RP 5 - Certificates of Clearance

Section 118 amends section 110a of the Finance Act 1983 to Abolish the Clearance Certificate Scheme for sales of residential property completed on or after 1 February 2007.

A Clearance Certificate will no longer be required for contracts dated on or after 1 February 2007 or for contracts dated before I February 2007 where the sale is to be completed on or after 1 February 2007.

Residential Property Tax was abolished with effect from 5 April, 1997. However, the tax clearance arrangements in the case of sales of houses above a specified value threshold have been maintained. The value threshold which relates exclusively to the tax clearance procedure, is £138,000 in 1998 and applies to house sale contracts executed on or after 5 April, 1998.

Overview

Since 1 August, 1993 any person selling a residential property valued in excess of the market value threshold (£138,000 in 1998), must provide the purchaser with a certificate from the Revenue Commissioners indicating that all Residential Property Tax due for years for which the tax was in operation has been paid. Otherwise, the purchaser is obliged to deduct an amount from the purchase price and remit it to the Revenue Commissioners.

The amount to be deducted is 1.5% of the difference between the sale price and the market value exemption limit multiplied by the number of years that the vendor has owned the property, up a maximum of 5 years.

Example

Date of Contract for Sale        30 June, 1998
Sale consideration               £200,000
In the absence of a certificate of clearance from the vendor 
(who has owned the property for 7 years), 
the purchaser must make the following deduction:
1.5% x (£200,000 - £138,000) x 5 =                   £4,650

Administration of the Clearance Scheme

In administering the scheme the Revenue Commissioners’ approach is to strike a balance between the objectives of ensuring that tax liabilities are paid and minimising any delays in the convincing process.

When to apply

Once a contract for sale is in existence, application for a clearance certificate should be made immediately.

How to Apply

Application for a clearance certificate is made on Form RP50. The following information is required when completing the form:

• address of the residential property which is being sold
• date of contract for sale
• consideration
• consideration
• name, address and R.S.I. number of vendor(s)
• name, address and R.S.I. number of purchaser(s)

Timescale

Where the Residential Property Tax affairs of the vendor are in order a clearance certificate (Form RP50A) will be issued within a few days.

What can the Vendor do to Minimise Delays?

Ensure in advance of the sale that his/her Residential Property Tax is fully paid. Where there is an outstanding liability embracing a number of years a multi-year return (Form RP1A) may be used.

Ensure on an ongoing basis that the best estimate of market value is used when completing the annual Residential Property Tax return.

What is the approach of the Revenue where the Sale Price is above the Market Value Previously Returned?

The Revenue accepts that estimating market value is not an exact science. It follows that a certificate will not be refused because of comparatively minor differences between the market value as returned for Residential Property Tax and the sale consideration.

Where the sale consideration is such as to indicate that the property was undervalued for Residential Property Tax then a certificate will be refused.

In all cases of refusal to issue a certificate the reason (e.g. undervaluation or outstanding liability) will be specified to the applicant in writing.

Where a certificate is refused it is open to the vendor to regularise his/her Residential property Tax affairs by agreement with the Revenue following which a certificate will be issued.

What are the Purchaser's Obligations?

Where

1. the consideration exceeds the market value exemption limit (£138,000 in 1998);
2. the date of the contract is on or after 1 August, 1993; and
3. the vendor fails to produce a clearance certificate

the purchaser must deduct from the consideration a "specified amount" (see example above on how to compute this amount).

The purchaser must pay the specified amount to the Revenue Commissioners and deliver a return (on Form RP51) showing the consideration and the amount deducted.

Where the vendor produces a clearance certificate (Form RP50A) the purchaser may pay over the full consideration without deducting the specified amount.

When is the Clearance Certificate not Required?

Where

1. The sale consideration is below the relevant market value exemption limit; or
2. the date of the contract for sale is before 1 August, 1993; or
3. the property being sold is a newly constructed dwelling which has never been occupied.

What happens where there are a number of Vendors?

It is necessary that a clearance certificate be obtained in respect of each vendor. In practice, one application form embracing all vendors will be completed and the certificate will be issued in respect of those vendors having no outstanding Residential Property Tax liability.

Where there are several vendors involved in the sale, the certificate will be restricted to those who have no outstanding Residential Property Tax liability. In this event the purchaser need only deduct the proportion of the specified amount which is referable to those not covered by the certificate. No deduction will be made from the share of the consideration payable to any vendor who is covered by the certificate.

Example

Y’s proportion 50%                                     £270

What Provision is made in relation to transfers to spouses?

Where after 16 June, 1993 (date of passing of Finance Act, 1993) one spouse transfers, whether by gift or sale, the whole or part of his/her interest in a residential property to the other spouse then any Residential Property Tax owing by the first spouse is charged on that property.

Where subsequent to the transfer there is a sale or mortgage of the property in question the charge will not remain unless the sale consideration or mortgage amount exceeds the relevant market value exemption limit.

Upon payment of the tax charged on the property the Revenue will, on request, certify that the property is discharged form the tax liability.

How are Trust Situations Dealt with?

Where the vendor is selling a residential property as a trustee for a person who is absolutely entitled as against the trustee, the person entitled to the beneficial interest I the property is deemed to be the vendor even though the proceeds of sale would in fact be payable to the trustee.

Where the occupant of the residential property being sold is a life tenant under trust then generally the trustee’s entitlement to a certificate will depend on whether or not the life tenant has paid any outstanding Residential Property Tax.

Further Information

A leaflet (RP2) providing a broad outline of the features of Residential Property Tax may be obtained from local Tax offices or from

The Revenue Commissioners,
Residential Property Tax Advisory Service,
Capital Taxes Division,
Dublin Castle,
Dublin 2.

October 1998

Residential Property Tax - Exemption Limits

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