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Property Tax Incentives

Wednesday, July 25, 2018

This briefing looks at two property-related enactments from Finance Act 2017 that can result in a tangible financial return where the provisions have application.

The first provision relates to an existing exemption from capital gains tax on the disposal of certain property (commonly referred to as the 7-year exemption). The exemption was modified to provide for a full exemption on the disposal of qualifying property over a three year period. The historic position was the property had to be sold on its seventh anniversary to benefit from a full exemption from capital gains tax.

The second provision amounts to cash back to the taxpayer in the form of a refund of stamp duty on the acquisition of certain property. Where the property acquisition qualifies for a refund then subject to certain conditions, the refund can be applied for immediately and equates to 4% of the value of the property acquired.

1. Capital Gains Tax – 7 Year Exemption

Did you purchase property between 7 December 2011 and 31 December 2014? If the answer to this question is yes, then you may be eligible for what is known as the 7-year exemption from capital gains tax (“CGT”) on any profit arising on the disposal of that property.

A relief from capital gains tax was introduced in the Finance Act 2012 which provided for a complete exemption from capital gains tax on the disposal of a property purchased under an unconditional contract dated between 7 December 2011 and 31 December 2014. The relief applies to both residential and commercial property located in the EEA and to property held by individuals and corporates.

Pre-Finance Act 2017

There is a full exemption from CGT on the disposal of the property where it is held for exactly seven years from the date of acquisition. There is proportionate relief where the property is held for any period longer than seven years with the relief lost in its entirety if the property is sold during the initial seven year acquisition period.

Post-Finance Act 2017

Finance Act 2017 reduced the requisite holding period from seven years to four years. The effect of the measure is to create a three year period (i.e. years 4 to 7) in which the property can be sold and benefit from a full exemption from capital gains tax. There is no change where the property is held longer than 7 years with relief still only available on a proportionate basis (e.g. sold in year 10 = 7/10 of relief is available).

The implication is that property purchased prior to 1 January 2014 may be eligible for a full exemption from CGT where it is sold on or after 1 January 2018 (subject to meeting the other conditions of the relief).

It is crucial that the timing of disposals of property eligible for this relief is managed correctly so that the relief is not inadvertently lost. Subject to certain conditions, it may also be possible to include in the exemption any capital expenditure incurred on the property during the period of ownership. This has the potential to increase the amount that qualifies for exemption as the uplift in the value of the property created by the additional works will also be exempt from capital gains tax.

Anyone who acquired a property during the relevant period between 7 December 2011 and 31 December 2014 should review their property portfolios with particular reference to retention strategies; acquisition dates and the potential to enhance the value of the asset by carrying out works that qualify for relief.

Philip Lee can assist in reviewing property acquisitions to advise on the eligibility to the exemption and managing the efficiency of the exemption.

2. Stamp duty refund scheme

Finance Act 2017 concentrated on initiatives to address issues in the housing market and consequently taxation measures that targeted the property market were prevalent. There were measures introduced across a variety of tax heads with stamp duty taking pride of place with the most significant changes.

The stamp duty refund scheme applies to commercial property that is developed into residential property. The refund is available for both multi-unit developments and one-off single house developments (including curtilage of 1 acre) so is relevant to developers and individuals alike.

An acquisition of a site on or after 11 October 2017 developed into residential property is eligible for a refund of two thirds of the stamp duty paid which equates to 4% of the value of the property acquired (e.g. stamp duty of €6,000 paid on acquisition of site for €100,000 = potential refund of €4,000).

The refund is available immediately after you commence building work following receipt of the local authority acknowledgement of a Commencement Notice. There are various conditions that must be met to avoid a clawback of the relief including, inter alia; the proportion of land that must be residential and time limits on completion of works.

The refund scheme also applies to the acquisition of shares, partnership interests and other contracts that are chargeable to the 6% rate by virtue of the newly introduced Section 31C SDCA 1999.

Philip Lee can assist in advising on all aspects of the refund scheme including eligibility and processing the refund. Any further questions or queries on this topic, please contact Amanda-Jayne Comyn.