Indecision over proposed new property tax in Ireland could hold up real estate recovery, agents warn

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A decision on abolishing stamp duty for main homes in Ireland and replacing it with an annual property tax needs to be made swiftly to avoid an impact on the country’s real estate market, it is claimed.

Estate agents are warning that the country’s struggling second-hand property market may well grind to a halt if a decision on the plan outlined by the Commission on Taxation is not made until the December budget.

Property buyers who may be tempted by heavily discounted prices will be reluctant to make commitments until the stamp duty issue is clarified, according to the Irish Auctioneers Valuers Institute which represents around 1,700 estate agents.

The publication of the proposal comes at a time when residential property sales were beginning to pick up at the opening of the autumn selling season. Simon Ensor of the IAVI’s national council said agents support the abolition of stamp duty and they can understand why politians support the idea of a property tax as it would bring in a more stable taxation base, but there are concerns that in the meantime indecision will impact on the market.

But not all politians are keen on the idea. Set at 9% for properties worth over €1 million, it brought a lot of money into the government’s coffers during the real estate boom.

Indeed Taoiseach Brian Cowen is reported as saying he is not that keen on a return to the property tax system.

There is also concern about the impact of such a change on the buy-to-let property market as the current proposal would leave stamp duty in place for this sector at a time when landlords are seeing rents falling. Buy-to-let investors are regarded as a key group that could help revive the real estate market.

Under the proposal a new property tax would be based on the market value of the property, using valuation bands, and would apply to all residential homes, except local authority and social housing units. However, homeowners who have paid stamp duty would be exempt from the annual property tax for seven years from the time they bought their property.

The proposed annual property tax would also apply to second homes and holiday homes and replace the €200 levy introduced earlier this year which applies to such properties.

Commission chairman Frank Daly said recurring or annual property taxes have the least dampening effect on economic activity, when compared to other taxes and an annual property tax would provide a recurrent and sustainable revenue stream and would help to move away from the over-reliance on volatile transaction-based taxes.

He added that the new tax would differ significantly from the residential property tax that was in place from 1983 to 1996. The income and house valuation thresholds that applied then were very high, he said, with the result that it applied to very few properties. By contrast, the proposed tax would apply to all homeowners, apart from those on very low incomes.

 

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