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Second Cabinet meeting this evening to deal with tax changes for cuckoo funds

The ring-fencing of houses in new developments for first-time buyers, owner occupiers, as well as the issue of stamp duty is being discussed by Cabinet.

LAST UPDATE | May 18th 2021, 1:41 PM

A SECOND CABINET meeting will be held this evening to sign off on potential changes to tax treatment for investment funds that buy up homes in housing developments.

The ring-fencing of houses in new developments for first-time buyers, owner occupiers, as well as the issue of stamp duty is all on the cards.

As reported on by The Journal last week, a stamp duty hike for investment funds snapping up properties has been worked on behind the scenes in the Department of Finance.

Senior sources confirmed last week that the idea is a significant rise in stamp duty would act as a deterrent to buying up houses in new developments.

While somewhat unusual, though it has happened in the past when there is a very full agenda, a second Cabinet meeting is earmarked for 6pm this evening.

While it had been expected that a move on the issue of stamp duty could happen as soon as tonight, with a vote on the changes to taxation, similar to what happens each year on Budget Day, taking placed later today, the Taoiseach confirmed that the vote on the matter will now “most likely” take place tomorrow.

Owner occupiers would continue to pay a 1% stamp duty rate, but the rate paid by investment funds could be increased significantly to deter them from buying up new and existing housing.

The proposals which are described as “comprehensive and substantive” could also see up to 50% of future housing estates reserved for ‘first-time buyers’ or for ‘owner occupiers’, according to senior sources.

A further 10% would be for social housing, with the Housing Minister Darragh O’Brien keen to increase the percentage of affordable homes from 10% to 20% or even 30%. 

As reported last week by The Journal, the planning changes will only apply to future plans, and cannot be applied retrospectively. 

It’s understood a planning circular is to be sent to local authorities setting out which types of developments cannot be subject to bulk purchasing by investment funds.

This could be done by setting down a density measure, which would still allow for investment funds to buy apartment blocks for buy-to-rent, but not houses in estates.

Taxation measures, such as modifications to stamp duty that could be applied to investment funds purchases could also be applied.

While the proposals are being brought today, some of the measures will be done through amendments to legislation at Committee Stage, and could take time to come into effect.

While the taxation measures will be immediate, the planning changes could take time to progress.

During Leaders’ Questions today, Sinn Féin leader Mary Lou McDonald said if the government set the stamp duty rate too low, it will have no impact, stating this is what happened in the UK. 

McDonald said the stamp duty needs to be at least 17%, and asked the Taoiseach to commit to that. 

She also said that apartments should not be exempt from the measures, stating that apartments, particularly in the cities, are homes to people too. 

Separate to the ring-fencing for first-time buyers and owner occupiers the housing minister also wants sign off on exemptions for divorced/separated people, and those that have been through insolvency, who no longer have a stake in a home. 

In an interview with the minister last week, O’Brien said:

“I’m acutely aware of lots of people, particularly who bought in the mid 2000s would have smaller houses, and with their families having grown up, they have basically outgrown where they are.”

The State-backed Affordable Purchase Scheme will have an exemption for that category of people who have outgrown their house but are finding it difficult to move, he explained. 

“I have taken into account also people who may have suffered through the last boom who have gone through personal insolvency – there will be exemptions there for them too. And for people who may have been married and first-time buyers before so strictly speaking wouldn’t be treated as a first-time buyer, so those people won’t be excluded,” he added.

During Leaders’ Questions, the Taoiseach defended the government’s housing policies, stating that Sinn Fein is trying to convey that Fianna Fáil have been in government for many years, when they have not. 

“I didn’t invite anybody in, as I wasn’t in government when these funds were invited in,” he said.

Members of the Opposition were critical of the government’s proposals today.

Labour party Senator and housing spokesperson Rebecca Moynihan said the Government has to “go much further”.

She said: “It seems to be that it is only going to be targeted at first-time buyers.

“It’s not going to be targeted at people who may be trading up or may be trading down, and who want to be able to buy.

“But the main concern is, it seems to be only apartments. So there’s a different approach to the suburbs than it is to apartments.”

She added: “If we’re only doing this out in the suburbs, it’s a very limited intervention that’s there.

“The minister needs to go much further than what we’re seeing today. The Cabinet needs to go much further.”

Social Democrats housing spokesman Cian O’Callaghan TD called for the introduction of rent controls.

He said creating a level playing field would require “setting a rent level for new builds, much lower than the levels at the moment.”

“Ultimately you have to get the return for investors down if want to create a level playing field for first-time buyers and other purchasers,” he said.

He said there was nothing wrong with private investment into building apartments.

But he added: “The problem is them buying them out in full, and not giving people an option in terms of tenure. These proposals will do nothing to change that at all.”

Off the agenda

Cabinet was due to discuss international travel and the mandatory quarantine system, with the plan setting out to remove most, if not all, European countries from the mandatory hotel quarantine list.

What countries are removed is to be dependent on variants of concerns, said one source.

Tánaiste Leo Varadkar told reporters yesterday that there will be some form of mandatory quarantine for “quite some time”.

He said he hopes that the Common Travel Area between Ireland and the UK will be restored “very soon”, allowing people to travel to Britain without restrictions.

While there had been reports that only fully vaccinated people would be free to travel initially, a senior source pointed out that the aim of the Digital Green Certificates is to allow the return of free movement of people around Europe this summer – by proving that a person has either been fully vaccinated against Covid-19, has a negative test result, or has recovered from Covid-19.

All three criteria are acceptable by EU standards, they said, acknowledging that being more conservative in our approach would most likely create problems in terms of Ireland’s reopening plans.

Despite differing views among some of Ireland’s public health experts, the role of PCR tests and antigen testing for international travel is likely to feature in next week’s Cabinet meeting, when travel will be discussed, with sources highlighting that Denmark has moved to allow antigen testing for travellers.

Varadkar moved to downplay some of the speculation about when we can take to the skies yesterday, stating:

“I know how people feel, they want to know if they can book a trip overseas, everybody wants to see their family overseas, I know I do. And so many people around the country want to go abroad.

“We’re just not in a position to give that at the moment, there’s still a number of things in play, 60% of adults have yet to be vaccinated. There are some concerns about the Indian variant, we do believe that vaccines are effective against it, we’re just not 100% sure yet. And bear in mind we’re doing this reopening gradually.

“It’s still the case that people can’t go to a pub or a restaurant, so we need to do this in steps. Realistically I think it’s towards the end of the summer, it’s more likely to be around August at the earliest before we’ll be saying to people that it’s okay to engage in non-essential international travel, and of course a lot can go wrong between then, a lot can go right too,” he added. 

Varadkar said it will be possible to travel to Britain, Europe, America and Israel sooner than other places “because like us they have advanced vaccination programmes”.

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