Budget 2008, Stamp duty reform & Mortgage Interest relief:

The budget was released yesterday and the two things of particular note to any of us with an interest in property are changes in Stamp Duty and also Mortgage Interest Relief.

First we’ll look at Stamp Duty. Reform and simplification was long overdue! What a pity a more generous reduction was not on the cards! Stamp duty is just too easy to get away with I suppose. After all, it is a tax that is ensured to be collected by solicitors who would face the gallows should they fail to collect it on behalf of the government. The U.K. rates are so much better it makes our system look draconian. We copy their laws and rules on almost everything, why can’t we do it on the stamp rates!

Rant complete.

Stamp duty is now on a simplified three tier system.

1. Exempt: if the property is valued at less than €125,000. Maybe we should really call it a two tier system, a quick search of the property sites has shown that there are virtually no inhabitable buildings available in the whole country (that are not in an ultra-hellhole) for less than €125,000.

2. Tier 1: from €125,000 – €1,000,000 the stamp duty is 7%: just to be clear, this means that if you bought a house for say €650,000 the stamp would be 650-125 = 525k @ 7% = €36,750 in stamp duty, under the old regime the stamp duty would have been €58,500 so there is a considerable reduction, best described as going from inhibitive and destructive to painful and expensive.

3: Tier 2: €1,000,000 and above the balance above the 1m mark is taxed at 9%. If you can afford this type of property then we feel no sorrow for you. On a serious note though, why can’t it just be a standard single rate? 7% of two million is still a lot of money! The thing that gets my back up is that if you bought a house for a million (this author will never have to worry about being able to do that) and died a week later leaving it all to your only child then the government would have made €61,250 from the stamp duty then they would shaft the child with inheritance tax to the tune of €100,000 that gives them €161,250 in total -and that’s assuming you don’t have a single other asset to pass on to your kid. Excellent profit for not a days work. So when I grow up I want to be a Government.

Mortgage Interest relief is next: This was raised by €2,000 per person meaning the total is €10,000 for a single person or €20,000 for a couple. Sounds good to me, the way its actually worked out is that you apply the total interest paid to this amount and then take 20% of it. Suddenly that €20,000 becomes much much smaller. So if you and your partner/wife/etc. buy a home (your also a first time buyer in this exercise) for €480,000 and you are paying a mortgage with a 5% interest rate then your total mortgage interest will be €24,000 in a year, that’s greater than your €20,000 limit so it gets peared back to 20k x 20% = €4,000 per annum or €333 per month which is about €166 per person.

Ulsterbank raised their interest rates two days ago effectively wiping this out instantly. They also cut broker commissions by 50% and are not passing on any of this value to the customer, instantly negating any government efforts to make housing more affordable especially to first time buyers. So hats off folks, there’s much to rejoice.

if you can stomach any more follow this link http://www.budget.gov.ie/default.asp to visit the main site. It has proven to be an instantaneous cure for the insomnia I have suffered with for quite some time.

Karl Deeter

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