PETER STAFFORD outlines the main points relevant to construction, land and property in this year’s Budget.
The current rate of capital gains tax of 30% has been increased to 33%. This increase applies in respect of disposals made after December 5, 2012.
There has been a decrease in the threshold at which capital acquisitions tax applies of 10%, and an increase in the rate of capital acquisitions tax of 3% to 33% from midnight on December 5, 2012.
DIRT has increased from 30% to 33%.
Relief for farm restructuring
To enable farm restructuring, relief will be available where the proceeds of a sale of farmland are reinvested for the same purpose.
The sale and purchase of the farmland must occur within 24 months of each other, and the initial sale or purchase transaction must occur within the period commencing January 1, 2013, and ending on December 31, 2015. The relief will also apply to farmland swaps subject to certification by Teagasc for all transactions seeking relief. The commencement of the relief is subject to receipt of EU State Aid approval.
Real estate investment trusts (REITs)
An established, internationally recognised model for property investment – the real estate investment trust (REIT) – is to be introduced. REITs are listed companies, used to hold rental property, which provide a return for investors similar to that of direct investment in property.
The qualifying income and gains of a REIT will be exempt from corporation tax at the level of the REIT company. Instead, the REIT is required to distribute profits annually for taxation at investor level. Legislation has not yet been produced on REITs.
Local property tax
When the flat-rate household charge was introduced in the last Budget, the Government signalled that it was an interim measure in advance of a more developed annual property tax.
The detail of that tax, to replace the household charge, has been disclosed. The household charge will be abolished from January 1, 2013, and a new local property tax (LPT) will be introduced on July 1, 2013.
The tax will be levied entirely on the market value of the property (with no account taken for the value of sites or the size of the property), at a rate of 0.18% of the value of the property. A higher rate of 0.25% will be levied on properties worth over €1m. Property will be banded at €50,000 intervals, with the charge levied at the mid point of the band. This tax will be introduced from July 1, 2013, and from January 1, 2015, local authorities will have the discretion to vary the rates by a maximum of 15% in either direction from the national centre rate. The Government has committed that the central rate will not be increased for its lifetime.
Interestingly, given that the funds will be for discretionary local services, the owner of the property will be levied, except in the case of long leases (20 years and over) or life tenancies, in which the tenant will be levied. Co-owners will be jointly and severally liable for the charge. What is not yet known, of course, is to what extent the tax on rental properties will be passed on to the tenant. The local property tax will operate through a system of self-assessment and self-declaration, and will be collected by the Revenue Commissioners, who will have responsibility for all administration, collection, enforcement and audit aspects of the tax on behalf of the local authorities by whom the tax will be spent.
The income from the local property tax will accrue to local authorities and will fund local services. The areas of responsibility that will be funded through the local property tax are public parks, libraries, open spaces and leisure facilities, planning and development services, fire and emergency services, maintenance and cleaning of streets, and street lighting. The Department of Finance and the Revenue Commissioners will publish guidance about valuing property.
According to the Department of Finance, where this official guidance about valuing a property has been followed, property valuations will not be challenged by the Revenue Commissioners. Initial valuations will be valid from an official valuation date of May 1, 2013, up to and including all of 2016. In his speech, the Minister for Finance noted that owners will be free to use a competent valuer to undertake this work. The tax may be payable online by debit or credit cards, or by instalments through deduction at source. Furthermore, it may be paid by deduction at source from salaries, occupational pensions, social welfare payments, non-contributory state pensions and other long-term schemes.
The Revenue Commissioners are working on a comprehensive register of properties in the State, which will contain around 1.9m properties. In March, information will be sent to homeowners by the Revenue Commissioners advising them of their obligations to pay this tax. It is important to note that in the absence of any valuation submitted to the Revenue Commissioners, they will pursue collection on an estimated amount of tax, which will have been notified to the taxpayer. It is also important to note that for self-employed people, a tax clearance certificate will not be issued if there is tax outstanding, and a charge will be attached to the property, which will have to be discharged on the sale or transfer of the property.
There are a number of important exemptions. Newly constructed but unsold houses will be exempt from local property tax. New and previously unused houses that are purchased between January 2013 and December 31, 2016, will be exempt until the end of 2016. First-time buyers who purchase second-hand property between January 1, 2013 and December 31, 2013, will be exempt from tax until the end of 2016. A number of groups will be exempt from the tax, including those whose income is below €15,000 for a single person and €25,000 for a couple. There will also be supports for those on low incomes or who have distressed mortgages. Those who are currently exempt from the household charge on the basis that they live in an unfinished estate will also be exempt from this new tax.