Targeted stamp duty increase would block investors buying up housing
- Increase in transactions tax on investors would give first time buyers a leg-up.
- A 15% rate applies in the UK to those buying more than 1 residential property worth over €1.5m pounds.
- Would have an immediate impact if introduced now.
- Other tax measures to target their profits still needed.
Labour Finance spokesperson Ged Nash has called on the government to bring forward immediate practical tax proposals to deal with cuckoo funds, such as an increase to the Stamp Duty rate on sales of residential property to investor funds which would work to quickly block the insidious practices being used to snap up new and second hand homes.
The current 1% stamp duty rate applies to all residential property sales up to €1m and then 2% on the balance above that, whether the purchaser is an owner occupier, REIT or investment fund.
Deputy Nash said:
“In recent Budgets the Labour Party has called for an increase in the taxation rates on REITS, and a clampdown on tax avoidance schemes through a Standing Commission on Taxation but this was ignored by Fine Gael and Fianna Fáil. However, what we are seeing now is a large range of investment funds buying up tracts of residential property, and a major increase in activity in recent months above that of the last few years. This is now causing havoc in our housing system.
“It is being reported that the Minister for Finance is considering taxation measures that will be brought forward next week. We don’t have the detail of what is being planned, but we know that the planning changes also being considered would likely only apply to new developments and not stop these funds right now.
“Whatever the Minister brings forward it must hit these investment funds where it hurts and quickly. We can’t be waiting months for this to happen. These funds are very active in the market right now. I know in my own town of Drogheda that investment funds are trying to buy up any second hand property through estate agents before it even comes to the market. From other colleagues I know this is happening in Dublin and Kildare too, it’s really insidious as first time buyers don’t even know they are losing out on the chance to buy a home because it doesn’t even reach Daft.ie or MyHome.ie. These funds are paying a premium above what would be paid on the open market.
“That’s why Labour believes a targeted increase to the stamp duty rate that applies to the sale of residential property to investment funds, whether it is a new estate or an existing second hand home, would act as a deterrent, once the rate increase was big enough. At the moment first time buyers simply can’t compete against the huge amount of money available to these funds. Owner occupiers would continue to pay a 2% stamp duty rate, but the rate paid by these funds could be massively increased as a deterrent to them buying up new housing developments, and existing housing for speculative purposes.
“In the UK a stamp duty land tax rate of 12% applies to property costing over £1.5 million pounds and an extra 3% applies if you already own one residential property taking the rate to 15%. So there are tools available to the Minister for Finance to act, if he really wants to. He has had no shortage of warnings about what has been going on with cuckoo funds in recent years
“For example if an investment fund buys a property worth €300,000 it pays stamp duty of €3,000. If the rate on investors only was increased to 15% here for example, it would rise to €45,000 giving first time buyers a better chance. In the Maynooth example, it is reported Round Hill Capital bought 135 houses for €54m, so the stamp duty was about €1m. A rate of 15% would increase the cost to around €7.5million. Combined with increased taxes on their profits this would have a real impact on their speculative activity.”