This is a guide to tax obligations which are applicable when buying/selling a property in Ireland.
There are several taxes that relate to property:
- Household Charge
- Local Property Tax
- Stamp Duty
- Capital Gains Tax
- Capital Acquisitions Tax (inheritance tax
1. HOUSEHOLD CHARGE
The household charge was introduced in 2011. It only applies to residential properties. The tax was €200. This tax must be paid by the vendor prior to selling a property.
You can check whether the tax was paid by logging into your revenue on line account and printing a Local Property Tax statement. The first line of the property tax statement will confirm whether the Household charge was paid. If the tax was not paid the vendors can simply pay the household charge on line through the revenue website.
2. NPPR (Non-Principal Private Residence)
NPPR (Non-Principal Private Residence) is a tax on all residential property that was not used by the owner as their principal residence. The tax was €200 per annum from 2009 to 2013. The tax was payable to the local authority. The liability years 2009, 2010 and 2011 are now statute-barred i.e. the local authority can no longer collect same.
If you are selling a property you will have to furnish either a certificate of discharge from NPPR (where you have paid the tax) or a certificate of exemption (where the property was your principal private residence during the liability years).
3. LOCAL PROPERTY TAX
Local Property Tax affects all residential properties. It was introduced in 2012 by the Finance (Local Property Tax). The 2012 Act defines who is liable to pay the tax. Generally, the owners of the property are the liable persons but there are some exceptions:
- Tenants with a 20 year lease
- The executor of a deceased owner
- Properties owned by a Charity and used for charitable purposes
- Properties built with defective concrete or are affected by pyrite
- Properties where the owner have left the property because of illness
If there are two owners of a property each owner will be jointly and severally liable. This means that revenue can chase either each owner individually or both owners together in the event of non-payment.
The tax is self-assessment. However, Revenue do publish guidelines. If you undervalue your property with revenue it can lead to difficulty in selling your property. The vendor will have to furnish a local Property Tax statement to the purchasers’ solicitor. That statement must confirm that the Local Property Tax has been paid for each liability year to include the year that the property is being sold.
If the Property does not come under general clearance the vendor must make an application for Specific Clearance to Revenue commissioners. General clearance applies where:
- the property sale price is below €350,000 or
- where the price is not above 95% of the upper limit of the valuation band in 2013 and 10% of the upper limit of the 2021 valuation band or
- where the property was not liable for Local Property Tax in 2013 the sale price does not exceed 10% of the upper limit of the 2021 valuation.
4. STAMP DUTY ON BUYING A HOUSE
Stamp duty is a tax on the transfer of property. It is payable by the purchaser. Where the property is residential the current rate of stamp duty is 1% for the first €1,000,000 and 2% of anything over €1,000,000.
For example, if the purchase price of a house is €1,500,000 the stamp duty is calculated as follows:
€1,000,000 X 1% = €10,000
€500,000 X 2 % = €10,000
Total stamp duty payable = €20,000 (10,000 + 10,000)
If you are buying a newly build property the stamp duty is less than 1% of the purchase price. The reason is the purchase price will contain VAT at 13.5%. Revenue you do not charge stamp duty on the VAT element of the contract.
For example, if the purchase price is €500,000 inclusive of VAT the stamp duty is calculated as follows:
€500,000 (divide by 1.135) = €440,528.63
€440,528.63 X 1% = €4405.28
Total stamp duty payable on the purchase: €4,405.28
The current stamp duty rate on commercial property is 7.5% of the purchase price.
There is no first-time buyers relief i.e. first time buyers and subsequent buyers are each liable for stamp duty at the same rate.
There is no stamp duty payable where a spouse purchases a property from another spouse.
5. CAPITAL GAINS TAX ON SELLING A HOUSE
Capital Gains tax is a tax on the profit you make when selling a property. The current rate of Capital Gains tax is 33%. The tax only applies to the property. Therefore, if you bought a property during the Celtic Tiger years and sold it at a loss then you are not liable for capital gains tax as you have not made a profit.
The following is an example of how tax is calculated:
Sale price (€500,000) – purchase price (€400,000) = profit (€100,000)
Profit (€100,000) – sale costs and purchase costs (e.g. solicitor fees and estate agent fees at €10,000) = €90,000
€90,000 X 33% = €29,700 CGT due
There are some exemptions to capital Gains tax as follows:
- Capital Gains Tax is not charged where one spouse purchases property from another. This exemption also applies where the spouses have divorced or separated.
- Capital Gains Tax is not payable on your Principal Private residence. You will have to have lived in the property as your main residence during ownership to qualify for the exemption.
- Transfer of a site from a parent to child for the purpose of building a house. This applies where the market value of the site does not exceed €500,000 and h site does not exceed 1 acre. If the child does not build a house revenue may clawback the tax relief.
6. CAPITAL ACQUISITIONS TAX OF SITE TO CHILD OR RELATIVE
Capital Acquisitions Tax is commonly known as inheritance tax.
Where transferring a house or site to a child or relative it is necessary to be mindful of inheritance tax. The tax is payable where the market value of the site/property exceeds the recipient’s tax-free threshold.
The current threshold from a parent to child is €335,000. Therefore, if a parent transfers a property which is valued in excess of €335,000 then the child will have a Capital Gains Tax liability at 33% of the excess.
Parent transfers house valued at €500,000 to child.
Value of house (€500,000)- threshold (€335,000) = €165,000
€165,000 x current rate of tax (33%) = €54,450
Capital Acquisitions Tax payable is €54,,450
When selling a property, it is important to be mindful of the various taxes that apply. MBSolicitors are experienced property solicitor have acted for clients in relation to purchase and sale of both commercial and residential property.
If you are Buying and Selling a property, contact MBSolicitors +353-1-5677343 for a no obligation fixed fee conveyancing quotation or use the enquiry form below.