Local Property Tax – A Pragmatic Approach
- Why is it being implemented?
- Are there any advantages?
- What about the disadvantages of LPT
- What does it mean for the self- employed?
- Is there any escape?
Why is it being implemented?
- The abolition of property tax removed the link between local tax and local services. Central Revenue became a bottomless pit leading to inefficiencies and waste and when the economic crash occurred this source of revenue collapsed.
- Two years ago when Ireland entered the bailout the troika (the IMF,EU, ECB) made LPT a condition and LPT was written into the bailout program.
- Local councils must have money to run essential services and the national budget deficit has to be reduced.
Advantages of Local Property Tax
- It is progressive since it is assessed on the market value of the property unlike the flat rate property charge.
- It is a reliable sustainable source of revenue
- The economic impact is expected to be relatively small since a recurrent tax on residential property is deemed much less distortionary than a tax on income.
- Most importantly the full amount of tax will be payable to local authorities which will go towards the provision of local services in the area the tax was collected. The balance will go into a central fund for use as an equalisation mechanism for poorer Local Authority Areas where the property tax receipts will be low.
- In 2012 the household charge was introduced it was regressive in nature and was not readily accepted. It present it is believed that approximately 700,000 have still failed to pay.
- A wider a tax base is necessary -Income tax in 2012 made up 42% of total tax yield compared with 27% at the height of the boom. The Budget 2013 introduced tax base broadening measures which are considered less damaging to economic recovery and job creation than income tax rate increases. The local property tax is expected to yield €250 million in 2013 and €500 million from 2014 onwards. €250 million is the equivalent of a 1% increase in the standard rate of income tax.
Disadvantages of Local Property Tax
- Some homeowners may knowingly or unknowingly undervalue their properties.
- Easy for homeowners living in high density housing estates to value property however it is going to be much more difficult for being living in rural areas which few new builds in the surrounding area.
- It is not based on people’s incomes.
- A shortage of transactions in the property market makes it difficult to determine the market value of many properties.
- It may be perceived as an urban property tax since properties in urban areas are usually more expensive than their rural counterparts.
What does it mean if you are self-employed?
Revenue has linked the submission of a LPT return to the submission of annual income tax returns. This means that if you do not file your LPT return, your income tax return will be deemed to have been filed late even if it was filed on time. This will trigger a late filing surcharge to be raised on your income tax return
Is there any escape from the charge?
There is very little leeway to avoid this charge. In some instances a property’s market value might be reduced due to restricted access or if the property is owned by one person but occupied by another person who has a right of residency. The LPT must be calculated ignoring any such restrictions to comply with the definition within the local property tax rules which assumes that a property has good title, with no restrictions and full access is available to the property.
Revenue have approached the issue of taxpayer compliance to the new Local Property Tax (LPT) differently and have made every effort to ensure this tax will be collected.
Measures to be taken
- No tax clearance certificates will be issued to individuals where there is an unpaid LPT.
- If you are due any other type of tax refund unpaid LPT will be offset against your refund.
- An attachment order can be placed on your bank account.
- Re Paye workers LPT may be deducted from source.
- Any unpaid LPT will be added as a charge to your property.
To sum it up the Revenue has put a lot of effort in to ensuring that individuals comply with LPT, there are very few places to hide and costly consequences for those who may try.
What happens if I undervalue my property for the purpose of LPT?
If you are caught undervaluing your property for example when you sell it at some point in the future the revenue will hit you with back tax and heavy penalties. The penalty is set at the amount of property tax you would have paid had you valued your property correctly. Along with that you will have to pay back the tax you underpaid and 8 percent interest a year on the underpaid tax.
