herald

Tuesday 20 February 2018

€2bn duty loophole to remain for developers

A tax loophole allowing wealthy developers to escape stamp duty will not be closed despite the super-rich benefiting by €2bn a year and with exchequer figures showing a shortfall of €1.5bn.

Advice to the Government has been to allow the loophole to stay because of the downturn in the construction sector.

The Herald has learned, however, that the situation is being closely monitored and could be swiftly changed at short notice.

The lucrative loophole came to light when one of the country's biggest developers -- Bernard McNamara -- used the legitimate tax-avoidance scheme to avoid €36m in stamp duty on the €412m purchase of the former Irish Glass Bottle site in Ringsend, Dublin 4.

Measures

John Lally's Lalco firm is also believed to have used the loophole to avoid paying the €2m-odd due in stamp duty for the recent purchase of Humewood Castle in Kiltegan, Co Wicklow.

The Department of Finance says while a decision was taken not to put measures in place at this stage "the matter can be reviewed at a later date to take into account changing circumstances in the property area".

A recent industry survey revealed that over 40pc of all big deals exploited these tax loopholes which are entirely legal.

Documents obtained by Eddie Hobbs showed that the cost to the Exchequer was running into billions.

The loophole involves transferring ownership of company shares in which a building or land is held, thereby paying just 1pc duty as opposed to 9pc.

Shares

A further tax-avoidance scheme involves a long-term transfer of shares as opposed to the sale of the shares, and this can eliminate all stamp duties.

Anti-avoidance measures were introduced in the 2007 Finance Act but Goodbody Stockbrokers recommended leaving the existing arrangement because changes would risk "exacerbating the downturn in the property market".

Labour's finance spokeswoman Joan Burton said she is disgusted Brian Cowen has refused to close the loophole.

"It's a total disgrace that he has allowed this to come about but also that he has totally backed away from closing the loophole, while he made such a mess of the residential stamp duty," said Ms Burton.

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