Stamp duty reform, all exemptions abolished, impending property tax… How will Budget 2011 affect your property search?
Finance Minister, Brian Lenihan targeted so-called “passive investors” by restricting the carrying forward of capital allowances from 2011. Section 23 relief will be restricted to income from Section 23 property only (currently such relief can be set against all rental income for investors) and all unused capital allowances after 2014 will be lost. Essentially, all current property based incentives and relief will be abolished by 2014. If property is sold within this period, the new owner will not get Section 23 relief and the seller continues to be subject to a clawback of relief already given. (For qualifying properties yet to be sold, for which the relief has yet to be claimed, the 10-year qualifying period will start on 30 June 2011 regardless of the date of the first qualifying lease. Therefore, in such cases no Section 23 relief will be available after 30 June 2021).
The tax-free threshold for CAT, or Capital Acquisitions Tax, is reduced by 20pc, following on from a similar measure from the Supplementary Budget 2009. This is reflecting the general drop in asset values since late 2009 to date.
Stamp Duty Reform:
In essence, new and secondhand properties, regardless of size and price, are now liable to stamp duty for all buyers. Existing rates start at zero on values below €125,000, 7% on the next €875,000 and 9% on the balance above €1million. These rates are to be replaced with a 1% flat rate on all residential property transactions up to a value of €1 million and 2% applying to amounts above €1 million.
Existing reliefs and exemptions for Stamp Duty on residential property (for example: first time buyers, new houses below 125 sq m, site to child) are to be abolished in respect of instruments executed on or after 8 December 2010. Homebuyers who have entered into a legally binding contract prior to the 8 December 2010, and who executes the transfer of that property before 1 July 2011, will not be affected.
First time buyers are the big losers of this measure as buyers trading up, and investors, will benefit from significant reductions in their stamp duty bills. For example, a home valued at €1m, which previously attracted stamp duty of €61,250, will now cost €10,000.
The expected property tax did not materialize in Budget 2011 but is to be introduced in 2012 at a rate of approx. €100, rising to €200 in 2013.
The Finance Minister claimed that the stamp duty reform this will provide useful valuations for the market, “The information gathered from this new regime can be used to compile data on house valuations to inform a valuations database.” This would mean a gradual phasing out of the flat-rate system in favour of a more equitable basis of property taxation.
There is to be a new incentive for improving energy efficiency in homes, with standard-rated tax relief available on spending of up to €10,000 on a list of approved works.
Also, there will be further incentives for local authority tenants to purchase their homes through an increase in current discounts. Existing tenants will be able to avail of a discount of up to 45pc on the market price of a house they are eligible to purchase under the scheme. This is a seemingly temporary increase from the stated maximum of 30pc discount and will allow tenants to accumulate the 45 per cent discount over a 15 year period, also at a rate of 3 per cent for each year of the tenancy.
If you are unclear on any aspect of the changes discussed above, please email your queries to firstname.lastname@example.org or contact us on 01 4428 035 for further advice.