Property tax, take two: the lessons to be learned
Back in 1983 when the residential property tax was introduced by the Fine Gael/Labour coalition, Olivia O’Leary asked in The Irish Times if people would be penalised for home improvements that could add value to their home. “For instance will the elaborate pine fittings be assessed? Will it be a tactical necessity to ensure that built-in cupboards and permanent fittings are kept to a minimum?” she wrote.
And we could ask the same question about the value-based residential tax to be introduced before 2014 as a requirement in the EU/IMF programme of financial support for Ireland.
Elaborate pine fittings might have had a positive effect on suburban house prices back in the 1980s but nowadays they would have the opposite result (which might, in fact, herald their return?). If the Celtic Tiger sparked a vanilla-gloss kitchen and glass box extension show-off fest among neighbouring properties, will the introduction of a value-based property tax see people race to have the most unremarkable house on the street?
After all, how much more can people expect to pay in tax if they were to renovate a property to a high standard or build on an extension?
In May 1983 a 1.5 per cent tax was levied on people’s principal residence where the market value exceeded £65,000 and the household income exceeded £20,000. Home owners were required to make a tax return stating the value of their property and failure to do so could result in Revenue making its own valuation. If they got the valuation wrong and sold the property, they had to refund the difference. This time around, the tax is expected to be much broader, with fewer people exempt, but will still be based on a percentage of the market value of a property. It will be levied on family homes and investment property and, we as yet don’t know if property owners will be required to furnish a valuation by a professional .
By then we’ll presumably have, the national house price register to help determine property values but it will only date back to 2010 . House sales have been sluggish to say the least since then so what if a house comparable to yours hasn’t been sold on your street in recent times?
In the 1980s people were up in arms about the tax, there were protests, a High Court challenge to its constitutionality (The Court ruled it was not unconstitutional) and defaulting on a grand scale, until it was scrapped in 1997. However, with stamp duty no longer providing a stable revenue, a property tax has been on the horizon for some time and now the challenge for the government is to avoid repeating the mistakes of the past.
In a small ad in The Irish Times pages on September 29th 1989 accountancy firm Ernst & Whinney summed it up.
The value of your house has increased….
You have to pay residential property tax on Ist October.
Back then the tax did not apply to people with substantial property holdings whose private residences were worth less than €65,000. John Kelly FG remarked in the Dáil in 1983 “One could be a mohair-suited, suede-booted , high-living bachelor living in a rented flat worth £64,000.Such a bachelor might own a street of houses where other people lived – he could be the beneficial owner of the entire Pembroke Estate – yet not one penny would he be taxed because he rented his main residence.”
This time mohair-suited, suede-booted high-living bachelors won’t escape the net, because it seems that this time, investment properties will be liable for the tax.