The Government’s new Local Property Tax (LPT), introduced by the Finance (Local Property Tax) Act 2012 (The Act) affects all residential property in the state. Introduced in order to establish a more stable and sustainable tax base, the LPT is expected to raise €250 million in 2013 and €500 million in 2014.
The LPT is a self assessed tax based on the market value of the property. The responsibility for valuing the property, filing the return and paying the tax lies with the ‘liable person’ in question. An extensive guide to the new tax can be found on the Revenue website (www. Revenue.ie) together with an LPT calculator to assist taxpayers.
Under the Act, the LPT applies to all residential property and is payable by whoever is the ‘liable person’ on the liability date. (01 May 2013). ‘Residential property’ 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 definition of ‘liable person’ under the Act is similarly broad and includes:
- Owners of Irish residential property;
- Tenants of properties leased for a term greater than 20 years;
- Landlords of properties leased for a term less than 20 years;
- Holders of a life interest;
- Persons enjoying a right of residence for a period greater than 20 years;
- The personal representatives of a deceased owner;
- Trustees where the property is held under a trust;
- A person who occupies the property on a rent free basis without challenge and has a prima facie right to register title under adverse possession legislation.
Under the Act, Revenue will presume that a person in occupation of the property or in receipt of the rents or profits is a liable person unless the contrary is proven. The Revenue will not investigate the title to the property and the onus lies with the taxpayer to demonstrate that they are not liable under the Act.
Where more than one owner of residential property exists, agreement needs to be reached in relation to who will pay the LPT. Owners are jointly and severally liable under the Act which means that if no payment is received, Revenue can pursue any or all of the owners.
As the LPT is a self assessed tax, the taxpayer is responsible for valuing the property. Property owners will receive an estimate of their LPT liability prior to the filing date. This estimate should not be considered an accurate representation of liability. If no return is filed, the original estimate will be assessed by Revenue and, if accurate, pursued.
Revenue has published a guide to assist in the valuation of properties valued at €1m or less, which is available on their website. The type and age of the property are relevant as is the average value of properties in the area. The property section of local newspapers, estate agents and property websites are also suggested as guidelines.
Provided the taxpayer follows Revenue guidelines in making a valuation, it will not be challenged.
Where the property in question is valued at €1m or less, a tax rate of 0.18% will apply. The calculation will be based on bands of €50,000 and by reference to the mid-value of the band in question. For 2013, The LPT will be charged for only 6 months of the year.
A property valued at €290,000 will fall into the €250,000-€300,000 valuation band, the mid point of which is €275,000. The 0.18% will be charged on €275,000 resulting in a tax liability of €495 for a full year or €247 for the 6 months the tax is applicable in 2013.
Where the property is valued at over €1m, the band system no longer applies. The LPT will be charged at the standard rate of 0.18% on the first €1m and at 0.25% on the excess.
Where a property is valued at €1,300,000, the first €1,000,000 will be taxable at 0.18% giving rise to a tax of €1800, and the remaining €300,000 will be taxed at 0.25%, giving a tax of 750. The total LPT liability will be €2,550 for a full year or €1275 for 2013.
When dealing with a single property, the taxpayer has the option of filing a paper return by (7 May 2013) or an online return (by 28 May 2013).
If the taxpayer owns more than one property, an online return must be filed by 28 May 2013.
The second LPT return will be due on 07 November 2016.
Taxpayers have the option to make a single payment by 1 July 2013 or to pay in installments from 1 July 2013 until the end of the year.
Payments can be made by:
- Direct debit;
- Debit/credit card;
- Deduction at source from salary or occupational pension;
- Deduction at source from Department of Social Protection, Agriculture, Food and Marine payments;
- Cash payments through approved payment service providers.
The following properties are exempt from the LPT.
- Newly constructed, unsold, unoccupied and unrented properties held by trading stock by the builder/developer;
- Properties subject to commercial rates;
- Mobile homes, vehicles & vessels;
- A home which is unoccupied due to the mental or physical infirmity of the owner;
- Houses in unfinished developments (as defined);
- Properties owned by a public or approved charitable body or organisation and used to provide accommodation to people with special housing needs;
- A residential property held by a charity which is used for recreational activities in carrying out the main purpose of the charity;
- A residential property purchased or adapted for use as the sole or main residence of a permanently incapacitated individual where certain conditions are met;
- Properties certified as being affected by pyrite damage;
- Properties bought by first-time buyers between 01 January 2013 and 31 December 2013;
- Registered nursing homes;
- Diplomatic properties.
A deferral system is available is some cases.
If the property is the sole or main residence of owner-occupiers with a gross income of less than €15,000 (for single persons) or €25,000 (for couples) they will qualify for a full deferral. Where the owner-occupier(s) have an outstanding mortgage, the above threshold can be increased by 80% of the gross mortgage interest.
A deferral of up to 50% is available to owner-occupiers with gross income is less than €25,000 for single persons or €35,000 for couples. As above, these thresholds can be increased where an outstanding mortgage exists.
Deferrals are also available to persons who have entered into a personal insolvency arrangement under the Personal Insolvency Act 2012, and to those who can satisfy Revenue that payment of the LPT would result in excessive hardship due to a significant and unexpected financial loss or expense.
Failure to Pay
There are a number of options available to Revenue where a taxpayer has failed to fulfill their obligations under the Act.
- Deductions may be made at source from employment income, occupational pension or Government payments;
- Tax clearance certificates will not be issued to self employed taxpayers who have failed to meet their obligations;
- Revenue may seek an attachment order allowing them to withdraw funds directly from the taxpayer’s bank account;
- The debt may be referred to a Sheriff or Solicitor.
The Act imposes a maximum penalty of €3000 for failure to deliver a return. Interest of 0.0219% per day applies to late payments of LPT.
Employers should be aware of their obligations under the Act. Employees may opt to have the LPT deducted from their pay. Furthermore, should an employee fail to file a return or default on payment, Revenue may direct that a deduction be made at source.
Employers are also obliged to deliver an annual statement of the LPT deducted for the year.
Failure to comply with the requirements of the Act may result in a penalty of €3,000.
Household Charge and Non Principal Private Residence (NPPR) Charge
The Household charge has been abolished from 1 January 2013. Arrears where payment is made by 30 April 2013 are to be capped at €130. Where arrears remain unpaid on 1 July 2013, the LPT on the property will be increased by €200 and Revenue will collect the tax through the LPT system.
The Non Principal Private Residence (NPPR) charge will be abolished from 1 January 2014.
By Anne Smith, Solicitor