Q&A: What happened to the stamp duty relief which was supposed to be applied to property tax? It seems to have quietly dropped away.

I bought a house in 2004 on which I had to pay stamp duty of about €44,000. For work reasons I needed to move to Dublin in 2006, so I sold up and bought again, this time paying about €78,000 in stamp duty.

I also had to pay stamp duty on the mortgage.

While it was called stamp duty, it was treated by government and understood by the population in general to be property tax, front loaded. Most people who paid it during the boom years needed to borrow to pay it, so like me they will be paying it back for another 20 to 25 years.

I now owe my mortgage to an institution owned by the State (EBS) which refuses to pass on cost savings based on the lower interest rates created by recent ECB reductions. I currently pay around €600 per month to service this debt I took on to pay stamp duty (aka property tax) as part of the monthly mortgage repayment of €3,600.

As far as I am concerned I paid property tax in advance and in full when I bought my house(s). It is absolutely appalling that I will now have to pay property tax again when I and many others like me are still paying off the money borrowed to pay the tax at the time of purchase. Are any stamp duty reliefs contemplated in the current planned property tax legislation?

Mr EC, Dublin

You are far from alone in your position. There are thousands of homeowners out there who paid massive sums in stamp duty during the early part of the last decade at a time when the then government cynically refused to reform stamp duty despite it being clearly far removed from its original intent.

Quite simply, the money involved was too great. All the more so as successive governments had become hooked on the notion of using once-off tax receipts – such as stamp duty in a property boom – to put in place programmes that required annual spending in good times and bad.

If the Government acknowledged the injustice of the stamp duty situation, it would have been obliged to find alternative sources of funding. That would necessarily have involved some form of property tax and – at least until the strongly persuasive hand of the troika was on the tiller – no government has had the political courage to put in place this much fairer system of property taxation.

Now that we are finally forced to countenance property tax, the Government continues to dither, suggesting that no decisions have been made on its form just weeks before it is due to be introduced. In lieu of leadership, we have instead kite-flying which, at times borders on the reckless.

While there has been, as you say, little talk about relief for those who paid exorbitant sums of stamp duty, it has not been ruled out.

In fact, the latest soundings indicate that some provision is likely to be made for people in this position. Whether that is the five-year exemption originally suggested remains to be seen. As you rightly point out, even that would leave purchasers from that era out of pocket and “overtaxed”. However, with austerity hitting home, it will be difficult for the Government to be seen to be overly generous with relief.

The hope is that they do not do what they did with enhanced mortgage relief last year – when only first-time buyers were provided for. On the basis of election promises, many had hoped for a broader measure for people struggling with mortgage payments.

Differences in tax liability for gains on funds

Regarding your answer last week on the tax liability question for gains on funds, can you clarify what you mean by saying all taxes paid by the fund (“net” type) but further state that such receipts are subjected to income tax. Also clarify PRSI, levies etc.

Mr MO’S, email

The question last week was in relation to “net” funds. These are older funds that were no longer marketed after 2001, although they do still exist.

In a net fund, tax was deducted at the standard rate of income tax each year. Thus in year two of a fund, an investor would have the capital invested plus any gain made in year one, minus the standard rate of income tax on that gain.

That is the only tax deducted. This continued each year of the investment; hence the investment proceeds on the basis that it is “netted” for tax each year.

Under gross roll-up, introduced in 2001, no tax is deducted each year; instead the money rolls up gross (ie, not net of tax) with the full gain being reinvested annually.

At the point the investment was drawn down by the investor, tax was applied. To compensate revenue for having forgone this money each year, the “exit tax” was levied at the standard rate of income tax applicable at the exit date, plus three percentage points.

In 2006, it was decided that too many people were using gross roll-up as a tax avoidance measure and the government decided to introduce the concept of “deemed disposal” where it is assumed that money is withdrawn after eight years and tax applied accordingly at that date. Appropriate offsets are made when a disposal is eventually made.

No PRSI or levies apply to unit fund investment.

This column is a reader service and is not intended to replace professional advice. Please send your questions to QA, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to dcoyle@irishtimes.com. No personal correspondence will be entered into.