Local Property Tax
The Government enacted the Finance (Local Property Tax) Act 2012 in December 2012. Some amendments to the Act were outlined in the Finance (Local Property Tax) (Amendment) Act 2013 which was signed into law by the President on 13 March 2013.
The concept of a value based property tax has been mooted for a number of years, dating back to the Commission on Taxation Report in 2009. More recently the introduction of a property tax was a specific measure committed to as part of Ireland’s recovery programme. The logic for a system of tax based on property value is that it prevents an overreliance on certain transaction based taxes such as stamp duty and ensures that there is a more stable, reliable and sustainable tax base with a predictable tax yield.
It is worth noting that most other European countries have some form of local property tax in place. Indeed, this is not the first time that Ireland has introduced a form of property tax, as both a system of domestic rates and a residential property tax have been in place in the past.
The introduction of the €100 household charge was seen as a precursor to the introduction of this more onerous value based Local Property Tax (“LPT”). 2012 was the first year for the application of the household charge and compliance rates for the payment of the household charge are currently estimated at over 70% nationally.
Overview of the LPT
The LPT charge for a property is based on the market value of the property in question and will be payable by the “liable person”. The LPT is applied to residential property (whether occupied or rented) in the State. The definition of residential property is very widely drafted and includes any building or structure which is in use as, or is suitable for use as, a dwelling and includes any shed, outhouse, garage or other building or structure and any yard, garden or other land up to one acre. The market value of the property will be self-assessed by the liable person and is referred to as the ‘chargeable value’.
The definition of a liable person is also widely drafted and includes a person who is entitled to any estate, interest or right in a property (or rights to rents or profits therefrom) for a twenty year or greater period. In co-owned situations all parties will be held jointly and severally liable to the LPT, however only one return will be required which will be submitted by the “designated liable person”.
Other examples of owners include holders of life tenancies or certain rights of residence, certain trustees, mortgagees in possession and those acting as personal representative(s) for a deceased person. In a scenario where multiple interests in a property are held by different persons, it is the holder of the “minimum” interest who is the liable person for the LPT (subject of course to the twenty year rule noted above).
The definition of a liable person also includes anyone who is in receipt of rents from a property (without having to produce evidence of title, estate or interest in the property) or anyone who is in occupation or receives rents from a property in the 12 months after the death of the property’s owner.
The liable person is required to assess the open market value of their own property for the purposes of the LPT. The Revenue has published a booklet which provides information on methods for self-assessing the market value of a property. They also have launched an interactive website providing indicative property values throughout the State.
Other useful sources of information on property values include websites such as www.propertypriceregister.ie, the property pages of local newspapers and estate agents. The liable person also has the option of engaging a competent valuer to assess the market value of their property.
In general where the liable person follows the Revenue guidance notes (which were published in March 2013) then the property valuation will not be challenged. However the following should be noted:
- The guidance notes and indicative values provided by Revenue will not apply to property where the chargeable value exceeds €1,000,000, and
- Under the Revenue guidance notes where a property is smaller or larger than the average for the area, is in a significantly poor state of repair or has exceptional or unique features the liable person must take this into account in their assessment of the valuation of their property.
LPT will replace the €100 household charge. No household charge will be due for 2013. Where the household charge for 2012 is still not paid by 1 July 2013, the charge will increase to €200 (with applicable interest and penalties applying under the LPT regime, provided legal proceedings have not been taken by the local authority to enforce the charge). In addition the charge on second properties (Non Principal Private Residence – NPPR) of €200 will no longer be payable from 1 January 2014.
Any outstanding household charge or NPPR (plus interest and penalties) will be converted into LPT and collected and pursued by Revenue through the LPT system (as well as continuing to be a charge on the property).
The Revenue Commissioners are currently compiling a register of residential properties in the State. This register will be compiled from a range of sources, with proposed powers for Revenue to access information from utility providers. Also, Revenue will have powers to collect information on properties from letting agents, management agents, tenants, etc.
Calculation of LPT
LPT will be calculated based on the market value of the property with the rate of tax being:
- Where the value is up to €1 million, 0.18% of the value (with the calculation based on bands of €50,000 and by reference to the median of the band), and
- Where the property value is in excess of €1 million, 0.25% of the excess (with no banding used in the calculation on the excess).
For 2013 the valuation date will be 1 May 2013 and the tax will be introduced in 2013 on a half year basis. The value as chosen by the taxpayer in 2013 will be fixed for the years 2013-2016 inclusive and no adjustment will be required even in the case of renovation or other improvement to the property in this period. While this will provide certainty for taxpayers, relief has not been provided for in the legislation where there has been a significant decrease in the market value of the property in that period, for instance due to market performance, dilapidation or destruction.
The valuation date for each three year period after 2016 will be 1 November in the year before the first year of the particular three year period, i.e. for 2017-2019 this will be 1 November 2016.
The payment date for LPT will be on or before 1 July 2013 for the 2013 half year and thereafter will be on or before 1 January for each subsequent year (but see overleaf for payment dates for different payment methods). The completed LPT return for 2013 will have to be returned to Revenue by 7 May 2013 if filing with a paper form (or 28 May 2013 if filing electronically). The return submitted in 2013 will be valid for three and a half years unless circumstances change or Revenue requests a return to be filed, with the next return due on 7 November 2016 for 2017-2019.
The minister promised no increase in the “basic rate” of LPT during the life of the current Government. However, it is planned that each local authority will have discretion, from 1 January 2015, to vary the rate of the tax by 15% in either direction in line with the needs of the particular local authority i.e. the “local adjustment factor”.
While currently there are no provisions which allow for a tax deduction for the LPT against rental income received, it has been suggested by the Minister for Finance that this tax deduction will be introduced on a phased basis. The timing of this is currently uncertain.
|Illustrative calculations: |
|0 to 100,000 *
|100,001 to 150,000 *
|150,001 to 200,000 *
|200,001 to 250,000 *
|250,001 to 300,000 *
|451,000 to 500,000
|650,001 to 700,000
|850,001 to 900,000
|950,001 to 1,000,000
|Property valued at
|Property valued at
|Property valued at
|* The Department of Finance estimates that 85% to 90% of properties will fall within the first five bands |
|** Properties valued over €1 million will be assessed at the actual value (no banding will apply) at 0.18% on the first €1 million in value and 0.25% on the portion of the value above €1 million. |
Notwithstanding that LPT will accrue to the local authorities (to be used by them in providing local services) it will be collected by the Revenue Commissioners. LPT may be paid by a variety of means including direct debit, cash, credit card and deduction at source from payroll or deduction from certain social welfare or pension payments.
Revenue will have significant powers to investigate, assess and pursue the collection of any LPT they believe is due (with interest and penalties imposed) in the normal manner. Revenue powers will also include the ability to inspect the property.
Failure to submit an LPT return or pay the necessary tax will also have implications for an individual’s income tax return or a company’s corporation tax return. In such cases the income or corporation tax return will be treated as not being submitted on time with the result being the imposition of a surcharge and other penalties on the person’s income or corporation tax liability (the surcharge liability is capped at the amount of LPT due where a return is subsequently submitted and the LPT is paid).
Liable persons with multiple properties and those already obliged to submit tax returns and make tax payments electronically will also have to pay LPT and file the related return electronically. A tax clearance certificate will not be issued where there is unpaid LPT (this does not include cases where a deferral scheme has been approved).
Issues for Property Purchasers
In all cases where the LPT is not paid it (together with interest and penalties) will form a charge on the property and will have to be discharged out of the proceeds of the sale or transfer of the property or the liability will transfer to the new owner if it is not discharged. A limited relief has been introduced such that a purchaser of a residential property may take certain steps to ensure that any unpaid LPT which arose prior to the date of the purchase is not a charge on the property, but this will only apply where the unpaid LPT did not form part of a Revenue estimate, Revenue assessment or self-assessment. The steps in question involve the purchaser making an appropriate LPT return containing full and true disclosure of all matters after the date of purchase.
A liable person who sells or otherwise transfers a property after LPT is due, but before it is payable, is obliged to pay that tax on completion of the sale or transfer of the property. Furthermore, where the sale of a property occurs between valuation dates (for example in the period between May 2013 and November 2016), the purchaser of the property must be provided with evidence of the chargeable value of the property by the vendor.
However, this purchaser is also obliged to make a new return to Revenue where it appears to that person that the chargeable value is one that “could not reasonably have been arrived at” by the vendor. This presumably is intended to prevent a situation where the purchaser pleads ignorance of an undervaluation of their property on the basis that the vendor provided them with the chargeable value.
Issues for Employers
Significant additional administration requirements will be imposed on employers as a result of the introduction of LPT, predominately as deduction at source will be the default collection mechanism in many instances. Individuals can elect to pay via payroll deductions and furthermore, the employer may be directed by Revenue to make a deduction at source for the LPT in certain cases (for example where the liable person elects to pay by some other method and defaults on that payment). Where a liable person elects through the Revenue website to pay the LPT through salary deduction, Revenue will issue a new P2C (Employer Tax Credit Certificate) to employers (these certificates should be received by employers in June 2013 in time for the commencement of the payroll deductions in July 2013).
Once the employer receives the P2C they are then required to deduct the relevant amount of LPT from the salary payments on an even basis over the year in question (or over the 6 months in question in the case of the 2013 LPT charge). The basis of deduction will be based on the number of pay days occurring up to the end of the year. Employers will also have to provide an end of year statement to the employee on the LPT deducted.
|Key dates in 2013|
||Property valuation date - value valid up to and including 2016 (1 November 2016 for 2017-2019) |
|7 May *
||LPT return forms due to Revenue if paper filing (7 November 2016 for 2017-2019) |
|28 May *
||LPT return forms due if filing electronically (28 November 2016 for 2017-2019) |
||Phased payments (e.g. deduction at source from salary, pension or certain payments from the Department of Social Protection and scheme payments received from the Department of Agriculture, Food and the Marine) (From 1 January in subsequent years) |
||Commencement of direct debit payments (and continues on the 15th of each month thereafter i.e. for the remaining 6 months) |
||Single debit authority payments deducted |
|* Provided the liable person is compliant with their LPT obligations, any LPT return only needs to be |
|filed every three years unless circumstances change or Revenue request that a return is filed. |
|Key dates in 2014|
|1 Nov 2013
||Liability date for LPT |
||Deduction at source begins for deductions from payroll system or social welfare |
||Commencement of direct debit payments (and continues on the 15th of each month thereafter for the remainder of the year) |
||Single debit authority payments deducted |
|* Single debit authority payments deducted. Therefore no return may be required in 2014. |
There are a number of exemptions from the LPT. These include the following:
- a) Property which is owned by a public body or approved charitable body and used to provide accommodation to people with special housing needs;
- b) Property where the liable person had to vacate their sole or main residence due to long term mental or physical infirmity;
- c) Property which is situated in an unfinished housing estate (as defined);
- d) Property that is newly constructed, unsold, unoccupied, has produced no income, and is held as trading stock by the builder/developer;
- e) Property that is used exclusively for the care of individuals who have been certified as suffering from long term mental or physical infirmity (i.e. a registered nursing home);
- f) Property which is subject to commercial rates and wholly used as a dwelling;
- g) Property which is in the form of mobile homes, vehicles and vessels.
- h) Property which has been certified as being affected by pyrite damage;
- i) Property which is used by a charitable body for recreational activities connected with charitable purposes (e.g. girl guides, scouts, etc.);
- j) Property purchased or adapted for occupation by permanently and totally incapacitated individuals as their sole or main residence where certain conditions are met.
There is also an exemption from LPT up to the end of 2016 on new properties (referred to at (d) above) purchased in the period 2013-2016 from a builder or developer. There is also an exemption up to the end of 2016 for first time owner-occupiers of secondhand properties acquired in 2013.
The legislation provides for the following reliefs:
- a) The chargeable value of a residential property is reduced where that property has been adapted for occupation by a disabled person where the adaption has been grant aided by a local authority. The reduction is limited to the lesser of the chargeable value attributable to the adaption work carried out on the property and the maximum grant payable under the relevant local authority scheme. This relief ends on the sale of the property unless the person with the disability continues to reside in the property.
- b) All residential properties owned by local authorities and approved housing bodies will be deemed to fall within the lowest valuation band (i.e. €0 to €100,000) for the first valuation period only (2013 – 2016). Thereafter they will be valued in a similar manner to other properties.
A system of voluntary deferral will operate for owner occupiers with gross income of less than €15,000 (for single persons) or €25,000 (for couples). Marginal relief is also available and will permit deferrals of up to 50% of the LPT. The deferral threshold limits for owner-occupiers with a mortgage can be increased in certain cases by 80% of their mortgage interest repayment until 31 December 2017. Interest will be charged on deferred amounts at a rate of circa 4% per annum. The deferral is available until the owner’s financial circumstances improve or the property is sold and deferred amounts will form a charge on the property.
There are three additional categories of liable persons who may qualify for a deferral of the LPT that is payable. These are as follows:
- (i) Personal representatives of a deceased liable person for a three year period starting on the date of death. However, the deferral ends within the three year period if the personal representatives are in a position to transfer the property to a beneficiary or to distribute the sales proceeds where the property has been sold (and these events happen within the three year period from the date of death).
- (ii) An individual who enters into an insolvency arrangement under the Personal Insolvency Act 2012 up to the point that they exit the insolvency arrangement.
- (iii) An individual who satisfies the Revenue that they have experienced a significant and unexpected financial loss or expense and where, as a consequence, payment of the tax would entail excessive hardship.
Local authorities and approved housing bodies can also postpone payment of their 2013 LPT liabilities until 1 January 2014. Currently, other than the limited deferral mechanism above, there is no relief, deferral or exemption for those who paid significant stamp duty in the past or are in negative equity. In the case of the deferral available due to “excessive financial hardship”, this deferral is not automatic and instead the liable person must make an application in writing to the Revenue Commissioners who will then make a decision on the eligibility of the liable person based on their particular circumstances.
To find out more about what this could mean for you and how KPMG can help, contact our team:
T: +353 1 410 1735
Paul JP O’Brien
T: +353 1 4102172