Time to revisit tax break to free up land for housing
The seven-year period required for certain landowners to avail of a capital gains tax exemption introduced by finance minister Michael Noonan in the 2012 budget to encourage property transactions should be shortened to free up land for residential development.
That's the view of William Fogarty of Maples & Calder one of the country's leading authorities on taxation and its application to the commercial real estate sector.
Asked by the Irish Independent for his response to the finance minister's announcement last week of the Government's intention to penalise landowners whom it determines are hoarding land through the imposition of a levy, Fogarty said it should review the impact of the existing capital gains tax (CGT) exemption when formulating its response. Under the terms of the stimulus, all gains accrued on land purchased between budget night in December 2011 and the end of 2013, and held for more than seven years, are exempt from taxation.
While the measure proved to be hugely-successful in encouraging property transactions at a time when the market was moribund, it has since had the unintended consequence of encouraging those who acquired land during the period prescribed by the Government to hold on to it until January 1, 2019, in order to qualify for the capital gains tax exemption.
Commenting on this, Fogarty said: "This incentive was intended to encourage property transactions and now provides landowners with a very significant tax benefit. The Government could review whether the seven-year period should be shortened where the land is sold for residential construction or other purposes. This may encourage some landowners to release land earlier than they otherwise might."
Another possible option the Government should consider, Fogarty said, is the vacant site levy provision introduced in 2015. On this, he said: "This measure was initially intended to incentivise the development of idle sites in urban areas. It allows for a 3pc tax on land which has been designated as vacant by local authorities."
Fogarty added that the development market would welcome any initiatives to energise the construction sector, whether through simplification of the planning regime, increased infrastructure or through changes to the tax system. He said Maples & Calder is working currently with several international investment funds, corporates and institutions on existing and proposed residential construction projects.
While the precise detail of the Government's bid to force landowners to free up sites suitable for residential development has yet to be revealed, finance minister Michael Noonan has said that he expects his successor or the new minister for the environment to "say something more about the proposed measure this autumn, and to confirm that the date of implementation is January 1, 2019".
Interestingly, that date should also see the first tranche of lands whose owners are eligible for the capital gains exemption introduced by Mr Noonan in budget 2012 being brought to the market.