Property tax: how will it work?

What will it cost, what will it pay for? SIMON ENSORon the new tax

WHAT IS IT?

The Government has confirmed that it intends introducing a flat rate household charge on January 1st of next year. In effect this is an interim measure prior to the introduction of a residential property tax in 2013.

HOW MUCH WILL IT BE?

Currently the Government plan on introducing a flat rate household charge from January 1st 2010. We do not know at this point how much it will be. The previous government had proposed a flat fee of €100 for 2012.

The Government plans to introduce a residential property tax once they have carried out site valuations of all residential property in 2013.

Other groups, including the Society of Chartered Surveyors Ireland, believe this is a massive task and the tax based on site valuations will prove complicated and difficult to implement.

For example how do you establish the site value of an apartment where the construction cost would be greater than its current value?

Because of the above and other potential difficulties the Society pointed out that a residential property tax based on a square footage with different bands or categories might prove fairer and easier to implement.

HOW WILL IT BE COLLECTED?

Annually, directly to the relevant local authority in the manner similar to the tax currently being paid on second homes.

WHERE WILLTHE MONEY GO?

The Government says the money collected will be ring-fenced for “local government services”. It should definitely go to local authorities.

WHY DO THEY NEED IT?

They need it to fill the gap which currently exists between expenditure and monies provided by central government.

The payment of the tax will be more palatable to those making the payment if they feel that their immediate location will benefit.

WILL IT VARY YEAR TO YEAR?

Inevitably as with many taxes it is likely this tax will increase over time. At this point we don’t know if future rates of residential property tax will be determined by central government or the local authorities.

HOW’S IT CALCULATED?

As outlined above the Government currently proposes basing this residential property tax on the site value of individual properties. At this stage we do not know how exactly the site value is going to be determined.

For example if a house is on two acres, will that be included in the site valuation or will it just be the footprint of the house itself?

Additionally will many apartment dwellers be exempt on the basis that the construction costs would be greater than its current value giving a negative site value?

WILL THE TAX DIFFER BETWEEN URBAN AND RURAL AREAS?

If it is based on site value, yes, because sites are much more expensive in towns and cities than an equivalent site in the country.

ANY EXEMPTIONS FOR THOSE ON LOW INCOME?

There should be.

EVEN THOSE IN BIG HOUSES?

This is an issue which could affect quite a lot of older people on low incomes, particularly in urban areas, where the site valuations will be higher.

The new tax will have to take account of their situation. The Society of Chartered Surveyors Ireland is broadly supportive of a widening of the tax base and the introduction of an equitable property tax.

But the basis of the valuation should minimize any anomalies between urban and rural property and take account of the ability of the owner/occupier to pay it.

** Simon Ensor is a member of the Residential Property Professional Group in the Society of Chartered Surveyors Ireland