The property and construction sector remains both a key industry in Ireland’s economy, and a critical component in delivering much-needed infrastructure and solving our housing crisis.
The sector faces a number of challenges, including the effects of rent caps, recent cost inflation, high costs of financing, and a complex and costly planning system, which inhibit the potential positive contribution that the industry can provide.
We welcome the minister seeking to address a number of the issues faced by participants in the sector – particularly in alleviating the financial burdens faced by tenants and homeowners (both existing and prospective).
We are also keenly aware of the wide range of initiatives introduced and investments made by the Government to housing in recent years – Housing for All, Croí Cónaithe, the Shared Equity Scheme, Cost-Rental Housing, and Project Tosaigh amongst others. This has continued with the allocation of an additional €1.25 billion to the Land Development Agency as part of Budget 2025. These are having a tangible impact on the housing sector, and we welcome further measures to positively tackle the challenges faced by all sector participants.
However, there are significant concerns around a number of measures that the Government has sought to introduce, including the new 6% rate of stamp duty on residential property, the Residential Zoned Land Tax and the draft Zoning Value Sharing Bill.
There is a real risk that the implementation of such measures will introduce additional cost and uncertainty around the viability of housing developments and ultimately adversely affect the ability of the sector to support delivery of the infrastructure and housing investments that are urgently needed. We recommend that such measures are carefully considered, in consultation with the industry and practitioners to mitigate against the risk of unintended and adverse consequences.
The measures announced in the Budget for the property and construction sector are as set out below.
Measures relevant to landlords and tenants
Pre-letting expenditure
These rules, which allow for a deduction for certain pre-letting expenses, have been extended for a further three years to the end of 2027. These provisions allow for a deduction of certain ‘pre-letting’ expenses (up to a cap of €10,000 per property), which would not otherwise be allowable, incurred on a property that has been vacant for at least six months and which is subsequently let as a residential premises on or before 31 December 2027.
Rent tax credit
In order to further alleviate the financial pressures on renters, the minister has increased the annual rent tax credit from €750 to €1,000 (€2,000 for jointly assessed taxpayers). The credit is generally available to tenants in the private rental sector who are not in receipt of any other State housing support.
This increase will apply in respect of 2025, and retrospectively for the 2024 tax year.
Measures relevant to homebuilders and homeowners
Help-to-Buy (HTB)
The HTB scheme is being extended for a further four years until 31 December 2029. We believe this extension is both meaningful and helpful to the overall objective of facilitating housing supply.
The HTB scheme has been a significant support to first time buyers since its introduction in Budget 2017, with just over 50,000 homebuyers having been supported to buy their home under the scheme. The scheme was due to end in 2025 and this extension will be welcomed by prospective first-time buyers and indeed registered builders who can continue to bring additional supply onto the market.
Mortgage interest relief
The temporary mortgage interest tax relief provision has been extended for one year. This was introduced in Budget 2024 as a measure to offset the considerable financial burden faced by mortgage holders due to significant increases in interest rates.
There are no changes anticipated to the qualifying criteria for the relief. Mortgage interest tax relief will be available at the 20% standard tax rate on the increase in the interest paid in 2024 when compared to 2022, where the following conditions are met:
- The mortgage is in respect of a taxpayer’s principal private residence in Ireland.
- The outstanding mortgage balance was between €80,000 and €500,000 on 31 December 2022.
- The taxpayer is compliant with Local Property Tax requirements.
The maximum value of the relief is €1,250 per property, and in order to claim the mortgage interest tax relief, the taxpayer must file a personal tax return with Revenue.
Measures relevant to developers and investors
Residential Zoned Land Tax (RZLT)
The RZLT is an annual 3% tax on the market value of land that is both serviced and zoned as suitable for residential development, subject to a number of exclusions. This was originally introduced in Finance Act 2021, as part of a range of ‘Housing for All’ initiatives, specifically as a measure to activate land to increase housing supply. There have been a number of subsequent amendments and deferrals to the tax since its original introduction.
On 1 February 2024, local authorities published draft zoning maps highlighting lands they identified as within scope of RZLT, as well as land which was to be excluded. A revised and final RZLT map is to be published by 31 January 2025. The first RZLT liability date (and valuation date) is set to arise on 1 February 2025 and will apply to lands that first fell in scope of the tax on or before 31 December 2022.
Budget 2025 includes commitments that additional amendments to the RZLT legislation will be introduced in the Finance Bill, including:
- A further opportunity for landowners to seek a change in zoning to one which reflects the economic activity being carried out on the land. As part of this process, the Minister for Housing, Local Government and Heritage will issue guidelines to local authorities on the consideration and accommodation of such rezoning requests. We anticipate this measure will largely impact on owners of agricultural land currently zoned as residential.
- A 12-month deferral of RZLT liability between the grant of planning permission and the date on which development commences.
- An exemption from RZLT during Judicial Review proceedings brought by a third-party, and
- Other technical amendments, the details of which are not yet specified.
While a step in the right direction, we believe the proposed amendments to RZLT are likely to fall short of the changes required to ensure the regime effectively meets its policy objectives of incentivising land activation and improving supply of quality affordable housing. We believe additional changes should be considered to ensure RZLT is not inappropriately applied where, for example, genuine impediments to development exist.
Higher rate of stamp duty on bulk acquisition of homes
Minister Chambers announced an increase in the rate of stamp duty where 10 or more houses are acquired in any 12-month period, from the current rate of 10% to 15%. This increased rate is to apply from 2 October 2024, with transitional arrangements for transactions in progress.
The 10% rate of stamp duty was introduced in May 2021 to mitigate against the bulk purchase of houses in Ireland, in response to reports regarding the purchase by institutional investors of all, or a significant proportion, of residential housing estates, particularly close to the time of completion. There are some specific exemptions in the legislation, including for the acquisition of apartments and for multiple house purchases by Local Authorities and Approved Housing Bodies.
In his Budget speech, Minister Chambers noted that the increased rate is being introduced to “discourage significant purchases of houses by investment funds” as the “bulk acquisition of houses impacts on the number of houses made available for purchase”. While the intention of this amendment is acknowledged, we believe that the original 10% rate has already been effective so further increasing the rate is unlikely to have a material impact on transactions, and instead will negatively impact on valuations and investor sentiment.
Wider property sector measures
Higher stamp duty rate on residential property
On Budget Day, the minister announced an increase in the rate of stamp duty for residential property valued above €1.5 million to 6%, with effect from 2 October. The existing rates of 1% up to €1 million, and 2% up to the new €1.5 million threshold will continue to apply. Further details on the scope and application of the change will be set out in the Finance Bill.
Transitional measures will apply to property transactions already in progress, and forward funding transactions where there is a binding contract entered into before 2 October 2024, and the transaction completes before 1 January 2025. Affected persons should contact their KPMG team to discuss the transitional measures.
Vacant Homes Tax
The rate of the Vacant Homes Tax is to be increased from five times to seven times a property’s existing base Local Property Tax liability. This increase will take effect from the next chargeable period, commencing 1 November 2024.
The Vacant Homes Tax was introduced in 2023 with the stated aim of maximising the use of existing housing stock, by increasing the supply of homes available for rent or purchase. It applies to residential properties which are in use as a dwelling for fewer than 30 days in a 12-month chargeable period, and there are a number of exemptions to ensure owners are not unfairly taxed where properties may be vacant for genuine reasons.
Zoning Value Sharing (ZVS)
While ZVS is a planning levy, rather than a tax measure announced within the provisions of Budget 2025, readers may wish to know that the Government published the draft Land (Zoning Value Sharing) Bill 2024 on 12 September 2024.
The ZVS Bill is the latest iteration of ”land-value sharing” (LVS) proposals, originally outlined in December 2021, with a revised scheme published on 14 April 2023. The original proposed legislation provided for a contribution of 30% on the uplift in value of land arising from a change in zoning for residential development (and, in time, for industrial and commercial development). This contribution would effectively form a charge on the land and would be payable as a condition of planning permission.
The new draft ZVS Bill is largely aligned with the previously-published proposals, with some key considerations set out below:
- The rate has reduced from 30%to 25%.
- The rate will apply to the difference between the “zoning date use value” and the “zoning date market value” on “relevant land”.
- Relevant land is widely defined and includes land zoned (wholly or partly) for residential development, land within a strategic development zone (SDZ), and certain land zoned for commercial or industrial uses.
- The process for identifying relevant land will yield a map by 1 October 2025.
- Certain transitional measures are included within the provisions of the draft ZVS Bill. As currently drafted, a ZVS charge may apply where:
- Planning permission granted on or after 1 December 2026: On land that is not relevant land prior to 1 December 2024, but subsequently becomes relevant land by 1 December 2026 i.e. on “newly-zoned land”.
- Planning permission granted on or after 1 December 2028: All other relevant land.
There are a number of concerns with the draft ZVS Bill as currently envisaged, and we would welcome the engagement by the Minister for Housing, Local Government and Heritage with industry groups to ensure that the impact of ZVS on the viability of developments and housing supply is being sufficiently considered.
When the continued delays with the planning system, the increasing costs of development due to new penal measures like the ZVS and the increased rate of stamp duty, and the continuing rent caps are taken into account, there remain very significant challenges for property development of much-needed residential stock.
We would welcome the engagement of both representatives from the Department of Housing, Local Government and Heritage and the Department of Finance with industry groups to ensure the combined impact of all these measures on the viability of residential supply is appropriately considered.
Get in touch
The measures unveiled in Budget 2025 will have far-reaching implications for businesses across Ireland. If you have any enquiries, comments, or wish to explore further, we are here to assist.
Contact any member of our Tax team today.
Tom Woods
Partner, Head of Tax
KPMG in Ireland
Brian Brennan
Partner
KPMG in Ireland