With effect from 20 May 2021, the acquisition of 10 or more residential units within any twelve-month period will be subject to an increased rate of stamp duty of 10% (the “10 Residential Unit Rule”). The new measure is an attempt by Government to dis-incentivise the bulk acquisition of residential properties for profit and to provide greater access to the market for first time buyers and owner occupiers.
What is a residential unit for the purposes of the 10 Residential Unit Rule?
The Government Resolution defines a residential unit as a “residential property situated in the State comprising an individual dwelling.”
Of note, apartment blocks defined in the Resolution as “a multi-storey residential property that comprises, or will comprise, not less than 3 apartments with grouped or common access” are exempt from the 10 Residential Unit Rule.
Given the inclusion of “grouped or common access” a residential unit that has its own entrance (for example a duplex unit) is excluded from the exemption and falls within the 10 Residential Unit Rule.
Transitional arrangements – I signed a contract for the purchase of 20 residential units which is to complete post 20 May 2021, how does this affect me?
The Resolution provides for instances where a binding contract was exchanged pre-20 May 2021 with completion to occur thereafter. Provided the acquisition completes on or prior to 19 August 2021 the transitional arrangement allows a purchaser to avail of the lesser rate of stamp duty (1% up to the first million euros and 2% in respect of any balance).
An accompanying statement in a form specified by Revenue will be required to verify that any such contract was exchanged and subsequently completed in line with the above timelines.
What if I have already purchased 10 residential units in 2021 and I intend to acquire further units before year end?
Taking the above example, the previously acquired units will be outside of any further stamp duty implications. However, such prior acquisitions will be counted, cumulatively to reach the permitted quota and any further acquisition would be captured by the 10 Residential Unit Rule.
The 10 Residential Unit Rule attaches to the acquirer so the type of unit, its location or value does not circumvent the application of the 10 Residential Unit Rule.
What constitutes “acquisition” of a residential unit?
The Resolution construes an acquirer very widely and catches any person “connected” with the acquirer. “Connected” has the meaning given to it in tax legislation and includes (but is not limited to) a lineal relative, spouse / partner or companies where the same person or people act in concert to secure or exercise control of or acquire a holding in a company holding residential units.
Linked to the above, the Resolution also interprets acquisition very broadly and the 10 Residential Unit Rule catches;
(i) A traditional asset acquisition;
(ii) Acquisition of the shares in a company or companies holding residential units; and
(iii) Acquisition of control of a partnership or units in investment funds holding residential units.
Why is this measure likely to deter investors?
The financial cost for the investor is that the increased rate of stamp duty at 10% will add an additional €27,000 to the acquisition cost of a unit at €300,000 (allowing for the existing 1% rate of duty) falling within the 10 Residential Unit Rule and this additional cost will drive down the yield achievable by the investor and potentially deter the investment. The exemption for approved housing bodies from this measure gives them a competitive advantage in the marketplace.
In addition to the Resolution, the Government has announced that it intends to issue new planning guidelines to require Local Authorities and An Bord Pleanála to further attempt to ring-fence supply of residential properties for first time buyers and owner occupiers.
The introduction of the 10 Residential Unit Rule has far reaching implications for the current landscape of the Irish housing market and its many stakeholders. We will continue to update our clients as the position evolves but please speak to your usual Philip Lee contact should you wish to discuss any aspect of this significant legislative change.
Article written with the assistance of Conor O’Currain.