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IRISH MORTGAGE COSTS AND TAX ISSUES

Mortgage Interest Tax Relief

Mortgage interest tax relief is granted at source i.e. by the lender. TRS (Tax Relief at Source) replaces the system where interest relief was administered through the tax system. The new system means that the borrower's account will be debited with the amount of the full mortgage repayment when due and credited at the same time with the amount of interest relief.

The relief is limited to the standard rate of 20% and monetary limits also apply as per Budget 2008:

Home Loans – Standard Rate 20%
First-Time Buyer*
Single Max

2,000

Married Max

4,000

Widow(er) Max

4,000

Non-First Time Buyer
Single Max

600

Married Max

1,200

Widow(er) Max

1,200

*available for up to 7 years

Stamp Duty

The following are the Stamp Duty rates applicable from 2008.

The floor space of an exempt property, must not exceed 125 square metres (1,346 square feet). All new properties that meet this requirement, are exempt.

- New Properties larger than 125 sq. metres:
- The duty is payable on the greater of
(a) the site cost or
(b) 25% of the total cost (site cost + building costs)

For example: If such a property is worth €1,000,000 and the site value is €350,000, stamp duty is payable on €350,000 at the rate applicable to that figure, i.e. 4.5% (€15,750) for first-time buyers, or 6% (€21,000) for others.

Aggregate Consideration Non - First Time Buyer Rate New First Time Buyer Rate
Up to €125,000 Exempt Exempt
next €875,000 7% Exempt
Balance 9% Exempt

Once you are into a tax paying category, stamp duty is charged on the full consideration, not just on the excess.

The stamp duty rates payable by first time buyers who are owner occupiers of second-hand houses up to €635,000 have been reduced. The revised stamp duty rates, which will apply to instruments (e.g. deeds of conveyance or transfer or leases) executed on or after 5 November 2007, are set out in the table below.

Revised First Time Buyers' Rates from 2007

Aggregate Consideration New First Time Buyer Rate
Up to €127,000 Exempt
next €875,000 Exempt
Balance Exempt

Who is a First Time Buyer?

A First Time Buyer is a person, (or, where there is more than one buyer, each of such persons):

  • who has not on any previous occasion, either individually or jointly, purchased or built on his/her own behalf a house (in Ireland or abroad) and

  • where the property purchased is occupied by the purchaser, or a person on his behalf, as his/her only or principal place of residence and

  • where no rent, other than rent under the rent-a-room-scheme, is derived from the property for five years after the date of the current purchase.

Is there provision for any special situations in relation to the scope of the definition of a First Time Buyer?

Yes. There are two particular situations where a person is deemed to be a First Time Buyer.

(a) The trustees of a trust (to which section 189A of the Taxes Consolidation Act, 1997, applies), whose trust funds are raised by public subscriptions for the benefit of permanently incapacitated persons, in respect of the first house(s) bought after the establishment of the trust, for occupation by the beneficiary or if more than one, each of the beneficiaries.

b) A spouse to a marriage the subject of a decree of judicial separation, a deed of separation, a decree of divorce or a decree of nullity in the case of the first acquisition of a house by the spouse following the separation or divorce provided that the spouse had, in relation to the former marital home,

  • left that home;

  • not retained an interest in that home;

  • whose separated/former spouse continues to occupy that home, which home was occupied by both spouses prior to the separation or dissolution of the marriage.

Irish Revenue - Rates of Duty for Residential Property

The rates of duty applicable for residential property (whether new or second-hand) are as follows:

Table 1: Rates of duty for deeds executed on or after 5 November 2007

Aggregate Consideration exceeds €127,000*

Rate for instruments executed on or after 5 November 2007

First €125,000

Nil

Next €875,000

7%

Excess over €1,000,000

9%

* Transactions, where the consideration (or the aggregate consideration) does not exceed €127,000, are exempt from stamp duty.

Former Rates of Stamp Duty

Example 1: Not First Time Buyer

Consideration = €350,000

Rate Breakdown - €125,000 @ 0% = 0, €225,000 @ 7% = €15,750

Total Duty Payable = €15,750

Example 2: Not First Time Buyer

Consideration = €1,850,000

Rate Breakdown - €125,000 @ 0% = 0, €875,000 @ 7% - €61,250, €850,000 @ 9% = €76,500

Total Duty Payable = €137,750

Example 3: Is a First Time Buyer

Consideration = €550,000

Rate Breakdown - none

Total Duty Payable = Exempt

Aggregation applies in determining the stamp duty liability where a transaction forms part of a larger transaction or of a series of transactions involving residential property. The stamp duty liability is calculated on the basis of the aggregate consideration. The duty is then apportioned between the separate properties which are transferred by separate instruments and the apportionment is pro rata to the consideration for each property.

Example

Two houses are purchased for a total of €1,200,000 - being the sum of €800,000 for House A and €400,000 for House B. Stamp duty is calculated on the aggregate consideration of €1,200,000.

Aggregate Consideration = €1,200,000

Stamp Duty Calculation - €125,000 @ 0% = 0, €875,000 @ 7% = €61,250, €200,000 @ 9% = €18,000

Stamp Duty Due = €79,250

Apportionment of duty between House A and House B is as follows:

House A (€79,250 x €800,000) / €1,200,000 = €52,833

House B (€79,250 x €400,000) / €1,200,000 = €26,416

Contents

In relation to instruments executed on or after 5 November 2007, the contents of residential property are no longer to be taken into account in determining the stamp duty liability on the consideration attributed to that residential property. However, the total consideration must be apportioned on a bona fide basis between the property and the contents, and surcharges may apply in the event of undervaluation. It should be noted that stamp duty transactions are subject to audit by Revenue.

House and contents purchased for a sum of €400,000, apportioned as to €370,000 to the house and €30,000 to the contents. Stamp duty is calculated on the amount of €370,000 without regard to the sum of €30,000 for the contents.

Purchase Price of House = €370,000

Stamp Duty Calculation - €125,000 @ 0% = 0, €245,000 @ 7% = €17,150

Stamp Duty Due = €17,150

Mortgage Deed Duty

This duty of 0.1% as detailed below, was abolished in Budget 2007.

If the mortgage exceeds €254,000, duty is charged at €1.27 (0.1%) for every €1,270 borrowed. On an €317,435 mortgage, for example, duty of €317 is payable, subject to a maximum duty of €630.

Legal Fees

Besides the solictor's customer service reputation, it can be worthwhile to compare charges. Plan for between 1% and 1.5% of the purchase price before VAT of 21%, if you're buying a home, or between 0.75% and 1% (before VAT) of the combined purchase and sale price if you're buying and selling at the same time. The solicitor will also charge you for administrative expenses such as telephone and fax charges together with third party costs- for example payments to the Land Registry or Registry of Deeds office.

Land Registry and Registry of Deeds

The following are the main fees applied by the Land Registry:

Transfer on Sale
Application for registration of a transfer on sale where the value of the consideration is-  
not in excess of €13,000

€125

in excess of €13,000 but not in excess of €26,000

€190

in excess of €26,000 but not in excess of €51,000

€250

in excess of €51,000 but not in excess of €255,000

€375

in excess of €255,000 but not in excess of €385,000

€500

in excess of €385,000

€625

Mortgage Registration
Application for registration of a Mortgage (including a judgement mortgage)

€125

   
Application for registration of a voluntary transfer

€85

   
Application for registration of part of the property described in a folio of the register (in addition to the fee specified at Items No. 1 and 2) where the registration requires the opening of a new folio on the register

€60

   
 

The following are the main fees applied by the Registry of Deeds:

 
Registration of Memorials

€44.00

Comparison
• on first submission
• on each subsequent submission
 
Nil
€12.00
Each additional certificate of registration
• if presented at same time as memorial
• if presented subsequent to memorial
 
€12.00
€44.00
Common Search
for each name, for each county, for each period of ten years or part thereof

€6.00

Continuation of Common Search
for each name, for each county, for each period of ten years or part thereof

€6.00

Negative Search
for each name, for each county, for each period of ten years or part thereof

€12.00

Continuation/ closing of Negative Search
for each name, for each county, for each period of ten years or part thereof

€12.00

Search by Members of the Public
for each name, for each county, for each period of ten years or part thereof

€1.25

Copy Memorial
• certified copy memorial
• plain copy of microfilm of memorial
 
€12.00
€0.60 per page
Entry of satisfaction of Mortgage
• entry of certificate of satisfaction of judgement mortgage
• entry of satisfaction of mortgage and granting certificate to  like effect
 
€12.00
€12.00
Inspection of original Memorial or Affidavit

€12.00

 

Indemnity Bond

Where a loan generally exceeds 75%-80% of the purchase price of the property, a once-off indemnity bond payment has to be provided by the borrower. The bond protects the lender in the event of a loss arising on any future sale of the property.

For example, a bond on a €182,842 mortgage where the property costs €203,160 and the lender's limit is 80% of the purchase price, costs €622.

Property Valuation

A Valuation Report on the property is required from a registered valuer. The valuer's fee is usually about €95 including VAT.

The Valuation Report is not a full structural survey which should also be arranged before contracts are signed. This should certainly be done at least in respect of an older property. The surveyor's report typically costs about €380 including VAT

Insurances

Lenders also generally require that a property is covered by building insurance and a mortgage protection life assurance policy. 

Early Redemption Charges

Some years ago, early repayment of a mortgage or a reduction in the outstanding balance via the payment of a lump-sum, invariably led to a charge by the lender called a redemption fee. The advent of greater transparency and competition began a trend towards reductions to nominal levels or the elimination of the charges.

Lenders have agreed a code of proctice wherby customers can on request:

a) seek information about the redemption fee charged in the case of an early settlement or partial settlement of a loan. This information is to be provided in writing where specifically requested. To avoid misunderstanding, it will be clearly stated that the quote is only valid on the date it is given.

b) information on how an additional repayment, made as a partial settlement of a loan, will impact on the account for interest calculation purposes (e.g., immediately, at year-end, etc.).

Where a borrower wishes to end a fixed-interest mortgage contract, a penalty is charged. A lender may charge a flat penalty equivalent to a range of three to six months of the value of the interest payments or the actual cost incurred when the contract is broken. Some lenders have the option of applying whatever provides the greatest compensation.

PermanentTSB sets out its rule as follows:

Whenever repayment of a loan in full or in part is made before the expiration of the Fixed Rate Period the applicant shall, in addition to all other sums payable, as a condition of and at the time of such repayment, pay whichever is the lesser of the following two sums:

  • a sum equal to one half of the amount of interest (calculated on a reducing balance basis) which would have been payable on the principal sum desired to be repaid, for the remainder of the Fixed Rate Period, or

  • a sum equal to Irish Permanent's estimate of the loss (if any) occasioned by such early repayment, calculated as the difference between on the one hand the total amount of interest (calculated on a reducing balance basis) which the applicant would have paid on the principal sum being repaid to the end of the Fixed Rate Period at the fixed rate of interest, and on the other hand the sum (if lower) which Irish Permanent could earn on a similar principal sum to that being repaid if Irish Permanent loaned such sum to a Borrower at its then current New Business Fixed Rate with a maturity date next nearest to the end of the Fixed Rate Period of the loan, or part thereof, being repaid.

Articles:

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