Deloitte analysis on Capital taxes and Budget 2012
Stamp Duty
In a surprise move Minister Noonan has reduced the stamp duty rate applicable to commercial property to a flat 2% rate on the transfer of freehold and leasehold commercial property, including farm land and industrial buildings.
The reduction will be effective from 7 December 2011 and is a welcome announcement and one which, combined with the capital gains tax holiday announced today, will hopefully entice investors back into the commercial property market.
This reduction will apply to all other forms of commercial property as well such as stock, goodwill and debtors which may otherwise be liable to stamp duty when transferred.
This will benefit those seeking to transfer business assets after 7 December and should be viewed in conjunction with the proposals to amend the provisions for retirement relief from capital gains which may also apply to the transfer of business assets.
Finally, it was announced that consanguinity relief (i.e. transfers between close family relatives) from stamp duty on the transfer of non residential property will be abolished on 31 December 2014. This is reflective of the fact that the revised rate of stamp duty on commercial property will be 2% from 7 December 2011.
Capital acquisitions tax
As was widely anticipated, the Minister has increased the rate of tax on gifts and inheritances from 25% to 30% with effect from 7 December 2011. While this is a significant increase it is still one of the lowest rates of gift/inheritance tax in Western Europe.
In addition, the Group A lifetime tax free threshold applicable to gifts and inheritances from parent to child has been reduced by a quarter to €250,000 while the remaining thresholds have not been altered. This new threshold comes on the back of significant reductions in the tax free amounts over the last number of years and the new Group A threshold is in line with the applicable threshold for 1999.
Contrary to recent speculation there were no changes to various CAT reliefs such as business and agricultural reliefs introduced. Hopefully no change to these reliefs will be contained in Finance Bill 2012.
Finally, the Minister has announced that the transfer of an Approved Retirement Fund on death to a child over the age of 21 will now be liable to tax at 30% in line with the revised CAT rate of 30%.
Capital gains tax
As expected, from 7 December 2011 the rate of capital gains tax will rise by 5% from 25% to 30%.
In an effort to stimulate the property market, the Minister announced a capital gains tax holiday for capital gains arising on the disposal of property acquired between 7 December 2011 and 31 December 2013 which is held for seven years prior to disposal. Further detail on this incentive was not forthcoming today, however we welcome the statement and look forward to the publication of greater detail on the properties included in the incentive.
The Minister also announced the modification of retirement relief from CGT to encourage a timely transfer of farms and businesses. We await further details of the amendments to the relief which will be announced in Finance Bill 2012.
Household charge
The Local Government (Household Charge) Bill 2011 gives legal effect to the new €100 household charge/property charge payable by owners of residential property which will take effect from January 2012. This may very well be a precursor to a valuation based property tax in the future. On a positive note, widening the tax base as it applies to capital assets is preferential to changes to rates of income tax.
The household charge will be due as and from 1 January 2012 and must be discharged by 31 March 2012 unless the property owners discharge the charge over four installments throughout the calendar year.
Where a property is rented for a period of less than 20 years, it is the landlord who will be viewed as the owner and therefore liable to the charge. In the case of properties rented for a period in excess of 20 years it will be the tenant who is liable for the payment of the charge.
Certain properties will be exempt from the charge including the following:
- Property owned by public authorities and charities
- Property held in a discretionary trust,
- A property where the owner has moved out by reason of long term mental or physical infirmity, and
- Mobile homes and house boats
In addition, certain property owners will be exempt from the charge - firstly those who are either in receipt of the mortgage interest supplement from the Department of Social Protection or, for the years 2012 and 2013, those whose property is located in an “unfinished housing estate”. A list of the “unfinished housing estates” shall be made available by the Minister for the Environment, Community and Local Government once he is satisfied that the each of the developments is substantially incomplete.
For the moment therefore, it seems that the value of the property and the level of associated debt on the property is to be disregarded for the purposes of the charge. Also, the collection method to be used for the charge is yet to be decided. We hope that the method used for this charge will not be similar to that for the NPPR charge which is done solely online and has proven to be a burden for certain tax payers who are not used to filing tax returns online.
