Investing in the Irish commercial property market continues to offer opportunities for seasoned investors. However, in 2023, keeping a close eye on the financial considerations that can significantly impact your investment decisions is essential to maintain a healthy ROI.
One such consideration is stamp duty on commercial property transactions. In this article, we’ll cover the latest updates and Irish stamp duty costs in 2023, providing valuable insights and everything you need to know for your next commercial property investment.
What is Stamp Duty on Commercial Properties?
In a nutshell, stamp duty is a tax imposed on the transfer of residential and commercial property ownership.
For investors participating in the commercial property market in Ireland, having a solid grasp of stamp duty is crucial. The value of the property affects how much stamp duty is due and must be paid by the buyer on completion of the property purchase.
Current Stamp Duty Rates in Ireland
See below the different rates applicable to different types of commercial property transactions.
- Commercial Property Transactions, i.e. for all non-residential property transactions.
– A single rate of 7.5% of the purchase price is payable on all non-residential properties.
Before 2019, this rate was set at 6%.
It’s important to note that these rates might vary based on specific circumstances or location, so consulting a legal or financial expert is always recommended.
Residential Investment Stamp Duty Rates
Generally, residential stamp duty rates are based on the value of a property. However, if 10 or more residential properties or duplexes are purchased at a time, or in total over a year, the stamp duty rate will rise to 10%.
Stamp duty rates for residential properties, which include acquisitions of fewer than 10 houses or duplexes within a year: 1% under €1,000,000. Stamp duty payable on the balance is 2%.
Residential stamp duty rate if 10 or more properties are purchased in a year: 10% of the total amount.
Stamp Duty on Non-residential property
The lessee is responsible for paying stamp duty, and it is set at 7.5% specifically for the premium portion of a non-residential property lease. It’s important to note that the rate of stamp duty for the rent portion of any lease agreement remains unchanged.
The Stamp Duty Residential Development Refund Scheme offers the opportunity to receive a reimbursement of a portion of the stamp duty you’ve paid for non-residential land if you subsequently convert that land for residential use. This scheme is set to conclude on 31 December 2025.
The amount you can claim as a refund is contingent on the rate of stamp duty you initially paid. To qualify for the rebate, you must adhere to the following criteria:
- Commence construction work by 31 December 2025 and within 30 months of the land’s transfer to you.
- Complete the construction within 2 years.
- Transform the requisite percentage of your land for residential purposes, particularly if you’re engaged in a multi-unit development.
For the most up-to-date information on stamp duty rates, please visit the official website of the Revenue Commissioners. Here, you can also find applicable guidelines and relevant forms.
Additionally, the Central Statistics Office (CSO) is a fantastic resource of information on market trends and statistical data related to Irish real estate. The CSO offers valuable reports that can help you with your investment decisions.
Implications for Investors
These revised stamp duty rates have implications for investors and understanding what these are can help you make informed decisions.
- Impact on Investment Budget. The increase in stamp duty rates for residential investment properties above €1 million means that investors need to allocate a larger portion of their budget to cover this cost. Additionally, for commercial properties, the higher rate of 7.5% is a significant cost for those who frequently deal with high-value commercial properties.
- Analysing ROI. Higher stamp duty rates make return on investment (ROI) calculations even more critical. Investors should factor in these increased costs to ensure their projected returns remain lucrative.
- Market Selection. The stamp duty rates can also influence your choice of property asset class for investment.
Mitigating the Impact: Strategies for Investors
While stamp duty is a mandatory expense, there are strategic approaches that can help investors manage the impact on their bottom line.
- Thorough Due Diligence. Engage in comprehensive due diligence before making investment decisions. Proper research into the property’s potential, rental income and long-term appreciation can justify the higher upfront costs.
- Negotiation. Skilled negotiation can sometimes lead to more favourable terms. In some cases, sellers might be open to sharing a portion of the stamp duty burden, especially in a competitive market.
- Tax Planning. Collaborate with tax advisors to explore potential deductions and strategies that can help offset the impact of stamp duty on your overall tax liability.
Is Stamp Duty a Tax Deductable Expense?
Stamp duty is not tax-deductible in Ireland. Stamp duty paid on the purchase of a property, whether residential or commercial, is considered a cost of acquiring the property and is not deductible as an expense for tax purposes.
Real Example of Calculating Stamp Duty
Below is a working example of how to calculate stamp duty on a commercial property purchase in Ireland.
Scenario 1: You are purchasing a commercial property for €1.5 million.
For this property, the standard 7.5% stamp duty rate applies:
€1,500,000 * 7.5% = €112,000
Scenario 2: Residential investment property valued at €1.5 million.
The first €1 million is charged at 1% = €10,000
The remaining €500,000 would be charged at 2% = €10,000
Total stamp duty payable = €20,000
As an experienced investor, staying informed about the financial considerations that influence your investment decisions is paramount. By understanding these rates and their implications and implementing strategic approaches, you can continue to navigate the market confidently.
Expert advice and thorough research are essential in making sound investment choices. Stamp duty on commercial property is just one consideration when investing. For more information, review our guide to investing in commercial property here which covers everything you need to consider.
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