On 19 July 2021, President Higgins signed the Finance (Covid-19 and Miscellaneous Provisions) Act 2021 (“the Act”), enacting into law stamp duty changes designed to mitigate against the bulk purchase of houses in Ireland. These changes include and build on those previously announced in the form of a Financial Resolution in May 2021. Broadly, the stamp duty changes act to impose a stamp duty charge of 10% on the cumulative purchase of 10 or more residential houses in a 12 month period, with effect from 20 May 2021. In addition to these stamp duty changes, Minister for Housing Darragh O’Brien also announced in May 2021 new planning measures to prohibit the bulk buying of houses and duplexes in new developments, as well as the introduction of an “owner occupier guarantee” which would ensure that a minimum number of houses and duplexes in a development are designated for owner occupiers.
The background to the above measures is the purchase by institutional investors of all or a significant proportion of residential housing estates, particularly close to the time of completion. This 10% rate is intended to provide a significant disincentive to this practice of multiple purchases by institutional investors of large parts of, or indeed whole, housing estates before they reach the market, thus denying first-time buyers an opportunity to purchase a home.
Stamp Duty Measures
The new 10% stamp duty charge applies to situations where a person acquires 10 or more units on a cumulative basis over a 12 month period, in addition to bulk purchases of 10 or more properties. The measure applies to all Irish dwellings (other than apartments), regardless of location (i.e. it may apply where there are multiple dwellings in one estate or a single dwelling each in different locations across the country) or when the house was built (including both new builds and existing houses). Apartments are fully exempt from this higher stamp duty charge, as are multiple purchases by Local Authorities and Approved Housing Bodies.
From 20 May 2021, where the 10% rate is triggered as a result of the acquisition of 10 or more properties over a 12-month period, the increased rate may apply to all purchases within that 12- month period, including the first 9 purchases. However, this should not apply with respect to units purchased before the Financial Resolution came into effect on 20 May 2021; units purchased before this date can count towards triggering the threshold of 10 properties over the 12-month period, but the higher stamp rate can only be applied to units bought on or after 20 May 2021.
Apartments are defined in line with planning guidance, being a multi-storey residential property that comprises, or will comprise, not less than 3 apartments with grouped or common access. Therefore, it would appear that duplexes should fall within scope of the new measures.
The increased rate will also apply in circumstances where multiple purchases of residential units are made indirectly through shares, units in investment funds or interest in a partnership. The Act confirms that the 10% stamp duty rate will only apply to the portion of the value of the transferring interest that is derived from residential houses and only where there is a change in control in the company / investment fund / partnership.
A 3-month transition period is included for execution of contracts that had been entered into but not completed prior to the commencement of the Financial Resolution. This appears to be on the advice of the Attorney General’s office, with this decision possibly influenced by the recent Appeal Commissioner determination which considered the application of stamp duty to conveyances where a takeover agreement had been entered into prior to introduction of a new measure introduced in October 2019 Budget announcement.
Finally, though not included in the original Financial Resolution released in May, the Act includes a number of new measures, including:
- A mechanism which will allow for a refund up to 9% stamp duty incurred on the bulk purchase of houses where those houses are let to a local authority or approved housing body for the purpose of providing social housing. In order to qualify, the lease must be entered into not later than 24 months after the date of acquisition of the property and be of a term of not less than 10 years. A clawback can arise where the qualifying lease is terminated before the expiry of 10 years.
- An exemption from the 10% charge where a purchaser enters into a lease with a local authority or approved housing body for the purpose of providing social housing on the same day that the residential property is acquired. An example of a scenario where this exemption should be relevant is Mortgage-to-Rent type arrangements, where a property owner chooses to give up ownership in their homes, and an approved housing body leases the property from the mortgage provider and then sublets it back to the occupant as social housing.
Planning Proposals announced with May 2021 Financial Resolution
In May 2021, Minister O’Brien announced that new planning guidelines would be issued shortly by way of a Departmental circular to require Local Authorities and An Bord Pleanala to prohibit bulk buying of houses and duplexes. In addition, an “owner occupier guarantee” was announced, which will enable Local Authorities, based on their own Housing Needs and Demand Assessment, to designate a specified number of houses and duplexes in a development for owner occupiers. Local Authorities will be able to designate up to 50% of houses and duplexes for such purposes and this is in addition to existing Part V requirements which facilitate the delivery of social and affordable housing.
Again, these new measures will not apply to apartments, with the Minster noting that this is in recognition of the need for continued investment from international capital to ensure supply in core urban and high density areas.
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Partner & Head of Real Estate
KPMG in Ireland