Seamus Bane
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Wednesday, 8th Dec, 2010
Property Implications of Budget of 7th December 2010

The following are the principal items of note relevant to the property industry in Budget 2011

Reduction in Stamp Duty

There is a fundamental reform of Stamp Duty on residential property transactions with immediate effect. This has three aims: to stimulate the property market, to provide necessary valuation information and to increase market transparency for the smooth operation of the market.

There will be a flat rate of 1% on all residential property transactions up to a value of 1 million with 2% applying to amounts above 1 million.

In line with the base-broadening approach adopted in this Budget, all existing reliefs and exemptions for Stamp Duty on residential property are being abolished. This means that 1% will be paid on all residential property sales, new or old. If this system had been in place instead of the previous volatile one, it would have lessened the
effect on tax revenue of the booms and busts in the market. The information gathered from this new regime can be used to compile data on house valuations to inform a valuation database. This data will bring a greater degree of transparency to the operation of the housing market that has been previously absent. Markets, said the Minister, operate best where buyers and sellers have reliable information available to them.

The new rates will apply to property transfers on or after 8 December 2010. A transitional provision will be put in place to ensure that anyone who has entered into a binding contract to purchase a residential property before 8 December 2010 and who executes the transfer of that property before 1 July 2011, will not lose out.

Property-based reliefs:
Three new measures in particular will be targeted at passive investors:

Restrictions on the carry forward capital allowances will start in 2011 and impact progressively over the next few years.

From 2011, Section 23 relief will be restricted to income from Section 23 property.

A guillotine provision will ensure that all unused capital allowances after 2014 and Section 23 reliefs are lost.

This last provision will effectively terminate all property-based reliefs in 2014.

The base for Capital Acquisitions Tax is being broadened by reducing the tax-free thresholds by 20%. This reduction follows the economy-wide fall in asset values in recent years and builds on a similar measure introduced in Supplementary Budget 2009.

Fostering Compliance within the Economy

The construction sector has been at the vortex of this economic downturn. It will be some time before the sector returns to a sustainable level of output. In the meantime, the Government wants to ensure that existing employment levels are protected and allowed to grow by reducing black economy opportunities in the industry. The Government is proposing significant reform of the Relevant Contracts Withholding Tax regime which applies to contractors in the construction, meat-processing and forestry sectors of the economy.

To foster compliance, a new withholding rate of 20% tax will apply to subcontractors in the construction, meat-processing and forestry sectors registered for tax with an established compliance record, with the existing 35% rate retained for subcontractors not registered for tax. In addition, the system will be strengthened to enhance its
effectiveness and reduce the opportunities for fraud.

The Minister for Finance plans to introduce a new tax incentive which will support employment while improving energy efficiency in homes.

The new incentive will complement the grant aid that is available through the Home Energy Savings Scheme currently available from the Sustainable Energy Authority of Ireland.

Standard rated tax relief will be available on expenditure up to 10,000 on a list of approved works. The total relief available under the scheme in any one tax year will be 30 million which would allow for remedial works to be carried out on a minimum of 15,000 homes.

Contractors employed to complete the work must be registered with the Revenue Commissioners. This incentive, together with the proposed changes in Relevant Contracts Tax will support construction businesses operating in the legitimate economy.

Full details of the new incentive will be provided in the Finance Bill.