Tax: The Hidden Costs of Buying Property
When we are estimating the cost of purchasing a property for either a first time buyer or somebody trading up everybody wants to know what is the best deal that can be done. Buyers focus on what fees they will pay but built into the cost of any account are hidden charges which amount to a substantial portion of what has to be paid.
If it is a new build house and there are few of those around these days Tax already plays a substantial part of the cost of the house. Tax is charged on the materials that the house is built of. There will be Income Tax paid by the builder or his employees which all goes on to the cost of the house. There may be Stamp Duty. If the site was a once off transfer of that property it attracted Stamp Duty at the time of purchase or transfer from a member of a family.
Where we see the charges/tax are in the following areas.
First any legal fees for carrying out the transaction and dealing with the Lenders attract VAT at the rate of 23%. That’s quite a substantial amount and the solicitor effectively acts as a tax collector for the State without any thanks.
The real Tax take then commences with Stamp Duty. At present due to the lower amount of housing sales the rate is 1% of the purchase price. In certain cases it can be 2% . All properties when a transfer takes place must be registered in the Property Registration Authority previously called the Land Registry.
Needless to say there is a cost for this. The Property Registration Authority has to be self financing and you will pay a separate charge for the transfer depending on the value of the property but it can be as much as €600.
Your lending institution will want to see what is called a Folio with your name on the property title so you can budget for another €75 for that. If they want a map of the property which is usual for once off properties in the country this will cost you a further €40.
To cap it all you will be charged to register the mortgage on the property charged. This is separate from completing the transfer from the seller to you this Deed of Charge will cost you €75.
Did I mention that at the close of each sale it is necessary to search against the previous owners to make sure they are not bankrupt and the property has not liens or mortgages on it that you do not know about ? This search against the title goes right up to the time of closing in case anybody places a charge on the property between the time you sign the contract and the money is handed over to complete the sale.With the history of the last few years you can imagine that some builders may have claims/tax demands against them all which could have have a prior claim against any property they are trying to sell to you.
The searchers who carry this out charge VAT so yet more Tax is payable by you.
So in conclusion it is the Government that will benefit the most from any house purchase between the VAT stamp duty and fees paid to the Property Registration Authority. You might keep this in mind if you’re budgeting to buy your first property.
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Michael M.