Written Answers. - Stamp Duty

Seamus Brennan

Question:

63 Mr. S. Brennan asked the Minister for Finance his views on the effect of the high level of stamp duty levied on the purchase of second-hand homes; his further views on whether these taxation levels act as a disincentive to the Irish tradition of home ownership; his further views on whether a turnover of homes is essential to the economic well-being of the country and that it helps to keep the demand for public housing lower than it might otherwise be; and if he will make a statement on the matter. [8616/96]

The rates of stamp duty on property transfers depend on the amount or value of the consideration paid for the property and range from 1 per cent to 6 per cent, and the 6 per cent rate applies to property over £60,000.

As regards the effect of stamp duty on the purchase of second-hand houses, it is the case that house prices have been rising in some areas at a rate greater than inflation in recent years. It is by no means certain, however, that a reduction in the rates of stamp duty would be passed on to the purchaser of a property, particularly in a buoyant property market. The likelihood is that, in such circumstances, any reductions in stamp duty would accrue to those selling second-hand properties and would not benefit home buyers.

I believe that the levels of stamp duty on the transfer of second-hand houses serve, to a very real extent, to protect the housing market against property speculation. This is supported by commentators within the property market itself.

In this regard, there are a number of important reliefs and exemptions which are primarily aimed at assisting house buyers to purchase new homes. There is a full exemption from stamp duty for transfers of new houses with a floor area below 125 square metres. Transfer of new houses with a larger floor area attract stamp duty based only on the site value, subject to a minimum site value of one-quarter of the full house (plus site) value. The targeting of these stamp duty reliefs in favour of new houses takes account,inter alia, of the fact that most new house sales are subject to VAT at 12.5 per cent, whereas sales of second-hand houses generally are not. There is also 100 per cent mortgage-interest tax relief for first-time buyers of both new and second-hand houses and a reduced rate of relief for other mortgage holders. A generous £3,000 new house grant is also available for first-time buyers. All these reliefs and exemptions help to moderate the cost of housing generally and also play an important role in promoting employment within the construction sector.
In framing taxation policy, the Government must have regard to both the budgetary implications of changes to the tax code, and the possible effects of such changes on other aspects of Government policy. As regards the present stamp duty code, I am very much aware of the substantial Exchequer yield from stamp duty on the transfer of property, including second-hand houses, which is estimated at £160 million this year.
This is a large component of the overall capital taxes yield and makes a very significant contribution towards the cost of implementing the Government's important social and economic programme. Were the Exchequer yield from this stamp duty is to be reduced it would be necessary to bring in compensating measures elsewhere in the taxation code which could have a detrimental effect on the economic well-being of the country.