Jonathan Ginnelly outlines the main stamp duty considerations for those acquiring commercial property in the Republic of Ireland.

The stamp duty rate on non-residential property in the Republic of Ireland was increased to 6% in Finance Act 2017. Since this rate increase, stamp duty has become a real and significant cost when it comes to property acquisitions and, in some cases, it can be a deal-breaker.

While stamp duty is a cost for the purchaser, the increased rate will inevitably have an impact on the purchase price paid to the vendor so as to manage the overall cost of the acquisition.

Specific provision was also introduced to ensure that the increased rate also applies to certain property holding entities, such as companies, which might have been used to transfer property indirectly to avail of lower stamp duty rates.

In addition to introducing the higher rate of stamp duty on non-residential property, Finance Act 2017 introduced a new provision to allow for a partial repayment (up to two thirds) of the stamp duty paid for land that is to be developed for residential purposes.
This article will look at where the 6% rate can apply to property holding entities and provide a brief overview of the refund scheme for relevant residential developments.

Property holding entities

Where property is held through a company (including foreign companies), a partnership or an Irish Real Estate Fund (IREF), the higher rate of stamp duty (6%) can apply on the transfer of shares, interests or units of such entities. The higher rate should only apply in the following circumstances:

• Where the property was acquired by the entity with the sole or main objective of realising a gain on disposal;
• Where the property was, or is, being developed with the sole or main objective of realising a gain on disposal when developed; or
• Where the property was held as trading stock.

Where one of the above conditions is met, the higher rate will apply on the transfer of shares, interests or units – but only where such a transfer results in a change of control, either directly or indirectly, over the immovable property. In addition, any contract or arrangement resulting in a change of ownership and control which might not ordinarily be ‘stampable’ will also be subject to the higher rate.

Where minority interests are being transferred, such that control does not change, the higher rate should not apply. However, attempts to transfer several minority interests to a person or persons acting in concert will not escape the provisions.

The provision should not apply to shares in companies that hold property where the property was not acquired for the purpose of realising a gain on disposal, for development purposes, or held as trading stock. For example, companies owning and operating a hotel or nursing home, or property rental companies (where the property was acquired for the purpose of generating rental income) should not be caught by the provision.

Stamp duty refund scheme

To encourage the development of residential property, a refund scheme was introduced in tandem with the increased rate to effectively reduce the 6% rate by two-thirds where the land acquired is to be developed for residential use. When a greenfield site or a site with existing non-residential property is purchased for development, this would not be considered “residential” property at the date of acquisition and, as such, is subject to the 6% rate. However, post-acquisition, a refund of up to two-thirds of the stamp duty paid may be available where the property is to be developed into residential units.
Such developments can be carried out in either a single phase or in multiple phases. The refund (subject to a number of conditions) is available once construction operations on the residential development have been commenced pursuant to a commencement order issued by a relevant building authority.

A phased development will have a number of commencement notices attaching to the various phases of construction. The key points to remember are:

• The first phase of construction operations must commence within 30 months of the date of execution of the instrument of transfer;
• The refund for a phased development can be claimed on a phased basis, or on completion of the entire residential development;
• On a multi-phase development, separate commencement notices will be required for each phase;
• There is a two-year time frame for completion. This two-year period runs separately for each phase; and
• If the residential development is not carried out in a phased manner, the full two-thirds refund can be claimed following commencement of construction operations – but the entire development must be completed within two years of the commencement notice.

A refund claim for each phase can be made after the issuance of the relevant commencement notice and once construction operations have commenced. The refund will be for the proportionate amount of stamp duty relating to that phase.

In a multi-phase development, there could be a number of phases commencing and finishing at various stages throughout the overall development. It is important to bear in mind that the 30-month time period in which the developer must commence construction runs from the date of execution of the instrument of transfer. If the development is carried out in phases, the legislation states that the construction operations in respect of the first phase must be commenced within 30 months of the date of the instrument of transfer.

The last commencement notice and respective construction operations must commence before 31 December 2021 in order to fall within the scope of the relief. As such, the latest possible date for completion of qualifying construction works is 31 December 2023.

Given the very specific timeframes involved, any development needs to be carefully managed to ensure all relevant dates are complied with. If any condition or timeframe is breached, a claw back of the refund can arise, leaving the taxpayer open to additional costs such as interest.

Practical issues in claiming the refund

Since the introduction of the refund scheme, certain practical difficulties have arisen in the refund application process. The stamp duty return may be filed by the solicitor dealing with the property conveyance, for example. However, when it comes to the refund scheme, taxpayers may opt to use the services of their tax advisor. In such cases, the advisor must liaise with Revenue to have the stamp duty records for that particular case transferred to the advisor’s ROS certificate. This can take some time to arrange, resulting in delays in the issuance of refunds. Where there are critical cash flow issues with a development and the taxpayer is relying on the stamp duty refund for financing purposes, early engagement with the tax advisors and Revenue is advisable.
In conclusion, given the growth in property prices over the last number of years, the increased stamp duty cost now constitutes a significant part of the financing of acquisitions and developments. Accordingly, care should be taken to ensure that acquisitions and related development operations are structured so as to avail of the residential refund scheme where appropriate.
Jonathan Ginnelly is Tax Director at Grant Thornton Ireland.