What is local property tax?
Local Property Tax (LPT) is a tax payable on the market value of residential property which came into effect in 2013. All owners of residential property, including rental properties, are liable to pay the tax in accordance with the table below.
Not every Council in Ireland charges the same rate; a number of Local Authorities agreed to reductions in 2015 LPT rates ranging from 1.5% – 15%.
Rates can be paid in a single payment or spread over a year. Failure to meet LPT obligations can result in Revenue enforcing a range of collection options and, most significantly for home owners, any unpaid LPT attaches to the property and the owner will not be able to sell it without paying any LPT, interest and penalties due.
So what is due to change in 2016?
With LPT rates based on the market value of property as of 1 May 2013 and fixed until 2016, a mandatory revaluation of properties will take place in November of 2016. The tax payable for 2017 will be based on that new estimate.
Amid continuing price rises in the housing sector nationwide, concerns are now growing that homeowners could be facing an exorbitant rise in LPT rates. When the revaluation of property prices takes place in 2016, it is likely that house prices will have increased far beyond 15% of their 2013 values. This means that even the 15% maximum reduction imposed by some Councils will not cover the revaluation increases and LPT could soar uncontrollably.
What are the implications for homeowners?
The most immediate implication is that homeowners are likely to see their standard rate of LPT jump to the next band, which will mean an annual rate increase of €90, with a jump of two bands being double this amount.
Under the existing rules, current valuations are based on ‘good faith’, but what will this mean for the future? If a homeowner values their property in ‘good faith’, but sells the property later at an inflated price due to a bidding war or rising demand, will they be liable to pay the shortfall in LPT retrospectively? How can a homeowner protect themselves? What options will be available to value property on a more solid basis than ‘good faith’ and will these have further cost implications?
With so many unanswered questions, Local Property Tax is liable to become a hot potato election issue if early government intervention is not forthcoming. Aware of growing public concerns, Minister for Finance Michael Noonan has commissioned a review into the Local Property Tax in the context of house price rises. The report is due to be completed this summer and the results will be considered in the context of Budget 2016.