Commercial property stamp duty loophole to be closed

A late change to the Finance Bill has been introduced to try to stop people who are selling commercial property from avoiding the new higher 6 per cent stamp duty rate by making the transfer via a company sale.

A much lower 1 per cent stamp duty rate applies to the sale of shares and the measure is designed to stop people setting up artificial transactions involving the placing of property assets into companies, with the intention of making the transfer via a share sale.

The new measure became effective on Wednesday, December 6th, assuming the Dáil approves a Government recommendation passed through the Seanad late on Tuesday. In a highly unusual move, the Government introduced the measure in the Seanad, which voted it through as a “recommendation”. As it is a “money Bill”, it must now return to the Dáil before being enacted.

The move is understood to have followed a recommendation from the Revenue Commissioners, presumably sparked by evidence of people structuring transactions to avoid the new commercial property stamp duty rate, which rose in the budget from 2 per cent to 6 per cent.

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Property industry

The scale and speed of the increase faced criticism from the property industry, with claims the targeted revenue of €376 million was unlikely to be achieved.

The change recommended by the Seanad would cover property held in a range of vehicles including companies, partnerships or Irish real estate funds. In cases where the property was transferred to the vehicle being sold with the sole or main object being to realise a gain when it is sold, the higher stamp duty rate of 6 per cent should apply, it says.

The measure is designed to align the tax treatment whether the property is sold directly or via the transfer of a company, according to Joe Tynan, tax partner at PwC.

He said it introduced new complexity in terms of the sale of property in some cases and would also now be a consideration for people and companies buying companies that had a range of assets including property, as different stamp duty rates might apply to different parts of the transaction.