Saturday 18 August 2018

Ronald Quinlan: International investors fear further hike in stamp duty

Ireland’s investor-friendly reputation has taken two successive Budget batterings
Ireland’s investor-friendly reputation has taken two successive Budget batterings
Ronald Quinlan

Ronald Quinlan

There is growing concern among international investors that the Government's decision to increase the rate of stamp duty on commercial property transactions from 2pc to 6pc will be followed by a return to the 9pc rate charged between 2002 and 2008.

Investors are understood to have been alarmed by the reference Finance Minister Paschal Donohoe made to the 9pc rate in the course of his Budget speech last week, with many of them seeing its inclusion as being both deliberate and indicative of the Government's future intentions for stamp duty.

Explaining to the Dail the rationale for his decision to increase stamp duty in this year's Budget, Mr Donohoe said: "Stamp duty on non-residential property was lowered to 2pc in 2011 to get the commercial property market moving again. It worked, and now that the market is performing strongly, the time is right to focus resources elsewhere.

"Accordingly, I am increasing the level of stamp duty on commercial property transactions from 2pc to 6pc with effect from midnight tonight. This new rate is still well below the maximum rate of 9pc charged between 2002 and 2008".

Commenting on the finance minister's reference to the 9pc rate, one senior property industry source said: "The Government has now mentioned the existence of this higher rate on a few occasions since Budget day. A number of investors have already been in touch to ask if there is a possibility of the rate being increased again from 6pc to 9pc".

The same source added: "There are even those who have questioned if Ireland's rate of 12.5pc corporation tax is likely to change if the Government is given to changing tax rates in this way. All in all, this isn't good for Ireland's reputation, and it will have a bearing on investor pricing."

Another industry source saw the Government's decision in the Budget to increase stamp duty on commercial property transactions as "another unwelcome jolt for investors" following last year's changes to the taxation of Qualifying Investor Alternative Investment Funds (QIAIFs). Those changes, which came into effect on January 1 last as part of the enactment of the Finance Act 2016, introduced a potential 20pc withholding tax on certain events, including the sale of units, distributions and redemptions from these funds.

Referring to the Government's moves on the taxation of QIAIFs and on commercial stamp duty now, the source said: "What investors are seeing here is the emergence of an unstable tax environment, and they don't like it."

Yesterday, the Cabinet held a special meeting to discuss the finance bill, the terms of which give legislative effect to the tax measures announced in the Budget.

It is understood that part of the discussions dealt with transitional provisions to ensure that contracts for commercial property transactions, signed in advance of the Budget, will be honoured at the previous 2pc rate of stamp duty. The Finance Bill is due to be published today and debated in the Dail next week.

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