Financial Resolutions, 1997. - Financial Resolution No. 4: Stamp Duties – Dáil Éireann (27th Dáil) – Wednesday, 22 Jan 1997

The Taoiseach

I move Financial Resolution No. 4:

(1) THAT in this Resolution—

"the Act of 1891" means the Stamp Act, 1891;

"the Act of 1978" means the Local Government (Financial Provisions) Act, 1978 (No. 35 of 1978);

"the Commissioners" means the Revenue Commissioners;

"the First Schedule" means the First Schedule, as amended by the Finance Act, 1970 (No. 14 of 1970) and subsequent enactments, to the Act of 1891;

"community hall", "mixed hereditament", "secondary school" and "valuation lists" have the meanings, respectively, assigned to them by section 1 of the Act of 1978.

(2) THAT this Resolution shall have effect as respects instruments executed on or after the 23rd day of January, 1997:

Provided that this Resolution shall not apply as respects any instrument executed prior to the 1st day of April, 1997, in pursuance of a contract which was evidenced in writing prior to the 23rd day of January, 1997.

(3) THAT the First Schedule be amended—

(a) by the substitution of the Heading and the provisions thereto which are set out in Part I of the Schedule to this Resolution for the Heading (as amended by the Finance Act, 1992 (No. 9 of 1992) "CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance" and the provisions thereto, and

(b) by the substitution of the subparagraph set out in Part II of the Schedule to this Resolution for subparagraph (a) of paragraph (3) of the Heading "LEASE" (inserted by the Finance Act, 1991 (No. 13 of 1991).

(4) THAT section 122 of the Act of 1891 be amended by the insertion of the following definition after the definition of "marketable security":

"The expression ‘residential property', in relation to a sale or lease, means—

(a) a building or part of a building which, at the date of the instrument of conveyance or lease—

(i) was used or was suitable for use as a dwelling, or

(ii) was in the course of being constructed or adapted for use as a dwelling, or

(iii) had been constructed or adapted for use as a dwelling and had not since such construction or adaptation been adapted for any other use, and

(b) the curtilage of the residential property up to an area (exclusive of the site of the residential property) of one acre:

Provided that—

(i) where in the year ending on the 31st day of December immediately prior to the date of that instrument of conveyance or lease—

(I) a rate was made by a rating authority as regards any hereditament to which the provisions of section 3 of the Act of 1978 did not apply, or

(II) a rate was made by a rating authority, and an allowance made under that section of that Act, as regards any hereditament which was at the time the rate was made a mixed hereditament, secondary school or community hall, or

(III) a hereditament was described as exempt, or partially exempt, from rating in the valuation lists,

then the whole or an appropriate part of that hereditament as is referable to ordinary use other than as a dwelling at the date of that instrument of conveyance or lease or, where appropriate, when last ordinarily used, shall not be residential property, in relation to that sale or lease,

(ii) where the area of the curtilage (exclusive of the site of the residential property) exceeds one acre then the part which shall be residential property shall be taken to be the part which, if the remainder were separately occupied, would be the most suitable for occupation and enjoyment with the residential property.".

(5) THAT section 58 of the Act of 1891 be amended by the insertion of the following subsection after subsection (1):

"(1A) Where—

(a) any property which consists partly of an interest in residential property is sold to any person and the sale (hereinafter in this subsection referred to as ‘the first-mentioned sale') does not form part of a larger transaction or of a series of transactions, or

(b) the sale to any person of property consisting in whole or in part of such an interest forms part of a larger transaction or of a series of transactions,

the consideration attributable to the first-mentioned sale and the aggregate consideration (other than rent) attributable to that larger transaction or series of transactions, as the case may be, shall be apportioned, on such basis as is just and reasonable, as between that interest in residential property and the other property or part concerned, and that aggregate consideration shall likewise be apportioned as between each other such interest (if any) comprised in that larger transaction or series of transactions and the other property or parts concerned, and notwithstanding the amount or value of the consideration set forth in any instrument, the consideration so apportioned to that interest shall be the amount or the value of the consideration for the sale which is deemed to be attributable to that interest and the consideration so apportioned to the aggregate of all such interests comprised in that larger transaction or series of transactions shall be the amount or value of that aggregate consideration which is deemed to be attributable to residential property.".

(6) THAT section 77 of the Act of 1891 be amended by the addition of the following subsection after subsection (5):

"(6) Where—

(a) any property which consists partly of an interest in residential property is leased to any person and that lease (hereinafter in this section referred to as ‘the first-mentioned lease') does not form part of a larger transaction or of a series of transactions, or

(b) the lease to any person of any property consisting in whole or in part of such an interest forms part of a larger transaction or of a series of transactions,

the consideration other than rent attributable to that first-mentioned lease and the aggregate consideration (other than rent) attributable to that larger transaction or series of transactions, as the case may be, shall be apportioned, on such basis as is just and reasonable, as between that interest in residential property and the other property or part concerned, and that aggregate consideration shall likewise be apportioned, as between each other such interest (if any) comprised in that larger transaction or series of transactions and the other property or parts concerned, and notwithstanding the amount or value of the consideration set forth in any instrument, the consideration so apportioned to that interest shall be the amount or the value of the consideration for the lease which is deemed to be attributable to that interest and the consideration so apportioned to the aggregate of all such interests comprised in that larger transaction or series of transactions shall be the amount or value of that aggregate consideration which is deemed to be attributable to residential property.".

(7) THAT the amount upon which stamp duty is chargeable by virtue of the provisions of section 112 (as amended by section 100 of the Finance Act, 1993 (No. 13 of 1993) of the Finance Act, 1990 (No. 10 of 1990), shall be deemed, for the purposes of the Act of 1891, to be the amount or value of the consideration for the sale or lease in respect of which that duty is chargeable.

(8) (a) THAT in this paragraph of this Resolution—

(i) a reference to a sale includes a reference to a lease,

(ii) a reference to a vendor includes a reference to a lessor,

(iii) a reference to a vendee includes a reference to a lessee,

(iv) a reference to subsection (1A) of section 58 of the Act of 1891 includes a reference to subsection (6) of section 77 of the Act of 1891, and

(v) "residential consideration" means—

(I) in the case of a sale to which paragraph (a) of subsection (1A) of section 58 of the Act of 1891 refers, the amount or value of the consideration for the sale which is deemed to be attributable to residential property, and

(II) in the case of a sale to which paragraph (a) of subsection (1A) of section 58 of the Act of 1891 refers, the amount or value of the aggregate consideration (within the meaning of that subsection) which is deemed to be attributable to residential property.

(b) THAT where, in relation to any sale, the provisions of subsection (1A) of section 58 of the Act of 1891 apply, an estimate (hereinafter in this paragraph of this Resolution referred to as the "vendor's estimate" or as the "vendee's estimate", as the case may be) of the residential consideration shall be made by the vendor and by the vendee and those estimates together with the amount or value of the aggregate consideration (within the meaning of that subsection), shall be brought to the attention of the Commissioners in the statement delivered under the provisions of subsection (2) of section 5 of that Act and that statement shall be signed by the vendor and the vendee and where the requirements of this paragraph of this Resolution are not complied with any person who executes the instrument whereby that sale is effected shall for the purposes of subsection (3) of section 5 of that Act be presumed, until the contrary is proven, to have acted negligently:

Provided that where—

(i) the aggregate consideration (within the meaning of subsection (1A) of section 58 of the Act of 1891), or

(ii) in the case where the sale does not form part of a larger transaction or of a series of transactions, the consideration for the sale,

does not exceed £150,000, those estimates need not be brought to the attention of the Commissioners in that statement unless a request in that regard is made by the Commissioners.

(c) THAT where the vendee's estimate (hereinafter in this paragraph of this Resolution referred to as the "submitted value") is less than the residential value agreed with, or ascertained by, the Commissioners (hereinafter in this paragraph of this Resolution referred to as the "ascertained value") then, as a penalty, the duty chargeable upon the instrument shall be increased by an amount (hereinafter in this paragraph of this Resolution referred to as the "surcharge") calculated according to the following provisions:

(i) where the submitted value is less than the ascertained value by an amount which is greater than 10 per cent. of the ascertained value but not greater than 30 per cent. of the ascertained value, a surcharge equal to 50 per cent. of the difference between the duty chargeable by reference to the ascertained value and the duty chargeable by reference to the submitted value;

(ii) where the submitted value is less than the ascertained value by an amount which is greater than 30 per cent. of the ascertained value, a surcharge equal to the difference between the duty chargeable by reference to the ascertained value and the duty chargeable by reference to the submitted value:

Provided that—

(I) notwithstanding any other provision to the contrary in the Act of 1891, the vendee shall, subject to subparagraph (II) of this proviso, be entitled to recover from the vendor one half of that surcharge,

(II) where the vendor's estimate is greater than the submitted value, the amount which the vendee shall be entitled to recover from the vendor shall not exceed one half of what the surcharge would be if the vendor's estimate were equal to the submitted value.

(9) THAT the furnishing of an incorrect certificate for the purpose of the First Schedule shall be deemed to constitute the delivery of an incorrect statement for the purposes of section 94 of the Finance Act, 1983 (No. 15 of 1983).

(10) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

SCHEDULE

PART I

Conveyance or Transfer on Sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance

"CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance.

(1) Where the amount or value of the consideration for the sale does not exceed £5,000 and the instrument contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a series of transactions, in respect of which the amount or value, or the aggregate amount or value, of the consideration exceeds £5,000	Exempt
(2) Where paragraph (1) does not apply and the amount or value of the consideration for the sale does not exceed £10,000 and the instrument contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration exceeds £10,000:
for every £100, or fractional part of £100, of the consideration	£1.00
(3) Where paragraphs (1) and (2) do not apply and the amount or value of the consideration for the sale does not exceed £15,000 and the instrument contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or a series of transactions in respect of which the value, or the aggreagate amount or value, of the consideration exceeds £15,000:
for every £100, or fractionalpart of £100, of the consideration	£2.00
(4) Where paragraphs (1) to(3) do not apply and the amountor value of the consideration for the sale does not exceed £25,000 and the instrument contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration exceeds £25,000:
for every £100, or fractional part of £100, of the consideration	£3.00
(5) Where paragraphs (1) to (4) do not apply and the amount or value of the consideration for the sale does not exceed £50,000 and the instrument contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a serifor every £100, or fractional part of £100, of the consideration	£4.00
for every £100, or fractional part of £100, of the consideration	£4.00
(6) Where paragraphs (1) to (5) do not apply and the amount or value of the consideration for the sale does not exceed £60,000 and the instrument contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration exceeds £60,000:
for every £100, or fractional part of £100, of the consideration	£5.00
(7) Where paragraphs (1) to (6) do not apply:
(a) if the instrument contains a statement—
(i) that the amount or value of the consideration for the sale does not exceed £150,000 and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration exceeds £150,000, or
(ii) that no part of the consideration for the sale is attributable, or deemed to be attributable, to residential property:
for every £100, or fractional part of £100, of the consideration which is not deemed to be attributable to residential property	£6.00
(b) if the instrument contains a statement that the provisions of subsection (1A) of section 58 of this Act apply in relation to the sale:
for every £100, or fractional part of £100, of the consideration for the sale which is not deemed to be attributable to residential property	£6.00
(c) if the amount or value of the consideration for the sale which is attributable to residential property or which is deemed to be attributable to residential property:
(i) does not exceed £150,000 and the instrument contains a statement certifying that the provisions of subsection (1A) of section 58 of this Act apply in relation to that sale and that the amount or value of the aggregate consideration (within the meaning of that subsection) which is deemed to be attributable to residential property, or which would be deemed to be so attributable if the contents of residential property were considered to be residential property, does not exceed £150,000	£6.00 for every £100, or fractional part of £100, of the consideration
(ii) does not exceed £160,000 and the instrument contains a statement certifying that the provisions of subsection (1A) of section 58 of this Act do not apply in relation to the sale or that the provisions of that subsection do apply in relation to the sale and that the amount or value of the aggregate consideration (within the meaning of that subsection) which is deemed to be attributable to residential property, or which would be deemed to be so attributable if the contents of residential property were considered to be residential property, does not exceed £160,000, and subparagraphs (a)(i) and (c)(i) do not apply	£7.00 for every £100, or fractional part of £100, of the consideration
(iii) does not exceed £170,000 and the instrument contains a statement certifying that the provisions of subsection (1A) of section 58 of this Act do not apply in relation to that sale or that the provisions of that subsection do apply in relation to the sale and that the amcontents of residential property were considered to be residential property, does not exceed £170,000 and subparagraphs (a)(i), (c)(i) and (c)(ii) do not apply	£8.00 for every £100, or fractional part of £100, of the consideration
(8) Of any other kind whatsoever not hereinbefore described:
for every £100, or fractional part of £100, of the consideration £9.00
(9) Where in the case of a conveyance or transfer on sale or in the case of a conveyance or transfer operating as a voluntary disposition inter vivos the consideration for the sale or the value of the property exceeds £5,000 and the instrument contains a certificate by the party to whom the property is being conveyed or transferred to the effect that the person becoming entitled to the entire beneficial interest in the property (or, where more than one person becomes entitled to a beneficial interest therein, each of them) is related to the person or each of the persons immediately theretofore entitled to the entire beneficial interest in the property in one or other of the following ways, that is to say, as a lineal descendant, parent, grandparent, step-parent, husband or wife, brother or sister of a parent or brother or sister, or lineal descendant of a parent, husband or wife or brother or sister:
a duty of an amount equal to one-half of the ad valorem stamp duty which, but for the provisions of this paragraph, would be chargeable under this Heading.”.
PART II
Lease
“(3) For any other definite term or for any indefinite term of any lands, tenements, or heritable subjects:
(a) where the consideration, or any part of the consideration (other than rent), moving either to the lessor or to any other person, consists of any money, stock or security, and—
(i) the amount or value of such consideration does not exceed £5,000 and the lease contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a series of transactions, in respect of which the amount or value, or the aggregate amount or value, of the consideration other than rent exceeds £5,000	Exempt
(ii) the amount or value of such consideration does not exceed £10,000 and the lease contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration other than rent exceeds £10,000 and subparagraph (i) does not apply:
for every £100, or fractional part of £100, of the consideration	£1.00
(iii) the amount or value of such consideration does not exceed £15,000 and the lease contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration other than rent exceeds £15,000 and subparagraphs (i) and (ii) do not apply:
for every £100, or fractional part of £100, of the consideration	£2.00
(iv) the amount or value of such consideration does not exceed £25,000 and the lease contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or thfor every £100, or fractional part of £100, of the consideration	£3.00
for every £100, or fractional part of £100, of the consideration	£3.00
(v) the amount or value of such consideration does not exceed £50,000 and the lease contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration other than rent exceeds £50,000 and subparagraphs (i) to (iv) do not apply:
for every £100, or fractional part of £100, of the consideration	£4.00
(vi) the amount or value of such consideration does not exceed £60,000 and the lease contains a statement certifying that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration other than rent exceeds £60,000 and subparagraphs (i) to (v) do not apply:
for every £100, or fractional part of £100, of the consideration	£5.00
(vii) where subparagraphs (i) to (vi) do not apply:
(I) if the instrument contains a statement—
(A) that the amount or value of the consideration other than rent does not exceed £150,000 and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or (B) that no part of the consideration is attributable, or deemed to be attributable, to residential property
(B) that no part of the consideration is attributable, or deemed to be attributable, to residential property	£6.00 for every £100, or fractional part of £100, of the consideration
(II) if the instrument contains a statement that the provisions of subsection (6) of section 77 of this Act apply in relation to the lease:
for every £100, or fractional part of £100, of the consideration which is not deemed to be attributable to residential property	£6.00
(III) if the amount or value of such consideration which is attributable to residential property or which is deemed to be attributable to residential property:
(A) does not exceed £150,000 and the instrument contains a statement certifying that the provisions of subsection (6) of section 77 of this Act apply in relation to that lease and that the amount or value of the aggregate consideration (within the meaning of that subsection) which is deemed to be attributable to residential property, or which would be deemed to be so attributable if the contents of residential property were considered to be residential property, does not exceed £150,000	£6.00 for every £100, or fractional part of £100, of the consideration
(B) does not exceed £160,000 and the instrument contains a statement certifying that the provisions of subsection (6) of section 77 of this Act do not apply in relation to that lease or that the provisions of that subsection do apply in relation to that lease and that the amcontents of residential property were considered to be residential property, does not exceed £160,000, and clauses (I)(A) and (III)(A) do not apply
	£7.00 for every £100, or fractional part of £100, of the consideration
(C) does not exceed £170,000 and the instrument contains a statement certifying that the provisions of subsection (6) of section 77 of this Act do not apply in relation to that lease or that the provisions of that subsection do apply in relation to that lease and that the amount or value of the aggregate consideration (within the meaning of that subsection) which is deemed to be attributable to residential property, or which would be deemed to be so attributable if the contents of residential property were considered to be residential property, does not exceed £170,000 and clauses (I)(A), (III)(A) and (III)(B) do not apply
	£8.00 for every £100, or fractional part of £100, of the consideration
(viii) the case is of any other kind whatsoever not hereinbefore described:
for every £100, or fractional part of £100, of the consideration	£9.00.”.

This Financial Resolution provides for an increase in stamp duty charged on the transfer of second-hand and certain new residential property where the amount upon which the stamp duty is chargeable is in excess of £150,000. The rate is 6 per cent at present. It is proposed to introduce three new rates; these are 7 per cent on residential property valued between £150,000 and £160,000, 8 per cent on residential property valued between £160,000 and £170,000 and 9 per cent on residential property valued in excess of £170,000.

The background to this is that the Government announced the abolition of residential property tax last month. The purpose of these measures is to replace the revenue lost by the abolition of residential property tax. The yield from the measures proposed here is expected to be £11 million in 1997 and £13.5 million in a full year. This compares with the 1997 revenue that would have been obtained from residential property tax of £14 million. Therefore, there is a slight loss of approximately £500,000.

There may be many Members who may be tempted to criticise this proposal but I would ask them whether they would prefer to have residential property tax continue. I think the answer would be "no". There may also be many vague and general suggestions as to how one might replace lost revenue from the abolition of residential property tax. It falls to the Government to introduce a specific fair measure for this purpose, one that perhaps will have some modest effect in dampening down the increase in house prices, something to which I am sure nobody would object in view of the inflation risks flowing therefrom.

No doubt there will be a number of questions Members will want to raise in the course of the debate on this resolution. For example, the question of mixed properties may arise where part of the property is a shop and part is residential. The test will be the one used for rating purposes. If a property is rated as a commercial one, the portion of the house rated as commercial will not be included in the total for calculating stamp duty for the purposes of this section which applies to residential property. There may be other questions which Deputies may wish to raise during the debate and I will be happy to provide answers.

In the case of guesthouses, registered ones will be considered to be business premises and will not be subject to the residential stamp duty regime. However, unregistered premises will not be in the same category. Obviously, this will create an incentive to register properties so that they will not be categorised as residential properties for the purpose of the tax.

A problem which might arise as regards the treatment of a farm with a substantial home is that the purchaser and the seller will separate the payments being made in respect of the residential portion of farm premises. The residential portion will be subject to stamp duty in this instance but the non residential farm portion will not be. That is a matter which can be dealt with adequately by the relevant arrangements and by virtue of agreement between the purchaser and the seller. The arrangements reached will, in most instances, be acceptable to the Revenue Commissioners because there will be a divergence of interest as regards the apportionment of the purchase price between the purchaser and the seller. Any agreement reached between them on the matter is likely to be approximately valid because of their divergence of interest.

There may be some who will claim the level of stamp duty will be particularly high in comparison with other countries. Some may, for example, quote the British rate. In Britain residential property bears a council tax which does not apply here. That tax must be paid every year, not only at the time of sale. When comparing the stamp duty of 1 per cent in Britain with that here, one should also add the cumulative effect of paying council tax of somewhere in the region of £1,000 per year, which adds up to a much larger sum of money over a period. Stamp duty on property in Belgium is 12.5 per cent and other countries also have high rates.

The final argument which decides that this is the right course to follow is that by making these changes in stamp duty, which are only payable if people decide to sell their house — one has a choice — and which are only paid once in the normal lifetime unless one frequently buys and sells houses, we have been enabled to abolish residential property tax. There has been much complaint about this tax. I have no doubt many Opposition Members were looking forward to campaigning on this issue and may have already printed literature which they will find is null because the Government has acted.

The Government is acting in accordance with the wishes of the majority of people. It is substituting a simple tax, stamp duty, for a very complicated one, residential property tax, or a certain tax for an uncertain one. The Government has made a good decision on this matter and I have no doubt the House and the country will approve.

Mr. R. Burke

This side of the House will vehemently oppose the introduction of this iniquitous stamp duty. The Taoiseach made the case that he has generously removed residential property tax and that this is a replacement. Why do we need a replacement for what was an unjust tax which should never have been imposed? It was an ideological plaything of the Labour Party which first introduced it. It was an unfair form of taxation and the Government was merely responding to pressure from this side of the House for its removal, and rightly so. It brought in about £13 or £14 million. Why do we need another tax to replace it?

According to today's figures, overall expenditure for the year will be £13.584 billion. This Government has lost control of the public finances. It came to Government on a commitment that Estimates would not rise by more than inflation plus 2 per cent. In the period it has been in office inflation has been 6.5 per cent and public expenditure has risen by 20 per cent. Surely with £13.5 billion it was possible for the Government to find savings to balance the loss of approximately £13 or £14 million when removing the iniquitous and unjust residential property tax? I do not deny that some will be able to afford to pay this tax, but it will mainly hit those who cannot afford it.

In the case of a family home, if one or both parents retire and wish to move into a nursing home or a care facility, they will try to sell their home and will look for the best possible price. That price will be dramatically hit by the introduction of this tax. We are not talking about small amounts of money. In the Dublin region and residential areas elsewhere, a £170,000 house is not a massive one. However, we are talking about stamp duty of £15,300 on such a house and approximately £10,500 on a house worth £150,000 which will affect the price a person will get for their property because the purchaser will have to pay. The price of houses will drop accordingly and those who borrowed and invested in doing up their property and who want to move on for various reasons, whether they are elderly or wish to buy elsewhere, will find that the second-hand house market will be badly hit by the introduction of this measure.

Property tax should never have been introduced and I find it wrong that the Taoiseach should try to link stamp duty with it. If the Government did its business properly we would not have this £13.5 billion level of expenditure and in calculating the Estimates it should have been in a position to find savings without having to impose this unjust increase in stamp duty. It is a totally unfair form of taxation and will have very damaging effects on the property market.

It will especially hit many of our older citizens and their families who want to sell what has been the family home for many years, the nest egg bought at a lower price. Many would not have had to pay property tax because their incomes would have excluded them from it. Their nest eggs are being damaged by this Government to the extent of £15,000 or £10,000 in some cases.

It is not a case of hitting the wealthy. For example, I was in an estate last night in my constituency of Dublin North where houses which sold two years ago for £75,000 to £80,000 are now worth up to £150,000. This is an unfair form of taxation. In removing the unfair residential property tax, the Government should not have replaced it with an equally unfair system, as it has on this occasion.

Mr. Shatter

I listened with interest to what Deputy Ray Burke said. I would take it seriously if his party in Government had not dramatically extended residential property tax, lowered the income threshold and extended it to apply to tens of thousands of houses which were previously exempt from the tax. It goes against the grain to take seriously Deputy Burke's comment that residential property tax is an unjust tax which should never have been imposed.

I wonder where Fianna Fáil was from 1987 to 1994? Did anyone notice and does Deputy Burke remember that it was in a variety of Governments: a minority one and a coalition one with the Progressive Democrats and latterly with the Labour Party. During the life of the Fianna Fáil minority Government, there was no suggestion that residential property tax would be abolished.

As people got the exciting whiff of a general election, we have had the spectacle in recent months of various members of the Fianna Fáil and Progressive Democrats parties running an "abolish residential property tax" campaign. Public meetings were held. Trees were demolished to generate the paper required for the glossy leaflets put in people's doors. "Vote for us at the next election", they said, "and we will abolish residential property tax".

What Deputy Burke forgot in his speech tonight and what Deputy Michael McDowell and Deputy O'Donnell in my constituency forget is that the nation has not been struck by collective amnesia and there are quite a number, if not the vast majority, of people who remember that Fianna Fáil was in Government for the period I mentioned. They can even recall the brief but unhappy sojourn of the Fianna Fáil and Progressive Democrats parties together. During that Government, did anyone suggest abolishing residential property tax? What did they do about it? We were told by Deputy Burke tonight that it is an unjust tax which should not have been imposed. It was not only imposed but maintained and extended by Fianna Fáil in Government.

I know it is usual that late on budget night people lose the run of themselves to some extent and try and think of something to say so they can stand up and be noticed. I have a great deal of respect for Deputy Burke and for the issues he sometimes raises but his contribution on this issue is the caricature example of playground politics. It is the sort of thing that brings politics into disrepute. He said that, if the Government was doing its business properly, it could have abolished residential property tax without imposing any increase in stamp duty. Is he suggesting his Government when he was Minister did not do its business properly because it failed to abolish it?

As someone who represents the Dublin South constituency, residential property tax has been seen by many of my constituents as an unjust and unfair tax and a great burden. People whose houses did not fall into the tax net some years ago watched the value of their houses increase notionally and suddenly found themselves falling into the net and being discriminated against, effectively because they lived in Dublin. It was an anti-Dublin tax which affected many middle income families in Dublin who had large mortgages in that they struggled to meet the demands of the tax. I welcome the Government's abolition of the residential property tax. It has behaved correctly in abolishing it. I would have liked to have seen it abolished a long time ago and regret that other parties in Government did not have the wit to take that action. The Government deserves to be congratulated for doing so.

As regards the increase in stamp duty, we should, in some future budget, seek a general review of stamp duties on all types of properties, how they apply and the rates of the duties. I am pleased there has been a modification of the original proposal for the increase in stamp duty which seemed to suggest that, once a house was sold for a sum in excess of £150,000, it was immediately liable for the 9 per cent rate. That would have been unjust and would have created the possibility that, if a house was bought for £149,500, stamp duty would be 6 per cent and, if it was sold for £150,500, £4,500 more stamp duty would have to be paid. The Government was right to modify its original proposal and to introduce a graduated scale. I would have preferred the graduation to be of a somewhat greater degree.

However, Deputy Burke cannot have it both ways. In the context of abolishing residential property tax, the Government has sought an alternative or replacement source of income to meet essential outgoings and to allow the Government give in a responsible way to a great many people as a result of this budget the various other reliefs and benefits which will derive. I have no doubt that, if residential property tax had been abolished with no alternative source for raising finances, the Government would have been accused by the other side of irresponsibility for not producing some alternative revenue source.

We should take with a grain of salt Deputy Burke's strictures. If he and members of his party, or any member of the Progressive Democrats who may wish to contribute on this issue, had sufficient good grace and acknowledged the problems of their periods in Government, they would rapidly congratulate the Government on abolishing residential property tax. For the sake of avoiding embarrassment, it should move on to other budgetary issues rather than focus on this issue. I have no difficulty with the Government directing the spotlight on the reality that it has got rid of residential property tax, which is welcomed by thousands of people throughout the country, many of whom are my constituents.

Mr. D. Ahern

As regards Fianna Fáil's attitude to residential property tax, I very much welcome the Government's decision to abolish that tax. The Government has done a U-turn because it was a Fine Gael-Labour Government that introduced that tax, which was a draconian measure. When we were in Government with Labour that party insisted, as part of the budgetary negotiations, that residential property tax should be increased and broadened, but our party was reluctant to do that.

Deputy Shatter has left the Chamber, but being involved in the legal profession he knows probably better than anyone that stamp duty is a penal taxation. It is one of the most draconian taxes in our system. People buying second hand houses cannot believe the amount of money they have to fork out on stamp duty. If there was so much largesse — this goes back to the earlier debate on petrol increases — why did the Government introduce this measure, which will yield £13.5 million in a full year? People living in Dublin know that an ordinary house on the north side of the city costs in the region of £150,000.

The Taoiseach

People should go to the west side of Dublin. That is where the boom is.

Mr. D. Ahern

Houses in Drumcondra, Phibsboro and other places which cost £80,000 a couple of years ago now cost £140,000 to £150,000. I remarked recently that one would buy two houses in my town for the price of one that was for sale in Drumcondra. This is another Dublin tax, and that is one of the reasons I live in Dundalk.

Stamp duty affects couples, particularly in Dublin, who are not necessarily wealthy but who try to better themselves by moving to another house. Those people do not have money to burn. A person buying a house in Drumcondra for £150,000 will have to pay £10,500 in stamp duty while stamp duty on a house worth £160,000 will be £12,800 and on a house worth £170,000 it will be £15,300. That is an incredible tax.

Deputy Shatter alluded to the fact that when the Government announced this measure it said that stamp duty on houses worth more than £150,000 would be 9 per cent, but there has been a change of heart and I wonder why. As Deputy Shatter said, there has been a very meagre tapering of the figure. The measure should have been introduced more equitably, with a broader band. There is a huge gap between the 4 per cent rate and the 6 per cent rate for houses worth less than £150,000 — most houses are in the 4 to 6 per cent bracket.

I put down a parliamentary question today to the Minister for Finance about the implications for inflation of house prices and I received a very interesting reply. It stated that the annual rates of increase for new and second hand houses for the first quarter of 1994 and the third quarter of 1996 show that house prices have risen significantly in the past two years. I question the figure produced tonight for the yield from this tax, which will not only increase the price of first hand houses but will make it more difficult to sell second hand houses. The tax take will be greatly increased because of the huge demand for second hand houses in some of the better areas in Dublin where prices are significant. A person buying a house in Drumcondra for £150,000 will need money to renovate the house, but they will have to pay £10,500 on stamp duty.

Mr. Rabbitte

Does the Deputy know somebody who owns a house in Drumcondra?

Mr. D. Ahern

The Minister might know more than I do. The reply to my parliamentary question gave the year on year percentage increases in the price of second hand houses. In the first quarter of 1994 the increase was 6.8 per cent while in the last quarter it was minus 0.3 per cent. In the first quarter of 1995 the increase was 0.5 per cent while in the last quarter of 1995 it was 13.1 per cent. In the first quarter of 1996 the increase was 10 per cent while in the third quarter of 1996, the latest figures available, it was 18.2 per cent. There has been a huge increase in the price of second hand houses with the result that many ordinary houses will be liable for this punitive tax.

As with petrol, the Government has made a mistake with stamp duty. As Deputy McCreevy often says, Governments make mistakes — I think the Taoiseach is well aware of mistakes made in budgets, but we will not remind him of that. As opposed to tax increases, the increase of 11.5p on a gallon of petrol sticks out like a sore thumb to people looking at the 9 o'clock news tonight. People buying a second-hand house, particularly in Dublin, will look at this decision with a jaundiced eye. What the Government is doing is replacing one Dublin tax with another. It would have been cuter to bury in the overall figure for give-aways in the budget the £16 million which it cost to abolish residential property tax. That would have been much more equitable, but the Government will have to live with the consequences. There has been a dramatic increase in house prices in the past two years and the Government is adding to that a penal tax.

Britain is the only country to which the Deputy ever refers.

Mr. O'Malley

I am constantly reprimanded for referring to New Zealand——

I find it particularly difficult that transfers inter vivos, for no consideration, within a family are subject to half this rate. That may not be fully realised, but it is the case under the terms of this financial resolution. This means that a family house being transferred from, say, a father to a son or to a daughter, if valued at £170,000, is subject to 4.5 per cent stamp duty, which is a penal rate for a voluntary disposition within a family. It is rather unfair because it is not something someone voluntarily undertakes as one does when one purchases a property. It is something that one feels one has no option but to be involved in. That is regrettable and it should be drawn to people's attention that an inter vivos transaction is liable to half the level of duty imposed here on a conveyance for value. There was a time when virtually all inter vivos transactions were subject to a fixed stamp duty of 50p, ten shillings or at a maximum of 1 per cent, we have come a long way from that. That such a voluntary disposition within a family is now being taxed at the rate of 4.5 per cent is a great discouragement to people to pass on property.

Dr. Woods

My colleague, Deputy Dermot Ahern, raised an important point, that is, that the increase in stamp duty will have an effect even on the north side of Dublin. The position has changed dramatically in recent years and the value of many homes has increased substantially. Those looking forward to selling their home on retirement and buying a smaller house or apartment or moving to a nursing home will regard this change as a particularly onerous imposition.

The rate of home ownership is approximately 80 per cent. There is, however, a change in the Government's philosophy and thinking. Mortgage interest relief has been whittled away and is now allowable only at the standard rate of 26 per cent. I fear for young people in terms of their ability to own a home in parts of Dublin.

The Taoiseach mentioned a figure of £13.5 million. How much of this will be collected in Dublin and how many homes will be affected? Although not directly affected, I welcome the abolition of residential property tax because of its adverse effects, particularly in Dublin. It is an inequitable tax.

The increase in stamp duty will have a severe impact on old people in particular. It will give rise to difficulties and problems which will have to be addressed by future Governments. I fail to see why the burden should be shifted to middle income earners. The rate in Northern Ireland and Britain is 1 per cent on houses worth over £60,000. On family transfers, the increase will be regarded as particularly savage and will have a deleterious effect. We are, therefore, opposed to its imposition on middle income earners.

Mr. Ring

Although there are not many houses worth £150,000 or more in the west, I am glad, as an auctioneer, that residential property tax is to be abolished because home owners who work hard and pay their taxes should not be penalised. Couples whose first home is a new house under 1,400 sq. ft. receive the first time buyer's grant of £3,000. Couples whose first home is a second hand house under 1,400 sq. ft. should be exempt from stamp duty, the payment of which causes many problems. I hope the Government will consider this suggestion.

Mr. Hughes

I classify the increased rate of stamp duty as a super rate of tax which will not apply solely to larger houses but to ordinary houses. Where a father or mother wishes to transfer a house to their son or daughter there will be an increase of 50 per cent in the level of taxation where the value of the property exceeds £150,000.

I reject the assertion that residential property tax affects only those living in Dublin. There is widespread non-compliance throughout the rest of the country. Whenever a house in Dublin is sold at public auction the work of the Revenue Commissioners is done in that they have an accurate comparative value which can be applied to similar houses. Throughout the rest of the country no such easy comparisons can be drawn. As residential property tax is payable only by those on salaries of £30,000 or more per year, it does not apply to a substantial number of people with properties worth considerably more than £150,000. People in Dublin are more likely to be on a higher salary scale.

I welcome the abolition of this tax. It is beyond me why any party would wish to place a tax on private homes. In recent years further tax relief has been granted to architects, solicitors, doctors and other professionals and now successful tradesmen and others. They can claim not only capital allowances but income tax relief on rental income on second homes which would be regarded as an investment property.

The Taoiseach stated that the new rates of stamp duty will not apply to registered guesthouses. Will he clarify that they will not apply also to registered bed and breakfast accommodation? There is a subtle difference in the registration requirements.

The Taoiseach

Yes.

Mr. Hughes

That is welcome. Successive Governments have encouraged people to enter the business to improve the standard of accommodation available to tourists.

Mr. Callely

I welcome the abolition of residential property tax. I drew the attention of successive Ministers for Finance to my concerns. I consider it anti-Dublin and anti-family and, as such, unfair. I ask the Taoiseach to review the proposal to increase stamp duty from 6 per cent to 9 per cent. If he believes it to be unfair or unbalanced or that it has the potential to act as an anti-Dublin tax, he should introduce measures in the Finance Bill to deal appropriately with that.

I will offer the Taoiseach an example of the problem that will arise, which is a fair one. Take a family home which was inhabited by an elderly person who died recently. The house is a three bedroomed semi-detached residence which has not been modernised for over 30 years. It would, therefore, require replacement windows, central heating, rewiring and complete refurbishment. The garden of this house would be probably smaller than the Taoiseach's side garden, not to mind the acreage of land that usually surrounds houses in the country.

The Taoiseach

I must bring the Deputy down there sometime.

Mr. Callely

Mr. Callely

——and wish to use it as a nest egg. This measure will affect their desire to provide a safety net or nest egg for themselves. It will also lead to under the counter deals in which it will be agreed that certain amounts of money will not be recorded or the house property value will be assessed at a certain amount and furniture and effects will make up the remainder of the value.

This measure is most unfair and I ask the Taoiseach to reconsider it.

Mr. O'Dea

With regard to mixed property, the Taoiseach said the new regime will apply only to the residential part. Is there a method of calculating the residential part because sometimes it is impossible to value part of a property?

The Taoiseach

Floor area and whether it is rated.

Mr. O'Dea

I listened to Deputy Shatter's impassioned plea. I was most impressed and I agree with much of what he said. However, it suffered from the same fundamental flaw as the Taoiseach's earlier contribution in support of this imposition, in that both were about residential property tax. This measure has nothing to do with residential property tax. That tax was iniquitous, unjust and discriminatory. The Government recognised that by abolishing it, although it was retained in the last two budgets. Omitting the history of the tax, who imposed it and who maintained it, it was wrong and has been abolished. All parties maintained it and the Taoiseach's party introduced it.

The Taoiseach

Who extended it?

Mr. O'Dea

It has been abolished because the Government accepted the argument that it was unjust. However, where is the logic in replacing one unjust imposition with another unjust imposition? Deputy Shatter said that if the Government accepted our case the tax would be simply buried in the general figures and we would accuse the Government of irresponsibility. I cannot accept that logic. The Government says it is giving away £490 million in tax reductions. Why not give away £477 million instead of replacing one unjust tax with another?

Stamp duty, as anybody who is involved with property transactions is aware, is penal. I recently witnessed a property transaction in the United Kingdom. A house in Twickenham, London, which is a good area, was sold for £170,000 and the stamp duty on the transaction was £1,700. When this financial resolution is passed the stamp duty on a similar property in Dublin will be £15,300, nine times as much. There is no logic in or justification for that.

The residential property tax was administratively costly both from the point of view of the Revenue because of the complexity of the calculations that had to be made and from the point of view of the taxpayer because he or she had to go to the expense of filing a return, making revaluations and getting tax advice every year in some cases in order to ensure they were not in a situation of moral hazard as a result of the possible allegation of paying less than they ought to pay.

In terms of convenience the residential property tax had to be paid every year which is an inconvenient, recurrent liability in terms of people having to make provision each year, whereas this tax is convenient because it only occurs at a time of the choosing of the taxpayer. It is only when the taxpayer chooses to buy or sell a house that this tax falls to be paid. In regard to certainty and equity, this tax is certain because it is levied on a known value, the value of the house as sold between a willing seller and a willing purchaser on a fixed known price. The residential property tax was uncertain because the level of residential property tax to be paid was levied in an arbitrary way on a valuation chosen by the taxpayers which, in the case of one house on a road, could be different from that chosen by another resident of a similar house on the same road without the two having any opportunity of consulting to discuss the issue.

Mr. Callely

They are both anti-Dublin.

Deputy Callely should cease interrupting.

Mr. M. Smith

The Taoiseach agreed with that at the time. He issued a concurrent statement.

The Taoiseach

Mr. Callely

The Taoiseach should check with Richard.

The Taoiseach

——for realising the value of their houses.

Mr. B. Ahern

All move out of Clontarf.

Mr. S. Brennan

It is a Proinsias De Rossa tax.

The Taoiseach

The balance we have struck in this budget with this particular tax and the priority we have given to the low and middle income groups in regard to income taxation is the correct one. I listened to Deputy O'Dea and others who said we had lost an opportunity by spreading the benefit too thinly. The strength of this budget is precisely in that regard. What he described as spreading the benefit too thinly was in fact giving the benefit right across the board, particularly to the large mass of taxpayers on comparatively low incomes.

Mr. S. Brennan

One for everyone in the audience.

The Taoiseach

There are other Deputies in this House who would prefer — this may represent the views of other Deputies in Limerick but I am not so sure about Deputy O'Dea — if we concentrated more on reducing the 48 per cent income tax rate. That would not be a good idea.

Mr. O'Dea

The Taoiseach should concentrate on something.

The Taoiseach

Irrespective of whether the lower and middle income groups and those on the margin of the poverty trap argue they are better off not working, it is right that we should target those groups, reduce tax in that area and increase allowances under the family income supplement. That spreads the benefits considerably. It is also consistent with an enterprise approach to the economy because enterprise is for everybody, not just those who are already well off. Access to enterprise should be available to everybody. The philosophy of the Government of opening up access to enterprise to everybody, including the long-term unemployed, is the right approach to building a free, robust and fair economy. This is what we are building as a result of the budget.

Dáil Éireann díospóireacht - Wednesday, 22 Jan 1997

Financial Resolutions, 1997. - Financial Resolution No. 4: Stamp Duties

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Dáil Éireann díospóireacht -
Wednesday, 22 Jan 1997