Revenue acts on abuse of stamp duty relief

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ClubMan

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Extract (full article online at the link above)

Also on Finfacts.
 
"The individuals involved [in the pilot study] have been contacted by Revenue and requested to furnish specific information," a Revenue spokesman said."
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I wonder if in some cases the "specific information" might be a large cheque to cover clawback?!?

...with one conservative estimate placing this at "more than 10 per cent".
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I would have assumed it would be over 10% in Dublin [nationally slightly lower due to less chances/reasons for renting a property out], more through lack of knowledge than intent I'd assume, but still non compliance and very common.

Posters have been saying it on AAM for years, looks like Revenue has finally decided to cash in on this little gold mine.
 
"more through lack of knowledge than intent I'd assume"

I think you're more trusting than I am. Having trenchantly put my views forwards on this board about the reality of stamp duty ( not what people would like it to be or what people think it should be), I think its fair to say that most long term posters on here are of the one mind. Taxes are taxes - you owes them, you pays them. However, in chatting with other colleagues, I am fairly confident that some people when entering into the investment property purchase market have the opportunity to make themselves aware, and either choose to ignore reality or prefer to enter into the land of "nod and wink" ( the manager/ lender/broker/solicitor/estate agent said it would be fine, everyone else is doing it, no-one will ever know and, anyway, how will Revenue ever police it? ) where if it all goes pear shaped will plead ignorance.

Stamp duty is not rocket science - its unpalatable but the rate needs to be factored into any purchase. And the rates are quite clear on the Revenue website.

Where people rent out without being aware of the stamp duty clawback, I think there may be a (small) element of naivety - but again its not rocket science. Rental monies will be income will be taxable - take advices. Clawback becomes obvious.

mf
 
bazermc said:
Whats the point of having anti avoidance legislation and not enforcing same :mad:
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To save up for a nice little warchest coming into an election?

I agree a large number of people "ignore" SD/CGT/etc when informed, but the number of posters who come to the site [asking one question] and are shocked when they realise the liability, makes me think a huge number are simply unaware/ignorant to the tax situation (not sure how given all would have been explained by solicitors etc. but guess they simply didn't/wouldn't listen).
 
I am often shocked at the lack of knowledge of the general investment and tax issues arising that a lot or prospective or actual property investors display both here on AAM and elsewhere. I'm sure that some deliberately attempt to evade their tax liabilities but I would assume that at least some of them are simply ignorant of what these might be. However, this is no excuse and certainly no defence as far as Revenue is concerned. In common with others above I am perfectly happy to see Revenue chase down outstanding liabilities in this context and, in doing so, dealing with a real rip-off perpetrated by some citizens (the tax evaders) on others (the tax compliant ones).
 
Hey guys recently purchased my first property however my circumstances have changed and have been renting it for a 2 month now but have not changed the status of the property, but after todays announcements I want to get it sorted so its no longer bothering me and I feel save in mind, but can can advice me as to how to go about properly turning this into an investment property and the cheapest possible way to go about this..
 
ClubMan said:
I am often shocked at the lack of knowledge of the general investment and tax issues arising that a lot or prospective or actual property investors display both here on AAM and elsewhere.
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The truly scary thing is that these are the ones who are actually trying to find out information. Another huge number simply don't investigate and have no wish too.

Kybabe said:
..can advice me as to how to go about properly turning this into an investment property and the cheapest possible way to go about this..
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To help find the cheapest way you'd need advice from a professional in the tax field, to ensure you are claiming all relevant reliefs and everything is tailored to your exact situation.

As for "properly" turning it into an investment property, you already have. Now you just have to take care of the tax implications of this. You will (possibly - depends on the circumstances) have a SD Clawback, CGT implications when you go to sell, TRS changes so you no longer claim OO status and Tax issues on the rental income (with all associated complications of becoming a landlord, lease agreements, PRTB etc).
Search for each of the terms (SD, CGT, TRS etc.) to get more information on each.
 
You need to settle the SD clawback immediately. This is the difference between what an investor would have paid on the purchase less what you paid (possibly nothing). Then you need to register with the PRTB if you haven't done so already and then apply the normal tax treatment to rental income etc. Your lender and insurer might need to be informed that you are renting the property rather than occupying it as a PPR. If you have started claiming owner occupier mortgage interest relief then you need to stop but you can offset interest against rental income.
 
You just contact your solicitor and ask him to get a calculation on the amount of stamp duty that would have been payable on your recent purchase if bought as investment property from the outset. Then contact Revenue and tell them to stop the TRS on mortgage interest and then re-pay the amount received while not actually living there.
As you are current in sorting this out no penalties will apply.
 
If I'm exempt from stamp duty as a first time buyer (bought new apartment 1 year ago) and I decide to sell after 1 year (all the time being the owner occupier), is there a claw back of stamp duty because I have sold within 5 years of receiving exemption?
 
Annabel said:
is there a claw back of stamp duty because I have sold within 5 years of receiving exemption?
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No clawbacks arrise from selling of a property, just from renting (or changing of PPR [e.g. buying and living in another property]).
 

No - clawback occurs if you rent it out within 5 years.

Crossed with Satanta's post - beat me to it!
 
Newby said:
No - clawback occurs if you rent it out within 5 years.
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This had always been my thoughts to such a question. Going from Revenues SD1... ... it seems to agree.

Shouldn't it also arise if someone had used, for example, the <125sqm exemption as an OO, then changed it to a second property (non PPR) without renting within a five year period? ​
 
Satanta said:
Shouldn't it also arise if someone had used, for example, the <125sqm exemption as an OO, then changed it to a second property (non PPR) without renting within a five year period?
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Hmmm... We're getting into slightly technical stuff here.

Revenue's focus seems to be where the owner derives rent (in excess of Rent-A-Room Scheme) from the property and getting the clawback of SD in that situation. There clearly is a clawback then.

Technically though, to avail of the relief you need a statement which certifies (amongst other things) that the property will be occupied as the only or principal place of residence of the purchaser. Whilst the clawback section doesn't seem to apply to anything in the statement changing and therefore a potential clawback may not apply in such a scenario, it does say that furnishing an incorrect statement is a Revenue Offence (which is far more worrying than a stamp duty clawback) which has potential penalties, potential jail sentences...

I'd get professional help if I was in this situation!!
 
Folks,

Mainly through this forum, I became aware that we (my wife and I) had a problem with SD clawback. To assist others who are facing this situation, I am reproducing below the letter I sent to Revenue to normalise the situation. A couple of points first;
  • I phoned the stamp duty office for assistance twice. They were very helpful, and I got no sense that they were out to "get" me. I did not have to identify myself during these calls - you can call anonymously.
  • They were generally sympathetic to our situation. My puzzlement was how we could have been declaring rental income for three years without revenue ponting out this issue re SD clawback. They simply stated that SD is handled by a totally different department to PAYE.
  • I sought advise from an accountant with whom I am friendly. He wasn't able to advise me, but he did put the question to a solicitor friend of his. The advice from this solicitor was that clawback was chargeable on a sliding scale - ie if you rented out within four years of purchase, you only pay one fifth of the clawback due. This is incorrect!!! The full amount of SD will be clawed back, whether you rent out one month after purchase, or fifty nine months after purchase. So be very careful about the advise you get.
  • Revenue accepted all of our calculations as set out below. We were charged interest as set out below. We were not charged penalties, though I understand that these would certainly be levelled in cases where you did not come forward voluntarily.
  • It took them two months to process my payment. This was mainly because I could not provide a Samp Duty Reference number.
  • Stamp Duty Clawback form is available on revenue website
  • The interest calculations below were arrived at on an assumption that simple interest, not compound interest, applies. Again, my calculations were accepted, but I cannot authoratively state that this is always the case.
  • Finally, our supporting documentation (copies of builders agreement and deed of transfer) were accepted as fully substantiating our information, and no other supporting documents were sought.
So I hope the details below are of help.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

To whom it concerns:

I purchased a house in April 2000, and being a first time buyer I received relief on the stamp duty payable. In January 2003 I moved to another house, and rented out the house that I purchased in April 2000. I have recently been made aware that, because I rented the house within five years of purchasing it, the stamp duty then became payable, i.e. due for clawback.

Here is the situation in detail:
  • Contract to purchase was signed in June 1999 (Builder’s Agreement enclosed in support of this).
  • The sale was closed in April 2000 (Deed of transfer enclosed)
  • The building cost, as per the Builder’s Agreement, was £73,950
  • The cost of the land, as per the deed of transfer, was £15,000
  • The total cost of the house was £88,950
  • The applicable rate of stamp duty at the time, for a house between £60,000 and £100,000, was 3%
  • I have been advised by your office that stamp duty is not payable on the VAT element of the building cost. The VAT rate at the time was 12.5%
Based on this information, I have calculated my stamp duty liability as follows;
  • Building cost including VAT at 12.5% = £73,950
  • Building cost excluding VAT = £65,734
  • Land cost = £15,000
  • Total cost of house on which stamp duty is payable = £80,734
  • Total cost of house on which stamp duty is payable (euros) = €102,511
  • Stamp Duty payable = €102,511@3% = €3075
Penalties are chargeable based on the following statement on the Stamp Duty Clawback form;

"Interest is chargeable at the rate of 0.0273% per day from 1 April 2005 (0.0322% per day from 1 September 2002 until 31 March 2005 and 1% per month prior to 1 September 2002) from the date the payment (i.e rent or payment in the nature of rent) is first received to the date the amount of clawback is remitted."
  • Rent was first received on 31 January 2003
  • This leaves 334 days in 2003, 365 days in 2004, and 90 days in 2005 for which interest at 0.0322% per day was payable.
  • Total number of days = 334+365+90 = 789 days
  • 0.0322% of €3075 = €0.99015
  • 789 x €0.99015 = €781
  • For the remaining period, interest was chargeable at 0.0273%
  • Calculating until 24 November 2006, that leaves 275 days in 2005, and 328 days in 2006, for which interest at 0.0273% was payable
  • Total number of days = 275+328 = 603 days
  • 0.0273% of €3075 = €0.839475
  • 603 x €0.839475 = €506
  • Total penalties = €781 + €506 = €1287
Therefore, based on the calculations above for stamp duty payable, plus penalties payable, the total amout owing is €3075 + €1287 = €4362

In addition to this covering letter, I enclose the following;
  • Stamp Duty Clawback form
  • Copy of Building Agreement, showing date of contract and building cost
  • Copy of Deed of Transfer, showing date of transfer and cost of land
  • Cheque for €4362
Yours Sincerely, etc etc
 
Yes very informative - thanks

Don't forget the stamp duty paid will be deductible for CGT when you eventually sell!
 
Didn't know about the CGT deduction, thanks. I guess it would be pushing it to deduct the interest as well!!
 
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