# Property Developers got special low income tax rate



## z107 (2 Dec 2009)

This makes me feel sick.


> Property developers were able to avail of a special lower rate of income tax of 20%, it has emerged this evening.
> The Revenue Commissioners said the special rate of tax ended in January 2009.
> The 'Special Incentive Tax Rate' was introduced in the Finance Act in the year 2000.


Source:http://www.rte.ie/news/2009/1202/revenue.html

As far as I'm concerned this is corruption.

_Full story explained here - Brendan_


----------



## shanegl (2 Dec 2009)

That little snippet of news didn't "emerge" this evening.


----------



## Protocol (2 Dec 2009)

Bear in mind that there are *245 tax reliefs* still in operation.

This is how very rich people manage to pay 15-20-25% tax.

This should come as no surprise to anybody.


----------



## z107 (2 Dec 2009)

> This should come as no surprise to anybody.


Yes, I know.
Unfortunately, just when you think you're numb to it all and you've read it all, along comes something like this. There's just no end to it.
The whole thing stinks, from corrupt councillors to NAMA.


----------



## z107 (2 Dec 2009)

I definitely need a bucket now!
http://www.breakingnews.ie/ireland/students-protest-ahern-professorship-436733.html


----------



## Bronte (3 Dec 2009)

*Re: Developers had special 20% tax rate*

Me too speechless.  Though you know what, nothing surprises me in relation to how Ireland is run.  Such a basket case.


----------



## Towger (3 Dec 2009)

*Re: Developers had special 20% tax rate*

At this stage, I would be more supprised if they paid any tax at all.


----------



## MOB (3 Dec 2009)

I am afraid that this is simply more poorly-researched RTE nonsense.  

The Revenue have been incompletely quoted, have failed accurately communicate the real reason for this law or ( quite possibly - nothing would surprise me any more) failed to research and comprehend the genesis of this legislation before explaining it.   

Capital gains tax was 20% in the relevant period.

For Joe Bloggs, a sale of residential development land created a capital gain, taxable at 20%.  

For Joe Developer, land would ( or could in some circumstances) be treated as stock in trade, so that a profit on the sale of the land would not be chargeable to CGT but would instead be liable to income tax (or corporation tax). 

This created an incentive to structure transactions so as to make sure that as much as possible of the profit was taken as a Capital Gain by individuals or partnerships.   

This in turn created a very large compliance\monitoring burden on Revenue.  Quite apart from which, there was no morally defensible reason why Joe Developer should pay a higher rate of tax than Joe Bloggs on profits derived from what was in essence an identical transaction.

So the State did the absolutely logical thing and said - 'we're just going to tax profits from the sale of land at the 20% rate rather than get into an argument on every single transaction as to whether this was a trading profit or a capital gain'.  Of course, this did not do away with the compliance monitoring burden - as many developers in turn structured things so that their building work operated at minimal profitability.  But this is (sort of) fair enough.  The super profits being made were almost wholly attributable to increases in land\site values.  There is no reason that the mere activity of building should enjoy super profit margins.  It was indeed factually correct to say that land value increases were the main profit driver for builder\developers.

So - no corruption.  No discrimination in favour of developers - just treating them the same as Joe Blogs.  Just common sense from the state.


----------



## Towger (3 Dec 2009)

*Re: Developers had special 20% tax rate*

I am wondering about all the small developers who did not know about it going back to their accountants and looking for a refund.


----------



## canicemcavoy (3 Dec 2009)

*Re: Developers had special 20% tax rate*

I hope it's the final nail in the coffin to the idea that Fianna Fail isn't the Developers' Party.


----------



## Setanta12 (3 Dec 2009)

*Re: Developers had special 20% tax rate*

This is really a non-story. There was nothing hidden here. It didn't take a FOI request for this. Anybody that paid a higher rate just had a crap accountant. It was always there in black-and-white in the legislation.


----------



## Towger (3 Dec 2009)

*Re: Developers had special 20% tax rate*

True, but I still think it is about time the government stopped or at least limited BES and Section 23 etc allowances, even 10 years ago I saw people with £250K+ Tax Free Allowances...


----------



## Brendan Burgess (4 Dec 2009)

Protocol said:


> This is how very rich people manage to pay 15-20-25% tax.



Hi Protocol - you might want to check this post out where it explains what tax average tax rates are paid by different income levels. You will be surprised.


----------



## Brendan Burgess (4 Dec 2009)

I think that the thread title should be edited to say

"Property Developers pay Capital Gains Tax at 20% like everyone else"


----------



## DB74 (4 Dec 2009)

MOP - if I purchase a book with a view to selling it at a profit and then sell it for a profit of €10, should I be taxed at the income tax rate or the CGT rate?

Why should the sale of land be any different to the sale of any other asset?

I didn't see 20% tax rates being applied to books, jewellery, cars, or any other asset in the State - just development land.


----------



## MOB (4 Dec 2009)

DB74 said:


> Why should the sale of land be any different to the sale of any other asset?



Hi DB74

There is merit in your argument - but it addresses a separate issue.  

The issue here is that there is a separate tax in Ireland called Capital Gains Tax, and we do tax it separately to income tax.  And it applies to a lot more than development land.   It might have been an old lady selling the pub she inherited from her husband 10 years before, a retired civil servant selling a farm of land that he never farmed himself to fund going into a nursing home, a teacher\guard\nurse selling the house he hought to house his kids in college and kept as an investment toward his retirement, a software entrepeneur selling up his business, a child selling shares his parent bought him 30 years ago or whatever. 

The point is, we treat profits on disposals of capital assets differently to profits from trade.  In the case of builder\developers, the effect of the law was simply to tax profits on land sales the same way as they were taxed for everyone else.    You can certainly argue in favour of a system where everybody should indeed pay tax on all profits without distinguishing capital disposals from trading activity.  But that is really a separate ( and immensely comples) debate.


----------



## DB74 (4 Dec 2009)

I don't believe that it is that complex.

The sale of the land by builders/property developers, under all normal revenue criteria, satisfy the badges of trade tests which would normally make these transactions taxable under the income tax regime as opposed to the CGT regime.

I will admit that the incentive was probably needed when first introduced in order that builders would release swathes of land so that house could be built without mountains of their profits being eaten up in income tax but it just ended up being carried on for too long and resulted in extortionate profits ending up in builders profits.


----------



## Complainer (4 Dec 2009)

DB74 said:


> I will admit that the incentive was probably needed when first introduced in order that builders would release swathes of land so that house could be built without mountains of their profits being eaten up in income tax but it just ended up being carried on for too long and resulted in extortionate profits ending up in builders profits.


If an incentive was needed (and I'm not at all sure that it was), perhaps it should have been stick, rather than carrot. A punitive CGT rate kicking in 1/2/3 years ahead for sites held for more than 3/4/5 years would have done quite nicely thank you.


----------



## MOB (4 Dec 2009)

DB74 said:


> I don't believe that it is that complex.
> 
> The sale of the land by builders/property developers, under all normal revenue criteria, satisfy the badges of trade tests which would normally make these transactions taxable under the income tax regime as opposed to the CGT regime.



It was utterly commonplace in the earlier years of the boom to see housing developments where the land was bought by a non-trading partership, and where the builder was a separate entity altogether.  This type of structure flourished precisely because the disparity in tax rates encouraged\incentivised its creation.   That's what happens when you have a disparity or incongruity in the tax system: people work around it.  Getting rid of the disparity was a good decision.  The tax change was almost certainly not required to encourage builders to release swathes of land.

A punitive tax rate after a number of years sounds like a good idea in theory. But in practice, it would be impossible to implement. I don't believe it would have achieved much at all.

Far better to impose 'use it or lose it' zonings, excepting those key\critical land-holdings where de-zoning would be against the common good and perhaps implementing CPO procedures to force through required development in those key\critical holdings.

Mind you -once you start with tax measures that single out a particular sector, where do we stop:  should we just tell the public sector unions "pay cost must come down by 10%, we don't care how we do it; you can propose a solution now, and if it doesn't work, next year there is an extra 10% on the income tax rate for every person paid from the public purse". ?


----------



## Complainer (4 Dec 2009)

MOB said:


> Mind you -once you start with tax measures that single out a particular sector, where do we stop:  should we just tell the public sector unions "pay cost must come down by 10%, we don't care how we do it; you can propose a solution now, and if it doesn't work, next year there is an extra 10% on the income tax rate for every person paid from the public purse". ?


That's pretty much what happened earlier this year with the pension levy, and now they have come back for more.


----------



## Brendan Burgess (4 Dec 2009)

It's not so long ago that there was a huge outcry against developers for "hoarding land banks" when there was a shortage of housing. 

It's very difficult to get tax incentives and taxation generally right.

Brendan


----------



## Joe_90 (5 May 2010)

Brendan Burgess said:


> I think that the thread title should be edited to say
> 
> "Property Developers pay Capital Gains Tax at 20% like everyone else"


 
This is not the case.

A special rate of Income Tax was introduced in 1999 to increase supply of development land it was available to anyone dealing in residential development land.  It does not apply to land for commercial development.

It has nothing to do with Capital Gains Tax. If someone purchases land with the intention of selling it is subject to Income Tax whether that person is Joe Bloggs or Joe Bloggs Developer.

Capital gains tax was 40% up to 3 Dec 1997 when it was reduced to 20%. Perhaps there was merit in the special rate when it was first introduced but it should have been abolished when the building boom started.

There was a sustained effort to increase the tax take by reducing the rate.

There was also an anomly in the system that a gain was taxed at 20% but a loss incurred was deductable against total income at 46% in 2008.

There is now an 80% tax on profits on land subject to rezoning.


----------

