Normally, an Irish tax resident individual or company is liable to Irish tax on worldwide income and gains. This means that a gain arising on the disposal by an Irish resident of property wherever situate is liable to Irish Capital Gains Tax (CGT). For transactions falling after the date of the 2012 Budget (6 December 2011) the rate of CGT has been increased from 25% to 30%.
The Irish Government, in a bid to stimulate transactions in the Irish property market, has introduced a measure that may be of interest to investors who see value in the Irish real estate market.
Tax-Free Sale Of EEA Property
Finance Act 2012 introduced a new incentive relief from CGT for disposals of certain properties. The exemption from CGT applies to properties bought after the Budget date and before 31 December 2013. Where such property is held for a period of greater than seven years’ duration, the gains attributed to that seven-year period will be relieved from CGT.
The incentive applies to “land or buildings”, i.e. residential and commercial property. Presumably for reasons to do with EU rules against state aid, the relief applies to all such property located in the European Economic Area (EEA), including Ireland. As the EEA comprises 30 jurisdictions (27 EU member states and Iceland, Liechtenstein and Norway), the extent of the exemption for Irish tax purposes is obvious.
Where the property is held for a period in excess of seven years, the relief from CGT is allowed in the proportion that seven years bears to the total period of ownership.
In order for the relief to apply the property must be acquired for a consideration equal to the market value of the property (or if acquired from a relative, not less than 75% of the market value on the date acquired). It should be noted that the new legislation underpinning the relief contains anti-avoidance measures and provisions designed to guard against artificial arrangements.
In the context of the above exemption, it is worth mentioning that the rate of Stamp Duty (which is essentially a tax on the documentation involved in transferring property) on non-residential Irish property was reduced by Budget 2012. The rate of duty has fallen from 6% to 2% for transactions after 7 December 2011.
Please note that this material does not purport to be a comprehensive review of the provisions of Finance Act 2012 referred to; detailed appropriate advice should be taken before any particular transaction is entered into.