, this is stated as land which is zoned as being suitable for residential development, that is serviced and that is not affected in physical condition by considerations which may impact the ability to provide housing on the land.
A number of explicit exclusions have been provided for in the Bill. A two-year lead-in time is proposed for land zoned before January 2022, and a three-year lead in time for land zoned after January 2022.
Owners of land within scope will, from 2024 onwards, have to pay and file with Revenue each year. The tax may be deferred in certain circumstances e.g. where certain legal proceedings delay the commencement of construction or while construction of housing is in progress within the timeframe set out in the planning permission.
Tax deferred during the construction of housing will, on the making of a valid claim, not be payable where a certificate of completion is submitted to a local authority by the end of the timeframe set out in the planning permission.
Help to Buy
The scheme will continue at current rates for 2022. A full review of the scheme will take place next year.
Non Resident Landlords
Effective from 1 January 2022, companies not resident in the State that are in receipt of Irish sourced rental income (NRLs) will be subject to corporation tax at a rate of 25%.
Additional transitional amendments were announced with the intention of ensuring rental losses and unused capital allowances carried forward by NRLs while subject to the income tax regime will be available while subject to corporation tax.
A number of technical amendments have been proposed to anti-avoidance provision Section 31E which previously brought forth the application of a 10% stamp duty rate in the case of certain residential property acquisitions. These amendments include:
- A change aimed at making it clearer this section also applies to the indirect acquisition of a residential unit e.g. via share acquisition.
- The disapplication of the 10% rate where a residential unit within scope is leased to certain social housing providers on the same day the unit is acquired.
- An amendment to narrow the scope of subsection (12) to limit unintended consequences of a broader than intended application.
A further amendment to Section 83E provides for a refund of the difference between the 10% rate of stamp duty paid and the normal lower residential rate where a residential unit is subsequently leased by approved persons for social housing within 24 months of purchase.
Interest Limitation Rule (ILR)
As required under EU law, the Bill provides for the introduction of an ILR for accounting periods commencing on or after 1 January 2022.
Free Use of Property – Capital Acquisitions Tax
In the case of a gift or inheritance of the free use of money, the value of that gift or inheritance is to be determined by reference to the best price obtainable of borrowing an equivalent sum in the open market.
Relief for landlords on certain pre-letting expenses has been extend by 3 years to 2024.
The inclusion of a deferral in certain cases from the Zoned Land Tax is welcome as it acknowledges the real difficulties some land owners face when trying to progress a development. It is key that such exclusions will in practice be sufficiently broad to ensure problems in operating within the current planning system do not inadvertently give rise to an additional tax cost to land owners which could result in marginal developments no longer going ahead or further upward pressure on property prices.
The change in the treatment of non resident companies in receipt of Irish rental income is a major change to the taxation applicable to such persons heretofore. The applicable tax rate on annual rental profits has increased by 5% by the entry of NRLs into the corporation tax charge. The 25% applicable corporation tax rate is now the same as that equivalent to Irish companies with Irish rental income. As a consequence of this change, NRLs will now also be within the scope of corporation tax for capital gains rather than CGT.
There has been much interaction between Revenue and tax practitioners on the Stamp Duty anti-avoidance Section 31E since the section was first introduced earlier this year and the move today to clarify the application and narrow the scope for unintended consequences is welcome.
The introduction of the ILR while expected is significant for market participants
due to the debt funding typically required in the development of property. The adoption in the Bill of the reliefs and exemptions provided for under the EU Directive make sense given the broad application of the rule. As the rules will impact different developers/investors in different ways modelling the impact of the rule change from the outset will continue to be a key task.
The CAT change to the treatment of free use of money is a significant departure
from existing rules which use the demand deposit rate as the benchmark for
establishing the value of deemed gift (e.g. the interest forgone in the case of
an interest free loan). Broadly, this rule change may impact for example (not an exhaustive list) where an interest free loan is
- one person to another person, or·
- a company ultimately owned by a particular person to a company ultimately
owned by a different person, or
- a person to a company ultimately owned by a different person.
The deemed gift (i.e. the interest forgone) by the provider of the loan would now be valued by reference to the best price obtainable of borrowing an equivalent sum in the open market.
The use of such loans may have increased during the Covid period due to the financial distress experienced in some cases. It is hoped that on further review, consideration will be given to family situations where for example a family member provides funds to support the purchase of a residential property or to support a company experiencing financial difficulties to ensure the scheme does not unduly impact persons already in difficulty.