If the Government allows first-time buyers to reclaim a portion of VAT on new homes in the forthcoming Budget, it would kick-start new homes sales and generate more tax, says estate agent RONAN O'DRISCOLL

THE BUDGET offers the Government a gilt-edged opportunity to restructure taxation in such a way as to create employment and generate substantially more tax returns from this sector. It is so simple.

There are about 40,000 empty houses and apartments recently completed by builders, which remain unsold.

At the current rate of sales, which I estimate to be around 2,000 per annum over the past two years, there is 20 years of supply in the market.

Wrapped up in those properties is VAT of about €1.3 billion, which at current rates will trickle into the exchequer in the years ahead. If something positive is done to proactively sell a proportion of these properties, the tax received will be very significant.

In addition to the benefit to the Government, consider the implications for a vast range of other industries that rely on activity in the housing market. Household creation results in jobs.

Considering that it has been three years since there were new homes sold in significant numbers, there are a lot of people out there who are in the market to purchase.

Of the 40,000 units of unsold builders’ stock, a very significant proportion is well located, very well built and saleable.

Unfortunately, many should never have been built and are entirely unsuitable for the market and will remain so for a very long time.

It is, however, realistic to anticipate that 10,000 units per annum can be sold over the next four years, but significant attention needs to be placed on how these properties are taxed. The system needs to be overhauled.

Currently, we pay 13.5 per cent of the sales price of a new home on VAT as compared with zero VAT in the UK. On an average house priced at €300,000, that is €40,500.

A simple suggestion would be that first-time buyers should be permitted to reclaim three-quarters of that VAT on completion of the sale.

That measure will immediately have a positive impact. It will make homes more affordable, it will assist in easing debt and it will create more activity in the economy.

The Government will gain more VAT because the rate of sales will increase dramatically. Such an incentive, like the mortgage subsidy and first-time buyer’s grant of the past, can be removed easily once the market is on its feet again.

The other tax on property of course is stamp duty, currently 7-9 per cent depending on price, with the first €125,000 exempt. In the UK, the rates vary from zero to 4 per cent. The rates applicable in Ireland are the highest in Europe with the exception of Greece. This is hindering activity in the market.

There are a number of initiatives which could be taken here, including permitting people to trade-in their house to a builder without double stamp duty being incurred; however, a fundamental change in the rates is really what is needed.

A rate scale along the lines of those imposed in the UK is a fair, not a penal level. It will not, in this dire market, have the effect of increasing prices – it will result in more people moving house and more people purchasing rather than renting their homes.

Some years ago, the concept of reduced tax rates leading to more tax taken was proven when CGT rates were reduced to 20 per cent.

The actual tax amount increased substantially, so moves along those proposed here will generate more money for the minister, more house sales and more employment. In my book, that’s a win-win situation.

Ronan O’Driscoll is a director of Savills