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Property - Stamp Duty & Your Labour

It's a balmy 9 degrees in Tramore but plenty of Sunshine and a 1% chance of rain. If it rains today, I will be getting onto the developers of that free app on my phone! Not quite break out the cider and soak up the rays in the back garden yet, but the fact that thought is there is a positive.

My running has improved a small bit and would classify it as going from very slow to slow. The Kate Bush song "Running up that hill" always enters my head when I'm on that last mile. The first line of that is "It doesn't hurt me". I have to disagree with Kate on this. It hurts. But this week is the first time I didn't stop which is a good sign. Slow and steady wins the race so they say. I am going well on the slow bit.

Last week we looked at the do’s and don’t of family wages. In case you missed it Read here

A few things happened this week that gave me the idea for this blog. A query from a client on a stamp duty refund and a consultation I had yesterday that was property focused. Some things came to light that I thought could be of interest.

Stamp Duty Refund

Biddy purchased a site from her neighbour Miley Byrne for €40,000 in 2020. It was less than 1 acre and Biddy's plan was to build a house on it. There was no planning permission with the site. Biddy had to pay Stamp Duty at 7.5%. This came to €3,000. Biddy's solicitor completed the Stamp Duty return online through ROS and paid the tax. Biddy got a Stamp Duty certificate showing the value of the purchase and the tax paid. Biddy went on to build a lovely home on the site and moved in in February of this year.

Doreen, Biddy's solicitor wrote to her to tell her that she could get a refund of the stamp duty and to look into it. She does that and finds out that the refund she can get is

  • Eleven-fifteenths, if you paid Stamp Duty at 7.5% and
  • Two-thirds, if you paid Stamp Duty at 6%

In the case of a single dwelling unit, you cannot claim a refund for the area around the house greater than 1 acre. This is the area made up of gardens, paths, and driveways. So, Biddy can get a refund of up to €2,200 as she paid Stamp Duty at 7.5%. Biddy looks down through the conditions and thinks she has met them all

  1. File a stamp duty return and pay the stamp duty at the non-residential rate
  2. Have received a stamp certificate
  3. Start building work within 30 months of the transfer of the land to her
  4. Make a claim after you start building work
  5. Make a claim online through ROS or 'My Account' using the e-repayments section

When making a claim you will need to upload a copy of the e-mail from your Local Authority. This e-mail acknowledged the commencement notice or 7-day notice as valid. You also need the stamp duty certificate. Biddy has to claim within 4 years of the date of the Local Authority commencement notice. It is also possible for developers to get a refund under this scheme, but they have to meet other conditions. There are other rules about commencing and completing building work. For further information on this click here

Biddy is very happy with the outcome and Miley has been a great help to her. There seems to be a spark there. You'd never know where this could lead to!

Your Labour

When building or doing up a property you can't get a tax deduction for your own labour. Unfair as this may seem it is a fact. It is a fact because tax legislation says so. This got me thinking about how relevant this is. My conclusion is that it may not be that relevant when building your own home, but is more so for a rental property.

Tony has a successful rubbish disposal business and is doing well. He wants to build a new home on the outskirts of Carlow town. He buys a site from a local lady and starts building work. He is quite handy and can do a lot of the building work himself. He goes the direct build route and gets his friend Paulie to help him. Paulie is good at carpentry and plumbing. Tony has an account with the local hardware store for materials. After 12 months of working in the evenings and at weekends the house is ready to move into.

Tony's wife Carmella loves her new home and their two kids love it too, especially the swimming pool. All in, the house cost Tony €400,000 made up as follows;

Site Cost€50,000
Materials€150,000
Swimming Pool€50,000
Paulie & other tradesmen€100,000
Fixtures & Fittings€50,000


Tony thinks the value of his own time would be €100,000. It is now 2025 and the kids are gone to college and things between Tony and Carmella are a little tense. They made very few changes to the house except Tony got bored cleaning the pool all the time. He took that out and replaced it with a garage that cost him €25,000. They decide to sell. Tony would like to be in town so he can use his new e-scooter which he loves. The house is too big for the two of them and his nephew Christopher would love to buy his place. They agree a price of €750,000. Looking at the numbers the allowable costs come to €375,000 so the gain is €375,000. The cost of the swimming pool is not allowed as that is not part of the property when he sells it. But the garage is there, so that cost is allowable.

As Tony is selling his home he doesn't pay any CGT. So, getting a tax deduction for his labour isn't a factor as there is no CGT, despite the gain.

It's only when the property is an investment property for some or all the time does it become a factor. If we take the same facts as above but Tony and Carmella never lived in the property. They rented it out to Christopher for 5 years and finally sold it to him in 2025. Then there is no Principal Private Residence relief and the gain is taxable in full.

Sales Proceeds€750,000
Less Cost€375,000
Gain€375,000
Tax Payable33%€123,750



In this case, it matters that Tony didn't get a deduction for his labour. This cost him €33,000 in tax. But if he had to pay €100,000 to Paulie to do the work he did, then he would have spent that amount but saved €33,000 in tax. So, he has saved €67,000. Depends on the way you look at things!

When Tony's accountant told him about the tax bill Tony got very upset. He needed to see someone to discuss the issues and booked an appointment with Dr. Melfi in town.

Dominic Coyle wrote an article in the Irish Times about this recently and is worth a look See here

Summary

If you bought a site and you built your home on it, then check out the documentation and the dates. You may be due a refund. Likewise for developers. When renovating a property yourself, be mindful of a potential gain down the line. If it is your PPR for the entire period of ownership, then there is no issue. It only becomes an issue when some or all the gain is taxable. In that instance, check if you have any losses to offset against the gain. The key is to keep proper documentation and don't throw it away. Otherwise, you may have a battle on your hands to reduce your CGT liability with Revenue.

Interested in getting your taxes right? Call Deirdre on 051396703 or contact us. Tell us about you and how we can help.



 

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