November 10, 2010

Exceptional Property Gains Tax

Posted in Your Ideas · 7 comments ·
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Exceptional Property Gains Tax (EPGT), a step towards a solution for our problems?

In the weeks ahead we will hear the details when the budget will be presented by the government. Everyone knows: it will be ugly. More people (the lower paid!) will have to pay income tax and PRSI. Cuts in welfare, in health, in education and so on.
And than there is the real danger that the cure (cuts and taxes) will kill the patient (economic recovery).
Cuts will cost jobs. Less jobs will mean less taxes and more people in need of social welfare payments.
Resentment between people who suffer because of the measures taken by this government and the ones who are sitting on a healthy profit, made by trading in property, will grow.
I think that we are truly in an exceptional situation. Exceptional measures are therefore needed. The people who have profited from this situation are the first ones who have to pay. The Irish government seems to ignore this completely and wants to force everyone, specially the lower paid, to share the burden.
In Holland, just after the Second World War, there was also an exceptional situation. A lot of people had lost all their money desperately paying what they could to get a scrap of food. Others had become filthy rich by selling food. A 40 kg bag of corn could be sold for as much as a year salary of a factory worker. After the war, the Dutch government immediately forced the profiteers to pay exceptional taxes. There was a lot of resentment between the people who suffered and the people who exploited the famine. Instead of doing nothing and letting this resentment steadily grow the Dutch government punished the profiteers and used the money to build up the country. In my opinion the Irish government should do the same by forcing the property-profiteers to pay an Exceptional Property Gains Tax (EPGT).
How does this tax work? First you need a starting date, for example the 1st of January 2002 and an ending date, for example the 1st of January 2010. The purpose of the EPGT is to tax the gains made during the period from the 1st of January 2002 and the 1st of January 2010.
Only property, that was owned on both dates by the same person and for the same use (residential, commercial or investment) is exempted from the tax.
The EPGT is calculated as follows:
1. Value of all not exempted property owned on the 1st of January 2010 by someone (a private person or a company) on that date.
2. Add: value of all property sold during the tax-period (1st of January 2002 and the 1st of January 2010) at the time of the sale.
3. Subtract: value of all not exempted property owned on the 1st of January 2002 on that date.
4. Subtract: value of all property acquired during the tax-period (1st of January 2002 and the 1st of January 2010) at the time of the transaction.
5. Subtract: costs of improvement of a not exempted property, made during the tax-period, these costs only to be accepted if proof in writing is submitted and if the costs exceed a certain amount (for example €.10.000,== for each improvement).
The balance (1st+2nd-3rd-4rth-5th) is taxed with a certain percentage, for example 25%.
The EPGT will have to be paid before the 1st of December 2011 with one exception: the payment of EPGT on gains regarding a property mentioned under 1 can be deferred until that property is sold provided that the amount of EPGT is registered as a charge on the property and that interest is paid over this amount.

Given the fact that people on average move house once in every seven years I can imagine an exemption for the payment of EPGT if not more than one transaction of residential property takes place during the tax-period.
A certain threshold for the EPGT would also be reasonable to prevent that people who have made a very modest gain have to pay EPGT.

What if the balance turns out to be negative? I do not have a problem with negative EPGT for RESIDENTIAL property, but a property investor who made a loss for the EPGT will not receive compensation in the form of a negative EPGT.
This is an interesting aspect of the EPGT: imagine an unlucky first-time buyer who purchased a residential property in 2007 for let us say €.300.000,==. On the 1th of January 2010 the value has dropped to €.200.000,==: he will be entitled to a payment of 25% of €.100.000,==! A condition would have to be that the payment has to be used for paying towards any mortgage on this property.

The proceeds of the EPGT should in my opinion in the first place have to be used to mitigate the effects of the budget for the lowest paid and in the second place to create jobs.
Wouldn’t Mrs Gilmore be happy to pay 25% of her profit from the sale of land for the building of a school towards a fairer and more equal Ireland?


  1. lobby

    Thats an interesting proposal and would certainly hit some of the few who profitted hugely from the accident of having their land on the edges of towns/cities/villages.

    The only issue I would see is that a lot of those folk have since invested in AIB/BoI etc. or other lands and no longer have the cash available to pay such a tax. Even those who reinvested in land would have seen the value plummet so selling to pay the tax wouldn’t be sufficient.

    But, overcoming the above somehow, I think its a reasonable proposal.

    • Another problem is that the Scummy Government and the opposition parties are up to their necks in this property dealing with their mobster croonies, so they cant be trusted to bring in a tax on this type on their ill gotten gains.

      • Ton

        Scania,

        A political party that doesn’t want to seriously consider a proposal to tax the people who have profited from the property-boom first, but wants to lay the burden on every citizen instead, will hopefully be punished in the next election!

        Thanks for your reaction,

        Ton

    • Ton

      Lobby,

      Looking at what happened during the property-boom I think that not a few but a lot of people profited from the sale of sites. The sale, for example, of 20 sites for the building of individual houses, at an average price of 80000 Euro can easily produce a gain of far more than 1000000 Euro. If those sites are, as often happened, sold with casco build houses, the gain can perhaps even be doubled. I noticed houses being build almost everywhere in the country. It was possible to make those gains while working full time in a completely different job.
      In case of reinvesting in lands my proposal contains the possibility to pay the tax later.

      Thanks for your reaction,

      Ton

      • Steaf35

        I’m not entirely sure, but would those individuals not be liable for Capital Gains Tax? Its a sale of a chargeable asset whether the individual is self employed or PAYE; Also, if it was a commercial enterprise Corporation Tax could be applied. Unless your proposal is in addition to CGT?

        • Ton

          My proposal is in addition to the normal CGT in relation to non-residential property. For residential property it is a new tax to tax “property-hoppers”, the people who frequently change their residence, selling their home to make a profit without having to pay CGT.

  2. ton, david here. i like the idea let me think about it a bit. best david

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