Seanad debates

Friday, 30 April 2021

Nithe i dtosach suíonna - Commencement Matters

Tax Code

10:00 am

Photo of Barry WardBarry Ward (Fine Gael)
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I thank the Minister of State for coming in to speak about this important subject. The Minister of State will be aware of the current rates of stamp duty being charged on the purchase of homes in Ireland. We are aware also that there is a significant shortage of housing which accounts for the rise in property prices in recent months and years. Stamp duty is, in real terms, a tax on mobility. It stops people from moving house because it creates an additional expense on buying a house and moving to a new house and indeed selling another house. I want the Minister of State to consider that at a time when property is so expensive, particularly in the capital, perhaps the time has come to consider removing stamp duty altogether. I am aware this has been considered in the past and that it would leave a hole in the Exchequer accounts, there is no doubt about that. However, at a time when we have rolled out local property tax, ostensibly with a view to funding local authority activities throughout the country, it seems like double taxation that people must pay a tax at the time they move into or buy their home and they must thereafter pay an annual tax related to local authority activities. One tax for both would suffice.

At the moment, property tax is calculated at 1% of the purchase price under €1 million and 2% on every €1 of the price over €1 million. It may well be that people look at this debate and think that anybody who can afford a house at that level is doing well enough that he or she can pay the tax. However, the reality is that in places like Dún Laoghaire, where I am from, it is very difficult to find houses for below €500,000. Therefore, even a first-time buyer or new buyer coming into the market will pay €5,000 stamp duty on top of the very substantial expense connected with moving house. We should not be saying to people that, first, it is acceptable to tax them on the double given the local property tax and, second, and perhaps more importantly, we think it is acceptable for the State to stymie their mobility. We should be encouraging people to move as much or as often as they want to because it is exactly the kind of thing that will free up properties for use in a more appropriate fashion. An example of this would be somebody who is living in the former family home which is too big for him or her, or more likely a couple who live in a one-bedroom apartment who now have a child or two and want to move out. The latter is very common in the Dublin area. The expense of moving to that other property is very significant. That tax on mobility means we do not use the housing stock we have as effectively as we could. It equally applies to people who want to downsize into a smaller home, perhaps a retired couple who no longer have a need for a large house. We should be encouraging people to use property as effectively as possible and remove this tax on mobility.

I am aware this issue has already been addressed today but in the same regard, inheritance tax as currently set is a massive impediment for people. The entrance level is less advantageous than it was in 2009. Then, there was a band for children of €542,000 before they had to pay inheritance tax on, very often, the family home. That is now down to just €335,000, although I acknowledge it has been creeping up it is still very low, particularly when one is dealing with Dublin house prices. Again, there may be little sympathy around the country for that situation. However, that is the reality for people who live in Dublin where houses are expensive and when a parent dies, inheriting a family home very often brings with it the inability to keep that family home and it must be sold because the inheritance tax cannot be paid. The State should be cognisant of that and raise that band to allow people to hold on to family homes which might well be suitable for a younger family but which may also have huge sentimental value to the inheritors.

I ask the Minister of State to consider reducing these taxes on mobility and making them fairer in the context of people wanting to move house or move within their area.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I thank the Senator for raising this issue. I want to include the wording of the actual motion in the Official Report so people will be absolutely clear what I am replying to.The matter the Senator submitted asked if the Minister for Finance "would consider changing the rates of 'taxes on mobility' such as stamp duty and inheritance tax, which disincentivise downsizing and make moving house particularly difficult for people in certain financial circumstances." I will address the two different taxes that have been mentioned, namely, stamp duty and inheritance tax.

The transfer of a residential property constitutes conveyance on sale for the purposes of the Stamp Duties Consolidation Act 1999. Stamp duty is payable by the transferee, that is, the acquirer of the property, whether it was transferred by way of sale or gift. Stamp duty on transfers of residential property is chargeable at the rate of 1% where the consideration does not exceed €1 million. Where the consideration exceeds €1 million, stamp duty is chargeable at 1% on the first €1 million and 2% on the balance in excess of that, as the Senator has noted. Stamp duty is set at a low and relatively flat rate, with few reliefs, to be as straightforward and transparent as possible. It is essentially a transaction tax. Without any detail as to the changes to stamp duty the Senator envisions, it is not possible to put a figure on what such a measure or measures might cost. However, I can confirm that in 2020, the stamp duty on residential property raised €156 million. Looking further back to the normality of 2019, it raised €179 million. We would not wish to forfeit even a portion of this money from the Exchequer at this time. The Senator acknowledged that such a measure would put a hole in the Exchequer's finances and we cannot consider doing that at this time. That is the truthful position. The Minister for Finance does not accept that a stamp duty rate of 1%, which is the rate most people would pay when buying a new home after downsizing, is an inhibiting factor to such a transaction. In many cases people who were downsizing would have sold a larger house and would generally have the money to pay such a duty. Therefore, he does not see the stamp duty on residential property as a "tax on mobility".

Regarding inheritances, the Senator should note that CAT is payable on the total of all taxable gifts or inheritances received by a beneficiary. There are three tax-free thresholds, which are set according to the nature of the relationship between the person transferring the asset and the beneficiary. CAT applies at a rate of 33% on all amounts above that threshold. As there is no CAT levied on the sale of a property, it is not likely in itself to disincentivise downsizing. Should an individual wish to downsize a property and distribute additional proceeds made from liquidating the equity in the home, the normal CAT rules will apply to the beneficiaries of these assets. The group A threshold applies where the beneficiary is a child of the disponer, providing a tax-free threshold of up to €335,000. The Senator stated that it was much higher but it was reduced in light of the reduction in property prices over the period to which he referred. The group B threshold of €32,500 applies where the beneficiary is a brother, sister, niece or nephew and the group C threshold of €16,250 applies to all other relationships or if there is no relationship at all. CAT applies on any values inherited or gifted above these thresholds. Therefore, a significant value of assets can be received, particularly from parent to child. I accept that may only happen in some situations where there is only one child involved and the value of the estate is not being distributed among three or four children. The Minister is not in a position to take on board the cost that would be involved in the Senator's proposal.

Photo of Barry WardBarry Ward (Fine Gael)
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I understand the point the Minister of State is making but the figures he has given are half what they were in 2009. There is no mistake but that stamp duty is a tax on mobility and it disproportionately affects young people in Dublin. For people who want to buy a house in the Dún Laoghaire area, it is a very significant burden and it particularly affects first-time buyers, young buyers or small families trying to move out of an apartment and into a house. It is a disproportionate and arcane tax that is arbitrary in many respects but it also double-taxes people because after they have made that move, they are expected to continue to pay local property tax to fund local authority activities.

The Minister of State mentioned a figure of €156 million going into the Exchequer, which is a small amount. We should incentivise people to move homes as much as possible, particularly after a pandemic when they may well have found that it is easier for them to live in another area and work remotely.We should be facilitating that and encouraging people to do it. The reality is that stamp duty does the opposite. I ask the Minister of State to consider changing that situation.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I thank the Senator for his remarks. The gist of what I said referred to people who were downsizing, as mentioned by the Senator. I took that to mean parents who were selling a house and downsizing to a smaller house. The Senator raised the example of people in an apartment, perhaps an expensive one, who want to sell it and move on to more suitable accommodation. That is a point I did not particularly cover because I was dealing only with the downsizing aspect the Senator mentioned.

Every €1 counts in a decision to downsize. I would, however, draw the Senator's attention to a recent paper from the Department of Finance and the Department of Housing, Local Government and Heritage on the results of a survey of homeowners over the age 55 on their attitudes towards downsizing. The results show that of those who were unwilling to downsize, only 3.8% cited transaction costs or financial reasons as a barrier to moving. There are many other issues that prevent the mobility about which we are talking. In light of these findings and given that the benefits of transparent tax structures are widely recognised, I can confirm that the Minister has no plans to make changes of the type suggested by the Senator.

Sitting suspended at 1.31 p.m. and resumed at 1.46 p.m.