A Guide to Commercial Stamp Duty
Commercial leases are complex legal documents. Understanding and negotiating the terms can be overwhelming and it is important to get the right advice when entering into a commercial lease. One of the least understood aspects is how and when stamp duty is applied. If you are entering into a commercial lease this guide will outline what you will be expected to pay in stamp duty and what your rights are.
What is Stamp Duty?
Stamp Duty is a tax levied by the government on the documents that transfer ownership of a property. The only factor that affects the amount of Stamp Duty is the value of the property. Stamp Duty is payable on both residential and non-residential properties and is payable by the purchaser. With commercial property Stamp Duty is also applicable when leasing a property. It is not only in the case of a sale. (see point below)
What rate am I expected to pay?
This recent hike will make Ireland’s rate of commercial property stamp duty the 3rd highest in the EU preceded by Brussels and Luxembourg.
In Budget 2018 the stamp duty rate for the sale or transfer of non-residential property was increased from 2% to 6%. In Budget 2020 released this year, this rate has increased further up to 7.5% for conveyances or transfers of non-residential property and leases that are executed on or after 9 October 2019.
With the increases in the rate payable Stamp Duty has become a significant cost for the purchaser so much so it can often result in a deal not going ahead.
Non-Residential Property for Stamp Duty includes:
- Land – both agricultural and non-agricultural
- Sites – other than sites purchased for construction of a residential dwelling
- Business Property – offices, factories, shops
Mixed Use Property
If a property is part residential and part non residential the relevant Stamp Duty rate applies to each section i.e. the residential rate to the residential part and the non-residential rate to the non-residential part.
Stamp Duty on Commercial Leasing
What is often overlooked is not only do you pay Stamp Duty on purchasing a commercial property Stamp Duty is also applied when leasing a property for commercial use. 1% of the annual rent is payable in Stamp Duty on the lease or agreement for lease of a commercial property. An additional charge of €12.50 is payable if there is a rent review clause in the lease. Stamp duty must be paid within 44 days of the execution of the lease or agreement for lease.
Stamp Duty Refund Scheme
A refund scheme was introduced at the same time as the previous rate hike to 6% in cases where the land has been purchased for residential development. This was to encourage developers to build more residential property. If a site is consider non-residential on purchase the Stamp Duty is applicable but a refund of up to two-thirds of the Stamp Duty paid may be available post acquisition where the property is to be developed for residential use.
The refund is subject to several conditions and can be applied for once construction has commenced in accordance with a commencement order issued by a relevant building authority.
Construction must begin within a 30-month time from the date of execution of the instrument of transfer. In a phased development, phase 1 must commence within the 30-month timeframe and the refund applicable is proportionate to the amount of Stamp Duty relating to that phase. There is a 2 year timeframe for completion of the construction work and the 2 year period runs separately for each phase.
Given the exacting timeframes the whole process needs to be carefully managed to ensure that relevant dates are not missed as penalties can be imposed.
Conclusion
In conclusion the recent increases in Stamp Duty rates on commercial property has caused concern among property experts who fear it may prove ‘unhelpful’ in attracting foreign investment to Ireland as it increases the overall cost for the investor and as a result could unduly slow down commercial activity and foreign direct investment post-Brexit.
How We Help
Negotiating lease terms is a tricky process and takes expert knowledge to ensure terms are favourable. It is advisable to engage an experienced Chartered Surveyor to negotiate on your behalf. We have represented both landlords and tenants in lease negotiations, get in touch with our team on 045 856604 or at info@oneillandco.ie to learn more about the services we deliver.