Millionaires and Cuckoo Funds face stamp duty hike

Millionaires and Cuckoo Funds could be hit with a stamp duty hike in October, under policies being considered by the Department of Finance.

The 2pc Stamp Duty charged on residential property deals worth more than €1m is “low” compared with the up to 17pc rate charged in the UK, according to the papers prepared by the Department of Finance Tax Strategy Group ahead of the Budget.

Every extra 1pc charged would raise €9m for the State from buyers of luxury homes and institutional investors in buy to rent blocks – so called Cuckoo Funds - the notes say.

A 1pc surcharge added to acquisitions by investment funds would have raised in excess of €3m in 2019, according to estimates from Revenue.

“There may be a case for examining the potential to raise additional revenue from residential property transactions with a value in excess of €1m which would also capture much of the large investment transactions. The average price paid for all property transactions over €1m in 2019 was €3,375,725,” the papers said.

Cuckoo Funds have emerged as a major factor in the Irish residential property market over the past two years in particular, buying up thousands of apartments and, increasingly, houses, as long term rental portfolios backed by big US and German pension and investment funds.

In contrast, the stamp duty rate of 1pc on residential properties up to €1m “remains appropriate” in view of the government policy to prioritise the delivery of housing to as many citizens as possible at affordable prices, the notes say.

In the UK stamp duty on a primary residence worth more than £1.5m will rise to 12pc next year rising further still for second homes and property bought by overseas purchasers under new measures there.

Here, the standard 1pc and 2pc rates apply on all residential property bought by occupiers or investors, domestic and foreign.

However, officials said any higher tax for Cuckoo Funds could be passed on to tenants in the form of higher rents or service costs.

They also suggest a tax hike could hit supply, noting that many apartment scheme in particular which are slower and more capital intensive to build than houses, might not have been constructed at all without the investment funds.

“So actively seeking to disincentivise such acquisitions may result in a reduction in the supply of badly needed new rental accommodation entering the market.”

Meanwhile, the Department said Irish Institutional Property (IIP), a representative body of institutionally financed investors, has sought a review of a tax break on purchases of land for residential development. The tax break allows investors to claim back stamp duty on those land deals if they build homes for sale or rent on the site by the end of 2021. The refund means investor pay a maximum 2pc on the land deal instead of up to 7.5pc. Investors want the deadline extended until the end of 2023.