If you’re thinking about buying or selling a home in Ireland, it’s essential to know about the property taxes you might face. Ireland’s way of taxing properties can be different from other places like the UK or other European countries.
In Ireland, the group in charge of taxes is called the Revenue Commissioners. In this guide, we’ll explain the main taxes you need to know about and how they work.
For instance, there’s a yearly property tax in Ireland that homeowners pay based on the current value of their house. This tax helps pay for local things we all use like roads, parks, and libraries.
We know taxes can be a bit confusing, especially when you’re buying or selling a property. That’s why it’s always a good idea to get some professional advice. This guide aims to give you a clear and simple overview of what to expect. Let’s get started!
Buying Property In Ireland
Understanding Stamp Duty In Ireland
Stamp duty is a significant consideration for potential homeowners and investors in Ireland. Essentially, it is a tax imposed by Revenue when transferring ownership of property. Whether you’re purchasing your first home or investing in a commercial venture, understanding how stamp duty works is crucial.
Purpose And Payment:
Stamp duty serves as a tax on the transfer of assets, particularly property. The proceeds are used for various public services and developments.
When purchasing a property, the responsibility of arranging the payment to Revenue usually falls on your solicitor. They will handle the calculations, make the required payments, and ensure that the property deeds are duly stamped with your name as the new owner.
Types Of Properties Affected:
Stamp duty applies to various types of properties, both residential (like houses, apartments, or land for building) and non-residential (like commercial buildings or plots). The rate and amount you’ll need to pay differ based on the type and value of the property.
Stamp Duty Rates In Ireland
Understanding the rates can help you better budget for this added expense. Rates vary depending on the type of property and its cost.
For homes priced up to €1 million, a rate of 1% is applicable. If the property’s value exceeds €1 million, a 2% rate applies to the excess amount. For instance, a house priced at €300,000 would have a stamp duty of €3,000.
New builds come with a slight variation. The stamp duty is calculated on the value of the home minus the current VAT (13.5%). So, if a new home costs €300,000, after deducting the VAT, the stamp duty would amount to €2,595.
For commercial properties or land, a flat rate of 7.5% is charged. However, there’s a possibility of obtaining a refund under the stamp duty residential development scheme if the land, initially bought as non-residential, is developed for residential purposes.
Property moguls should take note of a significant change introduced in July 2021. If a buyer acquires 10 or more properties within a year, a heightened stamp duty rate of 10% is levied on the total value of these properties.
Stamp Duty Exemptions And Special Cases
It’s worth noting that not every property transaction attracts stamp duty. There are exemptions and specific cases that can affect the amount payable.
Local Authority Tenant Purchase Scheme:
Purchasers under this scheme enjoy a capped stamp duty of just €100.
Transfers Between Spouses And Partners:
In certain circumstances, property transfers between spouses or civil partners may be exempt from stamp duty.
If you’ve paid VAT on your residential property, your stamp duty is computed on the pre-VAT price. This can lead to substantial savings, especially for new builds.
Inherited And Gifted Properties:
While inherited properties are exempt from stamp duty, those gifted do attract this tax.
The acquisition of a second or subsequent home doesn’t exempt you from stamp duty. Each property purchase in Ireland is subject to this tax.
By thoroughly understanding these nuances of stamp duty, you can navigate the Irish property market more effectively and avoid unexpected financial hiccups.
Always consult with a legal or financial expert when considering a property purchase to ensure you’re fully informed.
Navigating Local Property Tax In Ireland
Local Property Tax (LPT) in Ireland applies to residential properties.
The key date to remember is November 1st, which is used as the reference date to determine if a property is liable for LPT.
For example, if a property is residential on 1 November, it will typically be liable for LPT.
Interestingly, some previously exempt properties, particularly those built after 2013, became liable from 2022 onwards.
If you have a property that hasn’t been registered with the Revenue Commissioners for either LPT or stamp duty before, it’s essential to ensure registration.
Property Tax Rates And Amounts For 2023
While the rates for 2023 are subject to periodic review and changes, the core principle remains that the amount of Local Property Tax you owe is primarily based on the valuation of your property.
If you’ve claimed any LPT deferrals in 2022, it’s crucial to ensure they carry forward to 2023 if you still meet the requirements.
Addressing Common Concerns
1 – Can I defer my LPT payment?
Yes, in certain conditions, deferring some or all of your LPT is possible. Known as a “deferral”, you might qualify if:
- Your income falls below a particular threshold.
- You represent a deceased person who had LPT obligations.
- You’re under a Debt Settlement or Personal Insolvency Arrangement.
- Immediate payment would cause undue financial hardship.
However, it’s essential to remember that a deferral doesn’t mean an exemption. Interest accrues on the deferred amount, and it remains a charge on the property.
For those who qualify for a partial deferral, they can defer up to 50% of the LPT, paying the remainder.
If the property is your residence and your income is below certain thresholds, you might qualify for a full or partial deferral.
These thresholds vary based on whether you’re single or a couple and if you have a mortgage taken out before 1 November 2020. For instance:
- Single individuals without a mortgage must have a gross income not exceeding €18,000 for full deferral or €30,000 for partial (50%) deferral.
- Couples with a mortgage can increase their income threshold by 80% of their gross mortgage interest.
It’s worth noting that ‘gross income’ includes income before any deductions, allowances, or reliefs, encompassing income exempt from income tax and from Department of Social Protection (DSP) payments.
2 – Are any properties exempt from LPT?
Yes, some properties are exempt. These include:
- Properties with significant pyrite damage.
- Those built with defective concrete blocks.
- Residential properties owned by charities or public bodies.
- Registered nursing homes.
- Commercial properties.
- Properties left vacant due to illness.
- Properties adapted for individuals with severe incapacitation.
It’s essential to understand the specifics of each exemption, such as the fact that properties with pyrite damage are typically exempt for around six years.
3 – What if my property isn’t liable for LPT?
Certain properties aren’t liable, including commercial properties, those unsuitable for habitation, diplomatic properties, and mobile homes or boats. If your property falls under these categories, you won’t need to submit an LPT return.
4 – How do I claim an exemption or deferral?
To claim any exemption or deferral, you’ll typically do this as part of your LPT return. The Revenue website provides comprehensive lists and accompanying documentation requirements for each category.
Always remember to consult official guidelines or seek professional advice when navigating the complexities of the Local Property Tax in Ireland.
Selling Property In Ireland
Capital Gains Tax On Property Sales
Capital Gains Tax (CGT) is levied on the profit (or gain) made from selling or disposing of an asset.
Importantly, the tax is on the chargeable gain, which is usually the difference between the acquisition price and the disposal price, rather than the entire amount received. The person responsible for the disposal is liable to pay the CGT.
Assets encompass valuable items that can be converted to cash, such as real estate, shares, and intellectual property. Disposal actions triggering CGT include sales, gifts, exchanges, or receiving compensation or insurance payouts.
What If You Inherit Assets?
If you inherit an asset and subsequently dispose of it, you’re liable for Capital Gains Tax.
You’re considered the owner from the date of the original owner’s death, and the cost basis for CGT is the market value at the time of their death.
Capital Gains Tax For Non-Residents
Non-residents are subject to Capital Gains Tax for gains from disposing of:
- Real estate, minerals, or exploration rights in Ireland.
- Unquoted shares primarily valued from Irish land, buildings, minerals, or exploration rights.
- Assets used in an Irish-based trade.
- Companies and CGT
While companies typically include capital gains in their Corporation Tax (CT) calculations, they pay CGT instead of CT on gains from development land sales.
What Assets Are Subject to Capital Gains Tax?
Capital Gains Tax applies to gains from disposing of:
- Land and buildings.
- Company shares, irrespective of residency.
- Intangible assets like patents or copyrights.
- Foreign currency (excluding Irish currency).
- Trade assets.
- Foreign insurance policies and offshore funds.
- Certain capital payments.
- Some collectable items like antiques, paintings, and jewellery.
However, several reliefs and exemptions can mitigate the CGT liability, as detailed in the following section.
Exemptions To Capital Gains Tax
Certain gains are not subject to Capital Gains Tax, such as:
- Betting, lottery, and sweepstake winnings.
- Certain government schemes and stocks.
- Movables, e.g., furniture, with gains not exceeding €2,540.
- Animals and private cars.
Additionally, asset transfers between spouses or civil partners, including those divorced or separated, are generally CGT exempt, but exceptions apply.
Each individual enjoys a personal CGT exemption of €1,270 annually. This exemption is non-transferable and exclusive to individuals, excluding entities like companies or trusts.
For more information on CGT reliefs, please visit Revenue.
How Do You Pay Capital Gains Tax?
Payment deadlines for Capital Gains Tax depend on the disposal date:
- Disposals between January 1 and November 30 require payment by December 15.
- Disposals in December mandate payment by January 31 of the subsequent year.
Late payments attract interest charges, and delayed returns result in penalties. Returns should be filed by October 31 of the year following the disposal, even if no tax is due.
To make your payment, you must register for CGT with your tax number.
How Do You Calculate Capital Gains Tax?
The chargeable gain is the difference between the disposal amount, acquisition cost, and allowable expenses. To determine the CGT, sum up all gains, subtract any losses, and then apply the relevant tax rate.
The prevailing CGT rate is 33%. However, specific rates apply for certain gains:
- 40% for foreign insurance policies and investment products.
- 15% for individuals or partnerships from venture capital funds.
- 12.5% for companies from venture capital funds.
Allowable expenses can be deducted from the sale price to ascertain the chargeable gain. These include enhancement expenditures or costs related to the acquisition and disposal.
Sometimes, the market value might be used in place of sale or purchase prices.
What About Capital Gains Tax Losses?
If you incur a loss upon disposing of an asset, and the same transaction would otherwise be chargeable, you can offset this ‘allowable loss’ against any gains in the same tax year.
However, if losses exceed gains in a tax year or no gains were made, these losses can be carried forward to offset future capital gains. You can also offset your capital losses against your spouse or civil partner’s gains, but conditions apply.
Navigating the intricate web of the Irish taxation system, particularly when it involves property transactions, can be daunting for many. Both buying and selling property come with their distinct sets of tax implications, ranging from Stamp Duty to Capital Gains Tax.
This article highlighted some of the most significant taxes a buyer or seller might encounter in the property market. Still, it’s worth noting that this is only the tip of the iceberg. Other financial implications, such as V.A.T., rental income tax, and various exemptions and reliefs, could also influence the final figures of a property transaction.
However complex these tax considerations might seem, remember that you don’t have to navigate them alone. While solicitors might not always be the final word in tax expertise, an experienced professional can provide invaluable insights into avoiding potential taxation pitfalls associated with property transactions.
Need More Gudiance On Property Tax?
At Kevin O’Higgins Solicitors, we deliver practical legal advice to guide clients through the intricacies of the property transaction process.
Whether you’re on the verge of diving into the property market or simply looking to better understand your tax obligations in property transactions, it’s crucial to gather as much information as possible.
When doubtful, seeking expert advice can save you both time and potential financial pitfalls. If you have any questions or need clarity on the matters discussed in this article or beyond, don’t hesitate to contact us today.