When you buy or sell a property in Ireland, there are a range of taxes and charges that you may have to pay. This can be confusing for many people, as the tax system in Ireland is not always as straightforward as we might like it to be. In this article, we will take a look at some of the most common taxes and charges associated with property transactions. First and foremost it is always important to seek professional advice when buying or selling property in Ireland, as there can be many complex tax implications you may not be aware of as well as other pitfalls an experienced professional can help you avoid. Seeking the advice of a great property solicitor who understands the taxation pitfalls in property transactions, like what we have here at Kevin O’Higgins Solicitors, can help you understand your tax liabilities arising from the buying or selling and, in some cases, can even minimise your liabilities. It is also important to consult with a solicitor to ensure that you have a clear understanding of the path ahead of you on your real estate journey. Read on to find out more and stay in the know!
The most important taxes to be aware of when buying or selling a property are stamp duty, Local Property Tax (LPT) and capital gains tax. Let’s begin with stamp duty. This is a tax which is levied by the government on all property transactions in Ireland and is chargeable only to the buyer of the property, not the seller. Even first time buyers have to pay stamp duty. More specifically speaking, stamp duty is a tax on certain written documents otherwise known as bearer instruments. This instrument is a document that constitutes the rights of the owner or holder of that instrument to the securities outlined.
Stamp duty applies to both residential and non-residential property, such as houses, apartments, land or housing sites, however, the stamp duty rates are different for residential and non-residential properties. Stamp duty is chargeable on instruments that transfer land and buildings situated in Ireland. Such instruments are usually called ‘Deeds of Transfer’ or ‘Deeds of Conveyance’.
Stamp duty is also chargeable on the following instruments:
- leases for land and buildings in Ireland
- Stock Transfer forms for Irish companies
- instruments that transfer property as a gift
- legal documents that state the ownership of property is being transferred or leased
As a general rule, the amount of stamp duty you have to pay depends on the value of the property being sold. For residential properties valued up to €1 million, the new rate is 1.0% of the full value. For residential properties valued over €1 million, the rate of 1.0% applies to the first €1 million and a rate of 2.0% applies to the balance. For example, if you are buying a residential property worth €500,000, the stamp duty you would have to pay would be €5,000. Whereas if you were to purchase a residential property for €1,500,000, the stamp duty owed would be €20,000 (1% on the first 1 million, equalling €10,000, and 2% on the remaining €500,000 balance, equalling an additional €10,000).
One thing to note for purchasers looking to buy new build residential properties, the rate of stamp duty owed is applied to the value of the property before VAT, VAT currently being charged at a rate of 13.5%.
While it is always beneficial to be as informed as possible, you need not worry about these types of calculations as a good property solicitor will take care of paying stamp duty costs on your behalf. For example, when calculating stamp duty on new builds, at Kevin O’Higgins Solicitors we will calculate your stamp duty costs, minus the price of VAT.
Local Property Tax
The second important tax to be aware of if you are purchasing property or properties is the Local Property Tax (LPT). This is a tax that is levied on all residential properties in Ireland, with the amount payable depending on the value of your property. The LPT is payable by the owner of the property and not the occupier. The LPT was first introduced in 2013 and replaced the household charge which was abolished from January of 2013 onward.
The Local Property Tax in Ireland is a self-assessed tax, which means that you as the taxpayer are responsible for estimating the value of your property yourself. For the years 2022–2025, the LPT is based on the value of your property on 1 November 2021. This is called the valuation date.
Local authorities have the ability to alter the basic LPT rate on residential properties in their area. These rates can be increased or decreased by up to 15%. This process is known as the local adjustment factor. Properties of equal value in different local authority areas may end up paying different rates of LPT depending on whether or not the local authority has applied a local adjustment factor or not. If you are researching LPT in the interest of locating desirable areas to purchase property here is a list of local authority LPT adjustments on revenue.ie. The Revenue.ie website also has a useful online LPT calculator that calculates the Local Property Tax of a property up to and including the local adjustment factor.
These taxes fall mainly in line with those interested in purchasing property. When it comes to selling property there are a different set of factors to consider.
Capital Gains Tax
If you are selling real estate in Ireland you may be subject to Capital Gains Tax (CGT). CGT is a tax on the profit or gain you make when you sell certain assets. The amount of CGT you pay depends on whether the asset is classed as a chargeable asset, your CGT rate and how long you owned the asset for. Capital gains tax may apply if you:
- sold one of your assets
- exchanged one of your assets
- gifted one of your assets
- receive compensation from one of your assets
The date you sold, transferred or gifted the property will determine the date upon which you pay and file your CGT tax return. Interest will be charged on the return if you pay late and you are liable to pay a penalty. The transfer of a property between spouses or civil partners is exempt from CGT as is the transfer of a property from a parent to a child if it is to become the child’s principal place of residence. Another possible exemption from CGT may occur if you transfer a property that you once possessed as your primary place of residence. This tax relief is referred to as Principal Private Residence Relief.
There are some restrictions to this relief, including that you can only claim the relief for:
- The period of time wherein you resided at the property
- The actual value of the property as it currently stands, as opposed to the potential development value
- The section of the house that was in use as your home
The standard rate of Capital Gains Tax is 33% however, depending on how much you have earned in a year and other such factors this rate may fluctuate. There are deductions allowed that you may be able to take advantage of to minimise the amount of CGT you pay. Any money you spent on the property that adds value to the asset can be deducted as an allowable expense. For example, if you renovate a kitchen or paint the interior of the property. Furthermore, any costs to acquire and dispose of the property can be deducted, for example any solicitor fees you may have accrued over the course of selling. You may also be able to deduct an allowable loss you made in the same tax year. The first €1,270 of taxable gains in a tax year are exempt from CGT. If you are married or in a civil partnership, this exemption is available to each spouse or civil partner but is not transferable.
As you can see the Irish taxation system is not always easy to manoeuvre. There are numerous pitfalls that may await any buyer or seller on the property market you wades in without being fully informed. While in this blog we discussed the largest most pressing taxes you may face there are other factors such as V.A.T and rental income tax, that may also come into play. The best way to avoid any stressful surprises is to consult with a legal professional who will guide you through the entire process.
Solicitors are not generally tax experts and at Kevin O’Higgins we don’t profess to be either. In matters of any complexity, one should always seek specialist advice. However, here Kevin O’Higgins we are experts at navigating the potential taxation pitfalls of your property transaction.
If you are thinking of buying or selling property and would like some more information on your tax obligations feel free to contact us now.