New owners added to LPT net but property tax still a minor money spinner

Personal finance columnist Jill Kerby is this week looking at the local property tax and how it is expected to generate €561 million from next November when it will finally be levied on new properties built since 2013. But she feels it's still a minor money spinner in the overall scheme of things...

Aside from a group of about 100,000 exempted new homeowners who have could be facing a bill of €500-600 if their home is typically worth between €250,000 and €350,000, as many as 11pc of low value properties will drop down a tax band, 53pc will see no tax increase and only about 33pc of homes will end up paying, on average, €90 more. Only owners of properties that were valued at c€650,000 in 2013 and are now worth over €1 million will see tax hikes of c€200 and upwards.

The €561 million that will be collected from LPT is hardly a trifling amount unless it’s framed against the scale of the pandemic debt bill.

The huge rise in future health spending and the extension of the employment support measures until next June means this single income generator will only cover about one sixth of the cost of the €3.6 billion economic recovery package announced last week. Even that sum is reportedly closer to €5 billion when the existing 9pc tax rate for the hospitality sector and the warehousing of certain taxes and PRSI for smaller firms – both of which have been extended in this plan – are taken into account.

It means that the exchequer will be borrowing at least another €2.5 billion in 2021 alone, while giving the majority of homeowners what is effectively a four-year tax reprieve.

That said, anyone who is unsure about the value of their property today may want to engage a professional valuer. Property prices have not just recovered from the 2008-13 crash period, but the supply problems and changing work arrangements caused by the pandemic have seen house prices rise nationwide. Hiring a valuer may be the best solution if you don’t want to see your original, let alone, new LPT valuation challenged by the Revenue Commissioners.

In recent months the Victorian terraced houses on the city road that I live on, for example – the ones with the vast, extended kitchens, extra bathrooms and finished attics – have again achieved prices last seen 15 years ago when the banks were lending 100pc mortgages to just about anyone with a beating pulse.

What someone might be willing to pay today for the upgraded, high spec house down the road in this current crisis (there’s always a property ‘crisis’ in Ireland) isn’t necessarily what your house is worth, if you still live with formica counter tops and pink bathroom suites.

Expect to pay around €100 plus VAT for the valuation, according to the Institute of Professional Auctioneers and Valuers (see ipav.ie).

The LPT hasn’t been adjusted since it was introduced in 2013 and two scheduled revaluations were postponed. I expect the minister is sorry he didn’t proceed with the 2019 one, but it was too close to the February 2020 election.

While the new bands and adjusted rates favour most homeowners, this time local authorities will be able to keep 100pc of the LPT from November. With the tax bands and the 0.18pc valuation rate only facing another review in four years, it will allow those authorities to provide more transparency about where the tax is allocated, even if the bulk of their annual budgets is raised from corporation rates and direct taxation.

The tax bands and rate will be reviewed every four years, giving an opportunity for more transparency about where the tax is going.

Can the minister strike the unpopular property tax off his ‘bad news’ list for the October budget? Probably. He will need this reprieve. The demand for more resources to pay for the multi-billion pandemic recovery, soaring health service costs, higher unemployment and the need to reform pensions means his attention will have to turn to real money raising opportunities: PRSI contributions and corporation tax and perhaps even higher income tax rates.

Property tax is still a minor tax earner for the state and has great potential even it still resembles an uneven wealth tax that doesn’t take into account regional or income differentials.

Luckily for the minister, the LPT comes under the direct collection and administration of the Revenue Commissioners and not local authorities and has a compliance rate of 94.4pc.

A Department of Finance table of the current and proposed adjusted rate bands, with valuations that take into account the property price recovery since 2013, can be found at www.gov.ie

Letters to jill@jillkerby.ie The TAB Guide to Money Pensions & Tax 2021 is in all good bookstores. See www.tab.ie for ebook edition.

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