The following are key tax points for property developers in light of last weeks EU approval of NAMA and current market conditions:

80% windfall tax

• Applies to profits arising from rezoning decisions which have effect from 30 October 2009 where sales take place from the beginning of the 2010 year of assessment (traders) or from 30 October 2009 (investors).
• The tax does not generally apply to planning permission decisions.  However, for this purpose, where planning authorities decide to grant planning permission for development which materially contravenes a development plan for a particular area, this is also treated as rezoning for the purpose of the windfall tax. 
• The tax does not apply to uplifts in value of property due to other factors such as market improvements, construction or effective marketing.
• The tax applies to both development and investment properties.
• The tax only applies to Irish properties.
• CPO sales are not subject to the tax. 
• There is an exemption for the sale of small sites, not exceeding one acre and a consideration less than €250,000 so long as the sales do not form part of a series of transactions.
• Where a company pays the windfall tax on trading profits, the subsequent distribution to the shareholders of the profits will not be subject to tax.  However, if the company holds the land as an investment, there is an exposure to an additional layer on tax on distribution to the shareholders. 

Write-down of trading stock

• As property held as trading stock is recorded at the lower of cost or net realizable value, it is likely that accounting adjustments have been made to reduce the value at which this property is shown in the accounts. 
• The tax offset of such write-downs against other profits earned by the trader should be considered in detail.  It is important to note that 2008 losses from residential land trades are available for offset against other profits in the form of a 20% tax credit (assuming no election made to Revenue prior to 7 April 2009).  Losses earned from residential land trades from 1 January 2009 are available for offset against other profits in a similar manner to losses from other trades. 
• Where the trade is ceasing, there is a possibility of claiming tax relief for losses earned in the last 12 months of trading (including stock write-downs) against profits earned in the previous 3 years.
• Separate considerations are required for persons holding property trading stock in partnership with others. 
• The effect of any write-down of stock should be considered in conjunction with the likely effect of future rezoning decisions which may be within the remit of the 80% tax. 

Other NAMA tax issues

• VAT continues to apply to transfers of property to NAMA, however, such transactions will avoid a cash-flow cost if the property was developed more than 5 years before the transfer.
• Relief from BES should not be withdrawn by virtue of a transfer to NAMA provided the BES investors continue to be shareholders.

If you like to receive more information on a particular aspect of the above please contact Mary Nyhan, FGS Tax Partner, +353 (0) 1 418 2000 or email mary.nyhan@fgspartnership.com