Stamp duty will not deliver Government’s target, experts warn

Property professionals query planned yield of €376m due to projected transaction levels

Construction cranes on Dublin skyline: current forecasts indicate direct property investment will be less than €2 billion this year. Photograph: Aidan Crawley

The tripling of commercial stamp duty announced in the budget is unlikely to raise anything like the revenue the Government is expecting, two senior property experts have warned.

The Minister for Finance, Paschal Donohoe, expects the new 6 per cent tariff on commercial property transactions to yield an additional €376 million in annual revenue for the exchequer.

However, his projection appears to be based on the €9.4 billion worth of transactions recorded in the sector last year, which most experts believe is unrepresentative of a typical year.

Marie Hunt of property consultants CBRE said the figures for the past three years have been inflated by the sell-off of assets by Nama and the banks, which have generated an unusually large number of high-value transactions.

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“This year the volume has gone down significantly, however, as we revert back to more normalised levels of trading,” she said.

In the investment category, which includes all office, retail and industrial blocks, she said the value of transactions was unlikely to exceed €2.5 billion this year based on the current numbers, which is significantly lower than the €4.5 billion worth of deals recorded last year.

Broader base

Her point was echoed by Sherry FitzGerald economist Marian Finnegan, who said that while the Government's stamp duty measure was an attempt to broaden the tax base it was unlikely to raise "as significant a quantum of funds as some estimates have suggested".

She cited research by commercial real estate brokers Cushman and Wakefield, which is connected to Sherry FitzGerald, which found that about €6.2 billion was invested in commercial property nationally last year, of which €4.2 billion was in direct commercial property investment.

However, Ms Finnegan said current forecasts indicated that direct property investment would be less than €2 billion this year.

“The proposed increase in stamp duty for commercial property is unlikely to yield the anticipated upturn in revenue, given contracting market conditions,” she said.

The Department of Finance declined to comment yesterday but Mr Donohoe said previously he had received assurances from Revenue that the increase in stamp duty would deliver the required tax yield.

Finance Bill

Meanwhile, solicitor Mark Walsh, head of property and construction with Dublin law firm Eugene F Collins, suggested that anyone buying commercial property should consider if it is possible to delay closing at least until after the Government publishes the Finance Bill on Thursday.

Mr Walsh pointed out that anyone buying commercial property has to pay stamp duty electronically within 44 days.

He explained that this leaves anyone who agreed to buy an asset before October 11th – budget day – facing a dilemma.

Should they pay stamp duty at the new 6 per cent rate in the hope of claiming a refund if it turns out that they are eligible to avail of any transitional arrangements? Or should they delay until the new Finance Act is passed and risk penalties and interest for late payment.

Mr Walsh explained that waiting for the Finance Bill’s publication would allow them to better understand what form the transitional arrangements will take.

“Even then, they should be cautious as such arrangements cannot be relied on with certainty until the Finance Act is passed,” he warned.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times