Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Before moving on to address this amendment, I must provide the following clarification to the House.

On 9 November, the Select Committee on Finance, Public Expenditure and Reform and the Taoiseach considered section 28 of Finance Bill, 2017 as published. As part of that process, there was discussion on an amendment to section 28 of the Bill as it then stood which had been put forward by Deputy Doherty. When reviewing the record of the debate officials became aware that the advice that was provided to me during the debate in respect of legal advice received from the Attorney General’s Office was incorrect in that it conveyed a misunderstanding of the advice given by that office. This caused me to make what I now understand was an incorrect statement, that is, that I received legal advice from the Attorney General’s Office to the effect that it was not legally possible to exclude buildings from the scope of the exemption provided for in the Finance Bill.

While legal advice had been received from the Attorney General’s Office in relation to the existing relief in section 604A, that advice did not indicate that it would not be legally possible to exclude buildings from the scope of the exemption provided for in the Finance Bill.

Having clarified the position I will now turn to amendment no. 50 in the name of Deputy Doherty. His amendment seeks a report to be prepared on the reduction in the holding period from seven years to four years within six months of the passing of the Act. As has been indicated in the past, in replies to a number of parliamentary questions, there is no information available on the number of properties purchased during the qualifying period. It is unlikely to be possible to ascertain the number of persons who will avail of the relief in the six-month period after the Bill is signed into law, and it is not clear as to the basis for such a report.

The Deputy’s amendment also raises the issue of limiting the reduction in the qualifying relief to land only. A number of reasons give rise to the requirement that in amending section 604A that buildings should not be separated from land. While it is likely that free standing buildings can be defined and determined in law, that is, a building with some minor curtilage attached and land can also be defined, a difficulty can arise where buildings and land occupy the same site.

The effect of Deputy Doherty’s proposal would be to require that, where land and buildings occupy the same site, they would have to be treated separately for the purposes of this relief. The land could now benefit from the CGT relief as amended but any building on that land would not qualify until it has been in ownership for the full seven-year period. It is likely that land and buildings sharing the same site have been purchased as one lot. It is also likely that owners want to dispose of such land and buildings as a package rather than separately. It may be that there are more buildings than empty land on specific sites and the reverse on other sites. It would be difficult for sellers and, indeed, purchasers to value the land where there is a different timing of the tax treatment between the land and buildings on one site. Different tax structures for buildings and land can raise complex issues with respect to the allocation of value between the two because disposals usually reflect transactions in which the land and the structures on it are disposed of as a unit. The different treatment would be likely to impact on the possible disposal and the value of such property where there was both land and buildings on it.

As the CGT relief applies across all the European Economic Area, to exclude buildings from the scope of the exemption introduced in the Finance Bill 2017 would be problematic, particularly given the difficulty of verifying the accuracy of the information provided by taxpayers. That difficulty is mitigated by having land and buildings included as part of the change to the relief, which gives rise to no definitional problems. The provisions of the Interpretation Act, which defines the term "land" as including houses and buildings on land, would also make limiting the scope of the amendment to land more complex. There is, in this context, a concern that while a definition of buildings was possible it may not be possible to adequately define all buildings so as to make a clear distinction between land and buildings in all cases. In addition, with urban areas being most in need of increased housing stock and some of the best located potential urban development land being on brownfield sites occupied to some degree by buildings, excluding them from the scope of the amended relief would potentially serve to exclude some of the land most suited to development in urban areas. Including land and buildings in the amendment links to the policy on the increase in vacant site levy to 7% from 1 January 2019 which is intended to encourage owners of properties to develop vacant sites or buildings not in use. Not including buildings in the CGT exemption, as is being suggested, could hinder the success of this policy.

It is worth noting that this exemption was introduced at the same time as the reduction in the rate of stamp duty for commercial property. In deciding to make this change to the CGT relief, I also considered it appropriate to make the change to the stamp duty treatment of commercial property. Ultimately, it is necessary to end reliefs when they are considered to have achieved their objective rather than prolonging their life unnecessarily. The issue now is the timing of revenue foregone. It is worth noting that with all schemes such as this there will be deadweight and with a general provision such as this it is difficult to avoid. The price of improving the operation of the property market is the relief on the gain made. The state of the economy when this relief was introduced in the 2012 budget is different to the position at present.

The proposed change by Deputy Doherty would only alter the timing of the relief and not whether the relief would apply. Businesses or individuals who can benefit from the relief are likely to take the availability of the relief into consideration in any decision they make on the disposal of their property. A separate treatment of land for the purposes of the CGT exemption could give rise to issues of valuation and possible legal uncertainty. It would also be contrary to the policy aim of getting land and buildings into the market. The proposed change would at best only alter the timing of the relief and not whether the relief would apply. Sellers will clearly take the existence of the relief into account in any decision they make on the disposal of their land or buildings. For the reasons I have outlined, I cannot accept this amendment. I am glad to have had the opportunity to amend the record of the House.

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