If I sell a vacant mixed use building must I pay 7.5% commercial stamp duty?

I have a large building in a rural town with a shop unit and apartments overhead. The whole property has been empty for a number of years and I have been trying to sell it. My question: will I need to pay 7.5 per cent stamp duty if it sells or is there any possibility of changing the title from commercial to residential to avoid this tax? Or perhaps only pay duty on the retail area and not the residential?

How would you go about this?

Suzanne O'Neill replies: The stamp duty is tax that is only paid by the purchaser but the use of the property prior to the purchase is very relevant. Since stamp duty increased to 7.5per cent in recent years on commercial transactions, it is a very substantial tax for any buyer.

In the case of mixed-use property the stamp duty will be separately assessed based on the respective valuations of the commercial and the residential elements. The valuations are subject to review by the Revenue Commissioners and it is important therefore that the valuations are prepared by a qualified valuer, and that there is agreement between the buyer and the seller on the apportionment.

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Although the buyer pays the stamp duty, the apportionment can be very important for the seller too. There may be tax reliefs that only apply to the commercial element, such as capital gains tax retirement relief if they had operated a business from the premises. In other cases the residential element may benefit from principal private residence relief from capital gains tax if it was the home of the seller.

Stamp Duty is charged at a rate of 7.5 per cent on the commercial element and 1 per cent on the residential unit on the first €1 million and 2 per cent on the value above €1 million.

Changing the property from commercial to residential

As the property was used previously on a commercial basis, it will be liable for the 7.5per cent rate as mentioned above. Planning permission would have to be obtained from the local authorities in order to have the shop classified as residential. In this instance the application will have to be reviewed and approved by the county council through normal planning procedures.

The current set-up of a shop unit at ground floor level with apartments overhead would tend to be a common use in rural towns under existing planning.

Suzanne O’Neill is a tax partner at RSM Ireland, rsmireland.ie