Minister has his eye on your property

WANT to really put the wind up yourself for a property shock in next week’s budget? Consider the appalling, outside-shot vista for home-owners that mortgage interest relief could be tinkered with, reduced, or phased out.

Although suggested as a target by a recent OECD report, which said there was no argument for tax relief on mortgage payments, hard-pressed home owners will hope and pray that this slender measure of relief for the man in the street and the man, woman and child at home won't be altered a whit. (It has already been reduced to an allowance at the lower rate of tax only, in a previous budget change.)

With interest rates internationally set to rise in 2004, the impact on the monthly domestic budget of any tax relief change could be crippling. That's ever before next year's home-buyers get hit by increasing development levies being slapped on new homes by local authorities as a creeping onslaught of stealth taxes. Remember last year's sneaky 1% rise in VAT and the scrapping of the First-Time Buyer's Grant?

After several years in which property in the round was hauled rough-shod through budgets and Bacon measures, the various property-related industries are however hoping for minimal intervention at best this time around.

Areas likely to be addressed in the budget with an impact on property may include changes to Capital Gains Tax, some changes in stamp duties in both the residential and commercial sectors, and a possible extension on deadlines for completion of a raft of tax-based developments like new hotels, Section 50 apartments schemes, and urban renewal projects.

The argument made on the latter goes thus: the December 2004 deadline now in force is unrealistic given vagaries such as planning delays, legal and other hitches, and the rush to complete at any cost may mean inferior building standards and the possibility of on-site accidents if safety standards get cut.

With the door now closed on new tax relief schemes, extending the completion deadline by a year to December 2005 would also help avoid risk of inflating construction costs in the next year, given the moderating trend reported in the last year when building tender costs overall dropped by 4%.

There has been widespread rumours of a hike in capital gains tax. However, it is questionable whether Finance Minister Charlie McCreevy will go back on what he considers one of his crowning achievements moving to a low-tax economy and getting credit for stimulating turnover and yields as a result of slashing CGT from 40% to 20% five years ago.

It has been hinted that CGT may be bumped up to even 25%, not enough possibly to tempt people back to under-the-table deals, but it may slow up transactions and discourage trading, slowing down the sale of land vitally needed to keep up the current record level of house building.

The Minister for Finance has been lobbied high and low in the past month to take action on stamp duties. This is one area where he may even listen to the entreaties. The 50% hike in commercial transaction stamp duties last year from 6% to 9% compounded a flight of capital from these shores.

Reviews of the investment market for the year just ending indicate that while up to 800 million was invested in Irish commercial property, a staggering 2 billion went abroad, the bulk of it to Britain.

The rise in stamp duty on commercial transactions to 9% has had the effect as well of slightly reducing property values by up to 3% and thus impacting negatively on pension fund values.

The minister is being asked to reduce the figure back to 6%, or even to match Britain's 4% level, and to bring in a new 0% rate for pension funds similar to concessions given to charities.

Bodies like the IAVI and IPAV have called for a reduction in both residential and commercial stamp duties, describing them as penal. Reducing the rates of residential stamp duty on second-hand house purchases would be widely welcomed by a buying public, as the top rate of 9% now kicks in at 635,000, and even a punitive enough 5% rate applies from 254,000.

Such rates are a deterrent to mobility within the market and are reducing supply, both of which are disadvantageous, especially to first-time buyers, says Aidan O'Hogan of the IAVI.