Practitioners were just getting to grips with the implications of the section when, just a few short weeks later, the Finance (COVID-19 and Miscellaneous Provisions) Act 2021 was announced.
This rectified some questions, but numerous matters remain outstanding, and it remains to be seen whether Revenue guidance or other legislative updates will address these over the coming months.
The intention of the new legislation is to dissuade bulk-buying of residential properties and is aimed at direct purchases plus indirect acquisitions via companies, partnerships, or IREFs (Irish real estate funds).
Effect of section 31E
Subsection 5 of the act is the main charging provision and applies where a person acquires a residential unit on or after 20 May 2021, and the total number of residential units acquired by that person or a connected person in the 12 months immediately preceding that date, including the current acquisition, is greater than or equal to ten residential units.
Section 31E defines a ‘residential unit’ as residential property situated in the State comprising an individual dwelling. It also defines an ‘apartment block’ as a multistorey residential property that comprises, or will comprise, not less than three apartments with grouped or common access.
Where a person acquires ten or more residential units within a 12-month period, each unit is referred to as a ‘relevant residential unit’. This definition of relevant residential unit specifically excludes a residential unit in an apartment block.
The provisions are drafted broadly to ensure that, where a number of individual purchases either on a single-unit or less than ten-unit basis, the 10% charge applies when a tenth unit is acquired by the person, or a person connected with them, within a 12-month period.
From 20 May onwards, the charge applies to all ten units, even where the first nine units have been stamped at the 1%/2% rate at the time of their acquisition. Units purchased before the financial resolution came into effect will count towards triggering the threshold of ten, but the new rate will only apply to units acquired after 20 May 2021.
When a tenth relevant residential unit is acquired, and the prior nine residential units need to be ‘stamped up’, the prior transactions are treated as occurring on the date of the tenth acquisition.
Stamp duty chargeable in respect of a relevant residential unit that is not paid can remain a charge on the property indefinitely until the duty, interest, and penalties are paid.
The Finance (COVID-19 and Miscellaneous Provisions) Act also provides for the potential for partial refund of the 10% stamp duty paid where, within 24 months, a lease for at least ten years is executed in favour of a housing authority/approved housing body (section 83D SDCA).
The refund would result in an effective rate of 1% to 2% rate applying; however, a clawback will arise where the lease is terminated within ten years, and the level of the clawback depends on when the lease is terminated.
Transitional measures
Section 31E(17) provides a measure of relief for a limited number of scenarios. Where a transaction falls into the transitional measures, stamp duty at the 1% to 2% rate should apply to that acquisition. In order to qualify for the transitional measures, the acquisition of the ‘relevant residential units’ must be one for which:
- A binding contract is entered into before 20 May 2021,
- The instrument effecting the acquisition is executed before 20 August 2021, and
- A specific statement is included certifying that the instrument is executed solely in pursuance to a binding contract entered into before 20 May 2021.
Subsection 9 brings stocks, marketable securities, units in an IREF, and partnership interests into the scope of the new charge. The stock/units/shares must derive value directly or indirectly from a residential unit.
If the transfer results in a change in the person/persons having direct or indirect control over the residential unit, then the head of charge is changed to “conveyance of transfer on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance” in respect of that part of the value of the stocks, marketable securities, units or interests (as the case may be) that is derived from the relevant residential unit, and the normal stocks or marketable securities head of charge (currently 1%) would apply to the amount not derived from a relevant residential unit.
In calculating the part of the value that is derived from a residential unit, you do not account for any arrangement involving transfers of assets/cash from connected parties where the main purpose is the avoidance of tax, and regard shall be had to the market value of residential unit.
Clarification needed
- Where a purchase is resting on contract (that is, more than 25% of the consideration is paid and the contract itself has become stampable if a deed of conveyance is not stamped with 30 days), it is not clear how this interacts with the new rate and transitional measures.
- It is hoped that clarity will be provided on the meaning of “change in control over the residential unit”. Guidance issued for section 31C SDCA states that control is not defined, and should be given its normal meaning referencing the ability to sell the property.
- As set out, the new 10% rate does not apply to residential units in an apartment block that is defined as a multistorey building that comprises at least three apartments with grouped or common access. An understanding of the meaning of ‘grouped or common access’ is necessary to determine whether it includes internal access via a common main door, or external common access via a gate. The definition of apartment block may give rise to questions for apartments with own-door access.
- Section 31E(15) deems the underlying houses to be acquired when the shares are transferred/change-of-control occurs. Does this result in historical acquisitions (prior to 20 May 2021) by a company being included in the threshold of ten units?
- If a charge were to arise on shares, this could give rise to difficulties for entities that regularly buy and sell residential property, and would appear to make it extremely difficult for a future purchaser of a company to satisfy themselves as to whether section 31E applied to a particular purchase, and whether the correct rate of stamp duty was paid.
- A transfer of shares could give rise to more than one rate of stamp duty applying – from a filing perspective; this could give rise to multiple returns being required for one stock transfer form.
- Section 31E(11) says that regard shall be had to market value when calculating the part of the value of stocks or marketable securities that drive value from a residential unit. When read in conjunction with the new schedule, it is not clear how the 10% rate is to be calculated – does the rate apply to the market value of the underlying residential unit, regardless of the market value of the company?
- It is also uncertain if any unpaid duty arising under the new section 31E on an acquisition of shares in a company/IREF/partnership will result in a charge on shares/units/interests themselves, or on the underlying property.
Significant complexities
While the aim of the legislation is to counter the bulk-buying of residential properties, the complexities that this raises from a conveyancing, corporate and financial perspective cannot be underestimated, especially in circumstances where the possibility of an indefinite charge arising over the property (and possibly the shares/units) could arise.
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