A large increase in commercial stamp duty, a promise to build an extra 4,000 new social homes in 2018 and a reduced holding period for the capital gains tax exemption were some of the highlights announced today which saw the Minister allocate €1.83 billion into the crisis stricken housing sector for next year. Furthermore, in order to make it easier for developers to get funds and build homes, a new agency called Home Building Finance Ireland is being established which will draw on the established skills and expertise of NAMA.
The rate of stamp duty on non-residential property will increase from 2 percent to 6 percent with effect from midnight tonight. The new rate is still below the 9 percent rate that applied between 2002 and 2008 and is seen as a significant revenue raising measure which is projected to be €376 million in a tax year.
Stamp duty refund scheme
In order to address housing supply challenges, the Minster announced his intention to introduce a stamp duty refund scheme where commercial land is purchased for the purposes of housing development. The scheme will apply to developers who commence to build houses within 30 months of the land purchase. Further details of the scheme will be announced in the Finance Bill.
Mortgage interest relief
For owner occupiers who took out qualifying mortgages between 2004 and 2012, mortgage interest relief was expected to end on 31 December 2017. The Minister announced today that in line with the objective of the Programme for Government, he would be extending the relief for these homeowners until 2020. The relief available in 2017 will be restricted to 75 percent in 2018, 50 percent in 2019 and 25 percent in 2020. The relief will cease in 2021.
In a move to encourage owners of vacant residential property to rent out property, a new deduction for expenses incurred prior to letting is being introduced. Prior to Budget 2018 the only pre-letting expenses that were allowed were letting fees, advertising fees and legal fees. This new measure will allow expenses such as painting, minor repairs and cleaning to be deducted against rental income. In order to qualify, the property has to have been vacant for at least 12 months, expenses have to be revenue in nature and cannot exceed €5,000 per property. If the property is taken off the rental market within four years, any relief given will be clawed back. The relief will be available for expenditure incurred up to the end of 2021.
Reduced holding period for capital gains tax exemption
The seven year capital gains tax relief is to be amended to allow the owners of qualifying land or buildings to sell those assets between the fourth and seventh anniversaries of their acquisition and still enjoy relief from capital gains tax on any chargeable gains as per section 604A TCA 1997. See full details of this relief in the capital taxes section of the newsletter.
Vacant site levy
In a further move to encourage the development of property, the Minister announced that the vacant site levy will be more than doubled; increasing from the current 3 percent levy rate that applies in the first year the site is vacant to 7 percent in the second and subsequent years. This means that where an owner of a vacant site does not develop the vacant land in 2018, they will pay a 3 percent levy in 2019 and the increased rate of 7 percent will apply for the second year, from 1 January 2019. If the land remains vacant in 2019, the 7 percent levy will apply in 2020. Effectively the vacant site levy will be a hefty 10 percent over two years.