Ireland’s favourable Capital Gains Tax seven year relief (“the CGT Relief”) was originally introduced in the Finance Act 2012 and applied to land and buildings purchased up to 31 December 2013. The Finance (No. 2) Bill 2013 proposes to extend the CGT Relief to include purchases of land and buildings up to 31 December 2014.
Objective Of The CGT Relief
The CGT Relief was introduced by the Irish Government to encourage individuals and companies to acquire property in Ireland. It is expected that the CGT Relief will stimulate development of the Irish property sector.
The CGT Relief applies to individuals and companies. The conditions required to avail of the relief are as follows:
The land or buildings must be acquired during the period 7 December 2011 to 31 December 2013. As indicated above, the Finance (No.2) Bill 2013 proposes to extend this period to 31 December 2014;
The land or buildings (including rental property) must be situated in an EEA state (including Ireland);
Where the land or buildings are acquired from a third party, the consideration provided must equal the market value of the land or buildings;
Where the land or buildings are acquired from a relative, the consideration provided must not be less than 75% of the market value of the land or buildings;
The acquirer must continue to hold the land or buildings for a period of seven years from the date of acquisition;
Any income, profits or gains generated from the property within the seven year period must come within the charge to Irish income or corporation tax, e.g. where an individual rents out the property during the seven year period, the rental income must come within the charge to Irish income tax; and
The transaction must not come within the anti-avoidance provisions which deal with artificial capital loss arrangements.
The element of the gain covered by the seven year period of ownership is exempt from CGT. Therefore, where a property is to be held for nine years, 7/9 of the gain will be exempt from CGT.
Additional Revenue For The Irish Government
The extension of the CGT Relief has been viewed as a popular move in Ireland. Apart from encouraging the acquisition of property in Ireland, the CGT Relief will also generate additional tax revenues for the Irish Government. The purchase and rental of the land and buildings by individuals and companies will result in additional stamp duties, income tax and corporation tax.
Please note that this commentary does not purport to be a comprehensive review of the Irish tax treatment on the CGT seven year relief. Detailed appropriate advice should be taken before any particular transaction is entered into, or a decision is made to refrain from acting.