The seven year exemption from Capital Gains Tax on profits made from property investments has caused distortion in the housing market and has made it considerably more difficult for first time buyers to purchase a home, according to Fianna Fáil Finance spokesperson Michael McGrath.
The tax incentive was introduced in January 2013 and allows investors who hold a property for seven years to avoid CGT on any gains they make during that seven year period. The relief is due to expire at the end of 2014 and recent media reports indicate overseas buyers in particular were rushing to acquire properties before it finishes.
Deputy McGrath stated, “This incentive has very much added to the property frenzy we have seen in recent times. While it may have had some justification in helping to clear the backlog of commercial properties held by the banks and NAMA, it has had a distorting effect on the residential property market also. First time buyers have seen large housing developments and apartments blocks snapped up by overseas investors. The CGT incentive has undoubtedly been a factor in these investments. It is significantly distorting the market and is driving prices out of the reach of ordinary families.
“I believe that the justification for the measure has long since gone. This government does not appear to have learned from the mistakes of the past when it comes to property tax incentives. When it was originally introduced, this tax break was meant to be for a one year period but was extended in Budget 2014. Given the extraordinary 40% rise in property values in the Dublin region, in particular between May 2013 and October of this year, the Minister should have abolished this incentive immediately on budget day this year. There is no simply no reason to give investors a further opportunity to cash in on what is a very generous incentive.
“I recently asked the Minister what the cost of the CGT relief is likely to be. In reply the Minister stated that it was not possible to make an estimate at this stage. I disagree with this entirely.
“There is ample information available on the extent of property transactions and the rise in prices over the last two years for the Department of Finance to make a reasonable estimate of what the ultimate loss of revenue to the state will be. There will undoubtedly be suspicion that the reason why it has not been attempted is that it would reveal how expensive a tax incentive this will prove to be.”