Under the Finance Act 2017 the Minister for Finance was tasked with commissioning a report on the taxation of vacant residential properties. The report was to examine whether the introduction of a tax on vacant residential properties would be an effective measure to stimulate the supply of homes for rent or purchase to meet current demand. That report, the Indecon Report on the Taxation of Vacant Residential Property, has been prepared and is now available here.
The report makes six recommendations, the following four of which are most immediately relevant:
- Indecon does not recommend the introduction of a residential vacant property tax at this time as it does not believe it would be an effective response to deal with the housing shortages. Indecon however recommends this should be kept under review.
- Properties vacated by owners due to illness who rent vacant properties should be exempt from the current Local Property Tax.
- A major programme of compulsory purchase orders should be urgently activated on suitable residential vacant properties.
- Consideration should be given to introducing a time limited differential rate of capital gains tax for long term vacant residential properties.
In reaching its primary recommendation, against the introduction of a vacant property tax at this time, Indecon states that “the very low vacancy rates in the areas of greatest demand for housing, particularly in terms of medium-term vacancy, indicate that the potential for a vacant property tax to increase housing supply is very limited and could represent a distraction from the need to significantly accelerate the building of new social housing, affordable housing and the facilitation of other housing supply.”
Rather than recommending the imposition of a tax, Indecon recommends consideration of two tax relieving measures, being an exemption from LPT in certain circumstances for once-vacant rented properties and also a reduced CGT rate for sales of long term vacant residential property. The report comes at the optimal time for consideration of these recommendations, as the Minister for Finance completes his deliberations on the budgetary measures and tax changes for 2019.
If the tax reliefs are the carrot, the stick, however, comes in the form of the recommendation that a major programme of compulsory purchase orders should be urgently activated on suitable residential vacant properties. One of the proposals for the new Land Development Agency established on 13 September is the compulsory acquisition of lands for housing. It remains to be seen whether the government will move to implement Indecon’s recommendation for the urgent compulsory acquisition of suitable lands outside of its proposals for the new agency, or within those proposals. The legislation to govern the Land Development Agency’s activities is not expected to be enacted until next year.