New Property Tax proposal includes some offset of stamp duty recently paid – but probably not enough to avoid problems

7 September, 2009

Back in June, when I made this earlier post in my blog, it was clear that if an annual property tax (APT) were to be introduced, some sort of offset was needed, so that those who had recently bought a house and paid stamp duty would not effectively be paying on the double.     “Perhaps stamp duty payments already made could be allowed as an offset against property tax liability for up to 5 years…..Less important than the precise mechanism is that the Government recognises that some announcement on the principle of an allowance is needed at an early date, to avoid a potential buyers’ strike.”

The good news is that the Commission on Taxation has recognised this in section 4.13:  “Provision should be made for an exemption from the annual property tax for purchasers of principal private residences who paid stamp duty during the previous seven years:  We consider that this is an important transitional arrangement for purchasers of principal private residences who paid high rates of stamp duty. They would be exempted from paying the annual property tax for a seven year period from the year they paid stamp duty particularly over the period early 2000s to 2008. However, we consider that the exemption should not be open-ended and that all house-owners should be liable for an annual property tax after the suggested seven-year period.”

However, it will be interesting to see if prospective purchasers nevertheless hold off buying.  When I wrote about this back in June, I assumed the APT rate would be much higher than what is today being proposed, so that an exemption for several years would be more valuable. 

To take an example, if one prospectively has to pay €19,250 stamp duty on a €400,000 house (current position), and the APT is to levied at only €938, as suggested by the Commisssion, then a 7 year APT exemption won’t be nearly enough to offset the cost – you would need to be exempt pretty much forever, taking the cost of funds into account. 

I can see house sellers and auctioneers being up in arms ……


3 Responses to “New Property Tax proposal includes some offset of stamp duty recently paid – but probably not enough to avoid problems”

  1. Sigh.

    Stamp duty may be *paid* by buyers, but it is a tax on sellers, not buyers. If there were no stamp duty, one would be paying €419,250 for the house in your example – the seller would keep the €19k.

    I set it out here more than two years ago:

  2. PuckstownLane Says:


    Nice theoretical point. But in practice buyers WILL believe that THEY are paying the stamp duty, and won’t want to appear foolish by being among the last people in the country paying 7% or 9% just before it falls to a much lower rate (or Nil).

    I think you may be right in theory but wrong in practice.


  3. On the contrary, I am wrong in theory – on one view, anyway – but correct in practice.

    What people believe will not affect the price they are asked to pay. Every seller wants as much as they can get, and freed of stamp duty, buyers would have more cash to pay.

    On the day after stamp duty is abolished, some buyers will be saying, “well that brings down our cost”, others will be saying “ah, we can now afford to pay more for that house” and sellers will be saying to all of them “you can afford to pay more, and I need more”.

    In a stable house market, prices of houses (but not the overall cost of buying a house) will increase if stamp duty is abolished, and fall if it is increased.

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