Seanad Éireann debate -
Wednesday, 29 Nov 1995

Vol. 145 No. 8

Adjournment Matters. - Threshold Levels on Stamp Duty.

Mr. Cosgrave

I welcome the Minister to the House. The matter I raise is very pertinent, given the arbitrary and excessively high tax on the transfer of houses. However, given also the Exchequer situation, I am sure the Minister will not be able to give me a positive response. I am advocating that the thresholds should be looked at, especially when one reaches the highest rate on a house that is valued at only £60,000.

As a practitioner I know that a house valued at £60,000, especially in the Dublin area and even in the Minister's home city, will not buy a huge mansion nowadays. There should be a review of the various thresholds. At present there is a nil threshold in respect of houses valued up to £5,000. From £5,000 to £10,000 the threshold is 1 per cent, from £10,000 to £15,000 it is 2 per cent, from £15,000 to £25,000 it is 3 per cent, from £25,000 to £50,000 it is 4 per cent, from £50,000 to £60,000 it is 5 per cent and from over £60,000 there is a flat rate of 6 per cent.

The reality is, therefore, that, very quickly, one is on the top rate. In Dublin, one bedroom apartments and small two bedroom town houses are attaching this top rate, and very small properties are probably attaching high rates. All one gets for this tax is the honour and glory of having one's deeds stamped.

There must be a realistic review of the thresholds. One should not reach the highest rate until the value of one's house reaches a realistic figure — possibly between £90,000 and £100,000. In addition, houses valued under £20,000 to £25,000 should be exempt, or have a 1 per cent rate applied. In this day and age, there is not much one will buy for under £25,000. For example, if one buys a disused cottage, the chances are that it will not have basic facilities such as sewerage, water or even electricity.

This issue needs to be looked at, including the consanguinity relief, where duty is charged at half the normal rate where the ownership of property is between members of families. Obviously this must be examined particularly in light of the referendum as there will be certain exemptions where matters will be decided by the courts in relation to separations and so forth.

At present there is an unfair advantage for those buying new houses. First time buyers receive grants and are exempt from stamp duty if the floor space of the new house is under a certain limit. However, many people are considering buying second hand houses. They should also be given encouragement if they wish to generate business in the market. After all, they take out mortgages over 20 or 25 years, pay auctioneers and solicitors fees and so forth and then must pay this flat rate of stamp duty. It is high time the thresholds were looked at. The top rate should be increased to a realistic level and the 4 per cent and 5 per cent rates should be staggered to a greater extent because all too quickly one arrives at the top rate. In this modern day a person is not purchasing a mansion if he is buying a £50,000 to £60,000 house.

I realise the Minister might only give me limited support this evening. However, I ask him and his colleague to look at this matter. It warrants attention, particularly for people who are selling their family home to buy another. This duty is anti-family and anti-social and militates against people who are trying to buy a better house. If they wish to do so they are hit by this penal tax. A review is overdue.

Minister of State at the Department of Finance (Mr. Coveney)

I thank the Senator for raising this issue. I do not know if I can give him much solace just yet. The rates of stamp duty on property transfers depend on the amount or value of the consideration for the property and currently range in graduated steps from 1 per cent on property between £5,000 and £10,000 to 6 per cent on property over £60,000. The present rating and structure have largely applied since 1975, except for the introduction of the 5 per cent band in 1988 and a readjustment of the lower bands in 1990.

These levels of stamp duty must be viewed in the context of the overall tax policy. A key element in the tax reform strategy of successive Governments over recent years has been to maintain as broad a tax base as possible and to redress the tendency for earned income to contribute an increasing share of total revenues. Stamp duty on property, as a major component of capital taxation, has an important role to play in this regard.

The yield from stamp duty on all property, including second hand houses, is estimated at £160 million this year. This is a large component of the capital taxes yield and makes a significant contribution towards the cost of implementing the Government's important social and economic programme. Capital taxation also contributes towards greater fiscal equity and stamp duty on property provides a fairness and balance in shifting some of the burden of taxation away from wage and salary income and on to property.

I accept that house prices have been rising in some areas at a rate greater than inflation in recent years and that a similar increase has not been made to the bands for stamp duty on property. This increase in the price of houses is to the advantage of anyone who has been fortunate to have been in a position to have invested in a house a number of years ago and who now is selling. It should be stated, however, that it is by no means certain that a reduction in the rates of stamp duty would be passed on to the purchaser of the property, particularly in a buoyant property market. It is very possible in such circumstances that reductions in stamp duty would be captured by the seller in the price of houses. This would benefit the house owner with little or no benefit accuring to the purchaser.

In this regard, the Senator might be interested to know that in the October 1995 issue of "Sherry Fitzgerald Update" the managing director of Sherry Fitzgerald, Mr. Mark Fitzgerald, makes the following comments:

Although, in my view, inequitable, it has to be admitted that the high rate of our stamp duty — 6 per cent on second-hand house sales over £60,000 — has served to dampen speculative investment. In particular, it has discouraged speculative investors from getting involved in our housing market in the hope of making a reasonably quick profit.

This has served to keep the Irish house market — in contrast to that in Britain — an owner-occupied market: 95 per cent of houses in Dublin are purchased by people buying for their own occupation. By contrast, in the late 1980s in Britain, where stamp duty was a flat 1 per cent, the boom was investor led with one-third of houses in some parts of the country being bought by speculative investors ... for, like all mainly speculative markets, the British housing market of the late 1980s peaked and then began to collapse, as quickly as it had climbed ... the scars on British society are still unhealed.

I do not want to make too much of this but I draw the Senator's attention to a number of important reliefs and exemptions which are primarily aimed at assisting house buyers to purchase new homes. There is full exemption from stamp duty for transfers of new houses with a floor area below 125 square metres. Transfers 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 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 in the tax code and the possible effects of such changes on other aspects of Government policy. The primary rationale for considering the merits of any changes in rates or further reliefs in the taxation system is the creation of employment and it is with regard to this that all proposals for changes in rates and tax reliefs are assessed. The Government will keep the levels of stamp duty under examination but, frankly, there are no plans at present to alter the current scheme.

The Seanad adjourned at 8.30 p.m. until 10.30 a.m. on Thursday, 30 November 1995.