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Finance Act 2013 - Update for Commercial Property Industry

AUTHOR(S): Brian Doran, Aidan Fahy, Shane Hogan, Greg Lockhart
PRACTICE AREA GROUP: Commercial Real Estate, Tax
DATE: 16.04.2013

Finance Act 2013 (“FA 2013”) introduced a number of provisions which will be of relevance to those in and / or interacting with the commercial property sector.  The following is an overview of the new measures and changes.

Stamp duty

FA 2013 introduced a number of anti-avoidance provisions with respect to stamp duty.  In the past, it was possible to avoid or defer stamp duty on land purchases by either leaving the transaction ‘resting on contract’, by obtaining a building licence from the landowner or by entering into an agreement for a ‘long lease’ with the landowner.  While provisions aimed at targeting these practices had previously been on the statute books, they were subject to a commencement order and were never in fact made effective.  The provisions now enacted are similar to those sections originally proposed in 2007.  The provisions are as follows:

  • Resting on contract:  Where a person contracts to purchase land and does not stamp a conveyance or transfer within 30 days of paying 25% or more of the consideration payable under the contract, then that contract will be stampable with the same duty as if it were a conveyance or transfer of the land.  Where stamp duty is paid on the contract, any subsequent conveyance or transfer of the land will not be stampable.  In addition, where the contract is rescinded or annulled, a refund of the stamp duty paid on the contract will be available.  The position in “sub-sale” situations will need to be considered carefully, in each case.
  • Licence agreements:  Where a landowner grants a licence to another person to enter onto and develop a piece of land and the licensee pays licence fees amounting to 25% or more of the market value of the land, the licence agreement must be stamped as if it were a conveyance or transfer of an interest in the land within 30 days of that 25% limit being breached.  The licence agreement will be stampable based on the market value of the land in question.  Where the licence agreement is rescinded or annulled, a refund of the stamp duty paid on the licence will be available.
  • Agreements for more than 35 years charged as leases:  Where a person enters into an agreement for lease for a term exceeding 35 years and pays 25% or more of the consideration payable under that agreement, the agreement will become stampable as if it were an actual lease for the term and consideration stated in the agreement.  Any lease granted subsequently will be liable to a nominal duty of €12.50.  Where the agreement is rescinded or annulled, a refund of the stamp duty paid on the agreement will be available.

Provisions which charged stamp duty on certain contracts for the sale of leasehold interests have been abolished as such transactions will become stampable under the new legislation.

These changes apply to all instruments executed on or after 13 February 2013, other than instruments executed solely in pursuance of a binding contract entered into before 13 February 2013. Therefore, any existing arrangements, where a transaction has either been left ‘resting on contract’, where a licence has been used or a long agreement for lease entered into, will not be subject to these provisions.

Income tax – Debt forgiveness and losses

New provisions have been introduced which will impact on certain individuals who are or are deemed to be engaged in a trade of dealing in or developing land.  The new provisions amend the tax rules in relation to debt forgiveness and the use of trading losses.

The provisions that relate to debt forgiveness broadly provide that a debt incurred by an individual to finance the purchase or development of land held as trading stock which is subsequently released will result in the amount released being treated as a taxable income receipt in the year that the release is effected.  The debt is considered to be released where there is any form of debt forgiveness, whether formal or otherwise, including that associated with limited or non-recourse loans and the discharge of debt in the context of bankruptcy or insolvency.  Provision is made to ensure that the amount is chargeable even if the trade has ceased.  Losses carried forward can be offset against this receipt.

The charge applies to debt released on or after 13 February 2013.

Furthermore, where an individual is or is deemed to be engaged in a trade of dealing in or developing land, new restrictions have been introduced on tax relief for losses.  The relevant section restricts loss relief claims by individuals where less than 50% of the individual’s total income for the tax year and the previous two years derives from dealing in or developing land.  The section applies by preventing such an individual from claiming loss relief in respect of (i) a deduction for interest on borrowings employed in the purchase or development of land held as trading stock, where the interest is unpaid, and (ii) a deduction attributable to the write down of the value of the land, unless this loss has been realised upon a disposal.

The restriction applies to any interest expense incurred or any write-down in land value, which takes place on or after 13 February 2013.

It should be noted that the above changes do not apply in relation to companies.

Capital acquisitions tax – Debt forgiveness

For completeness, you should note that there has also been a recent update from Revenue in relation to debt forgiveness and capital acquisitions tax (“CAT”), though not arising from FA 2013.  Revenue issued an eBrief on 2 April 2013 confirming that:

“Where for bona fide commercial reasons, a financial institution enters into a debt restructuring, forgiveness or write-off arrangement with a customer, Revenue’s approach, subject to being satisfied as to the bona fides of the arrangement (which may be subject to Revenue audit or enquiry) is that the financial institution is not intent on making a gift of any sort to the mortgagor / debtor – and accordingly the mortgagor / debtor would not be subject to a CAT charge in respect of any such debt restructuring, forgiveness or write-off arrangement.”

The eBrief goes on to note that this approach will only apply in the stated circumstances and that this treatment will not apply should any debt restructuring, forgiveness or write-off arrangement be undertaken for the purposes of the avoidance of tax.

Capital gains tax rate

FA 2013 gives effect to the announcement in the Budget to increase the rate of Irish capital gains tax (“CGT”) from 30% to 33%.  The increased rate applies to disposals made on or after 6 December 2012.

Real Estate Investment Trusts

As announced in the Budget, FA 2013 introduces detailed provisions for the introduction of Real Estate Investment Trusts (“REITs”).  The introduction of the REIT regime brings Ireland into line with over 30 jurisdictions which have such property vehicles, and will provide investors with greater access to investments in a regulated listed property vehicle.

Broadly, a publically quoted REIT will be exempt from tax on rental income and on any capital gains arising on property disposals, provided it meets a number of conditions.  Most notably, the REIT must distribute 85% or more of its income to shareholders, the REIT must derive 75% or more of its aggregate income from its property rental business and 75% or more of the aggregate market value of its assets must be assets of the property rental business.  While it may carry on other ‘residual’ business, the tax exemption only applies to the income and chargeable gains of the property rental business.  Tax is charged on profits from the REIT at the shareholder level and the appropriate tax and rate applicable will depend on the shareholder’s profile.  Dividend withholding tax (“DWT”) may also have to be applied by the REIT on the distribution, depending on the shareholder’s profile (with a credit being available to the shareholder for any DWT withheld), subject to certain exceptions in respect of exempt persons (eg, certain pension funds and insurance companies).  Furthermore, certain non-resident investors may be able to benefit from a lower effective DWT rate under a double taxation agreement. In this regard, however, relief is not available at source and the tax would have to be reclaimed from Revenue.

Irish resident investors will be liable to CGT in respect of any gain arising upon a disposal of shares in a REIT.  However, non-resident investors will not be liable to CGT upon a disposal of shares in a REIT because REITs will be publicly listed companies.

Qualifying REITs are intended to be vehicles for holding rental properties rather than for the development of property for sale.  To discourage such use there will be a charge to tax on the profits arising on the disposal of an asset, where the asset is developed at a cost which exceeds 30% of the market value of the asset at the date of commencement of the development and is disposed of within three years from completion of the development.

Living City Initiative

FA 2013 also provides for the introduction, subject to commencement by Ministerial Order, of an incentive for certain urban regeneration activity.  The incentive applies to (i) the conversion / refurbishment of Georgian houses for owner-occupier residential purposes and (ii) the conversion / refurbishment of certain commercial properties in use for the purposes of retailing of goods.  The initial qualifying locations will be in Limerick City and Waterford City, but the exact detail of the qualifying areas has yet to be announced.  The relief will apply to qualifying expenditure incurred within 5 years of commencement of the initiative.

The reliefs are restricted to owner-occupiers (and landlords in the case of the relief for commercial properties).  Furthermore, “property developers” (as defined), being persons carrying on a trade which consists wholly or mainly of the construction or refurbishment of buildings or structures with a view to their sale, are specifically excluded from claiming the relief.

The relief takes the form of an income tax deduction for (i) the expenditure incurred at a rate of 10% per annum for 10 years, in the case of the conversion / refurbishment of residential property, and (ii) the expenditure incurred at a rate of 15% per annum (years 1-6) and 10% (year 7), in the case of the conversion / refurbishment of commercial property.

Allowances in respect of aircraft industry related construction

With a view to enhancing and expanding Ireland’s current aviation industry offering, in particular in the maintenance, repair or overhaul (“MRO”) sector, FA 2013 introduces, subject to commencement by Ministerial Order, accelerated industrial buildings allowances on capital expenditure incurred on the construction or refurbishment of buildings or structures which are employed in (i) an MRO trade where the MRO is in respect of commercial aircraft, or (ii) a trade consisting of the dismantling of certain aircraft for the purposes of salvaging / recycling of parts or materials.

The initiative will be available for a period of 5 years from the date the initiative becomes operational and the write-off period will be seven years (15% per annum (years 1-6) and 10% (year 7)).  As with the Living City Initiative, “property developers” (as defined) are specifically excluded from claiming the relief.


The main VAT-related changes introduced in FA 2013 relate to receivers and liquidators and follow from proposals in the joint Revenue and Department of Finance Consultation on the Tax Treatment of Receiverships.

FA 2013 confirms that receivers, liquidators and mortgagees in possession (“MIPs”) who supply taxable services while carrying on the business of the borrower, will be accountable to Revenue for the VAT arising.  Under previous legislation, this requirement already exists in respect of goods.  In practice, many such parties had already accounted for VAT on the provision of services and, therefore, this change may not have a significant impact.

The Capital Goods Scheme (“CGS”) provisions have also been amended as they apply to receivers and MIPs.  Where a CGS adjustment arises, the receiver / MIP can now be liable to account for VAT previously reclaimed in respect of a property by a defaulting borrower under the CGS.  Previous Revenue guidance had indicated that a receiver / MIP would be liable for such adjustments on sales of properties but not lettings.  So as to provide for compliance with this obligation, FA 2013 also places an obligation on the defaulting borrower to provide a capital goods record to the MIP where it enters into possession.

Contact us

If you would like further information or advice in relation to any of the matters in this update, please get in touch with your usual Commercial Property Group or Taxation Group contact or any of the contacts listed above.


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