Stamp duty clawback if renting in first two years

[Westy29]

Hi

Two single first time buyers here so paid no stamp duty on recently purchased property. Revenue site explains that if its rented within the first two years from date of sale then stamp duty clawback arises.

A clawback arises if rent is obtained from the letting of the house or apartment within a period of 2 years from the date of the conveyance or transfer, other than under rent a room arrangements. The clawback amounts to the difference between the higher stamp duty rates and the duty paid and it becomes payable on the date that rent is first received from the property. A clawback will not arise where the property is sold to an unrelated third party during the 2-year period.

Can someone with a more financially powerful brain than myself explain the above. If we were to get say 1000 euro per month for the house how would the clawback work?? Does the clawback cease then after the two year period is up??

 

[colm5]

If you rent it out in the first two years you pay stamp duty of x% of the value of the property (depending on value). thats it. You are no longer a first time buyer, you are now an investor. It doesn't matter what you rent it for, plus you pay it all in one go as soon as you rent it out.

 

[WaterSprite]

If you rent out the house within the 2 year period, then you lose the FTB benefits and have to pay 100% of the stamp duty that you would have paid had you not been an FTB. The amount of rent you receive is irrelevant. The only exception is the "rent a room" scheme. I don't understand your question about the clawback "ceasing" after 2 years - it's not an ongoing payment, it's a one-off. If you rent the house out after 2 years, then there is no stamp duty clawback.

Sprite

 

[Westy29]

The house was purchased for 375K.

So we would essentially pay the stamp duty we didnt pay initially and also lose our mortgage interest relief?

 

[Westy29]

If you rent out the house within the 2 year period, then you lose the FTB benefits and have to pay 100% of the stamp duty that you would have paid had you not been an FTB. The amount of rent you receive is irrelevant. The only exception is the "rent a room" scheme. I don't understand your question about the clawback "ceasing" after 2 years - it's not an ongoing payment, it's a one-off. If you rent the house out after 2 years, then there is no stamp duty clawback.

Sprite

thanks. I wasnt sure if it was a one off payment or not hence the question about the ceaseing.

 

[WaterSprite]

The house was purchased for 375K.

So we would essentially pay the stamp duty we didnt pay initially and also lose our mortgage interest relief?

Yes, you'd pay the stamp duty that you didn't pay as FTBs and also will lose your TRS relief (but that's not backdated, you just lose it from the time you rent out the house). You would be able to offset mortgage interest against rent - do a search on the forum here for lots of info on that point.

Sprite

 

[FKH]

It basically means that if you live in the property for one year and then rent for a year your would pay half the stamp duty as you only pay on the time up to two years that the property was rented.

Property value €375,000 at current rate would be €17,500 stamp duty for an investor. If you lived there for the first 6 months and then rented there would be a clawback and you would pay €13,125 stamp duty for the time the house was rented. Revenue recognises that when you lived in the property you don't have to pay stamp duty for that period of time.

 

[WaterSprite]

It basically means that if you live in the property for one year and then rent for a year your would pay half the stamp duty as you only pay on the time up to two years that the property was rented.

Property value €375,000 at current rate would be €17,500 stamp duty for an investor. If you lived there for the first 6 months and then rented there would be a clawback and you would pay €13,125 stamp duty for the time the house was rented. Revenue recognises that when you lived in the property you don't have to pay stamp duty for that period of time.

I didn't think that was the case - can you point to something (e.g. on Revenue site) to explain? I've had a quick look and it looks like a bright line 2-year cut off date...

Thanks
Sprite

 

[FKH]

Yeah, had a look at the website and it seems to have changed with the two year system. The old five year system was proportinate as I spoke to the revenue abbout it but it looks like with the two years you just pay all the tax back. Seems a bit unfair as it you rented with a month left of the two years there would be a full clawback even though the property was your PPR for most of the time. I think I'd check with Revenue before sending in a payment.

 

[Nige]

Yeah, had a look at the website and it seems to have changed with the two year system. The old five year system was proportinate as I spoke to the revenue abbout it

that doesn't tie into my understanding of the old system or the experience of my clients.

 

[Card]

the five year system was not proprotionate nor is the new two year one

 

[Westy29]

Basically dont rent it within two years of sale if I dont want a bill from the tax man?

 

[FKH]

The revenue actually told me it was proportionate on the phone a few years ago which just goes to show you if you get the wrong person in there.

 

[WaterSprite]

Basically dont rent it within two years of sale if I dont want a bill from the tax man?

Yep!

 

[webtax]

The revenue actually told me it was proportionate on the phone a few years ago which just goes to show you if you get the wrong person in there.

They were probably mixing it up with capital gains tax, and you have no comeback based on what they tell you over the phone.

 

[colm5]

You pay it all, it is not proportionate in any way

 

[gola]

I have a very similar but slightly different query. We bought our apartment in April 07 for 300,000. Only one of us was a first time buyer but we paid no stamp duty as it was a brand new property.
If we rent it out now are we liable for stamp duty even though we weren't liable for it in the first place?
Also do we need to pay any sort of tax on the rent even though the rental income will not cover the full monthly mortgage?

 

[WaterSprite]

I have a very similar but slightly different query. We bought our apartment in April 07 for 300,000. Only one of us was a first time buyer but we paid no stamp duty as it was a brand new property.
If we rent it out now are we liable for stamp duty even though we weren't liable for it in the first place?

If it was over 125sqm then the clawback provisions appear to apply to you - see Revenue site [broken link removed].

Also do we need to pay any sort of tax on the rent even though the rental income will not cover the full monthly mortgage?

Do a search on this topic as this question has been answered loads of times and there's lots of useful info. Short answer is that whether your mortgage is covered is not relevant - only mortgage interest (and other expenses) can be offset against rent.

 

[gola]

Don't know offhand the size of it but it's a one bed apartment. What size is this likely to be?