Revenue valuations for property tax may be pleasant surprise

We have only just started 2013 and the big issue concerning callers to my office is property tax. So what key points should people be aware of?

I’ve had several calls to the office on two issues: the new BER regulations and, above all, the impending property tax, due to be implemented this year. This came about primarily as a result of pressure applied to the Government as one of the bail-out conditions. And that is leaving aside predictions about whether house prices will go up or down.

As taxes go, an annually recurring property tax is not that bad – it ceases to become a tax on mobility, it provides a relatively stable and predictable income stream for the Government, and should ride out significant economic fluctuations.

Powers of enforcement

Significantly, the tax provides an income for local authorities, and allows them to vary the tax one way or the other by 15 per cent.

The irony is the timing of the introduction. Simply, the relevant legislation is the Finance (Local Property Tax) Act 2012. The act is logical in its construction, but quite lengthy, and points of clarification are needed.

The tax will be based on the “chargeable value” of a home on the valuation date which, for this period, is May 1st, 2013, and it lasts until 2016.

Most properties will be in the category that incurs 0.18 per cent of the value of a property (up to €1 million). The rate is at the mid-range of each €50,000 bracket, so if your property is valued at either €210,000 or €245,000, the assessment is based on €225,000. Only half the tax is payable for 2013.

People have until May 7th to confirm their liability and inform the Revenue of how they propose to pay. There are various payment options. Similar to Ros (Revenue On-Line Service), those making returns electronically have until May 28th to do so. This year’s tax is to be paid by July 1st.

And here’s where it gets interesting: Revenue has enormous powers of enforcement and collection. You can opt to have the tax deducted from your salary, or some State payments.

There are certain exempt properties, for example those in ghost estates. New homes are exempt for some years and first-time buyers are exempt until 2016. The tax is payable by the owner of the property, not tenants.

Most of the talk is about the fact that Revenue will inform homeowners of the “indicative value” of their property, and the assessment is to be based on that figure.

And just how can Revenue, in today’s transaction-starved market, possibly put values on the two million or so homes in the country and all in the next few weeks? Many homeowners are already talking about whether they should get professional (or non-professional) valuations.

Comparing properties

What about farmhouses close to agricultural sheds? What about similar houses on either side of a street? Could a south-facing rear garden add several thousand euro to the value and push you into a higher bracket?

There can be several significantly different standards of interior decoration and layout. Conservatories, extensions and newly decorated bathrooms are major selling points and can lift values significantly. Improved BER ratings also add value (but I think less than you would think).

Should legal issues be taken into account? Internationally recognised market-value standards provide for proper title, so if properties have defective title, boundary or other issues, or restrictions in title, should that affect its value?

If you have to pay hundreds of euro for a valuation, the saving could be significant, or not, in which case the valuation is wasted money. The industry will need further clarification and guidance from Revenue in relation to the valuation process before any detail can be given around cost, reporting standards and other matters.

Urban-weighted tax

Finally, and by default, this will probably wind up as an urban weighted tax, and a tax on home improvements – not, regrettably, for example, a site valuation tax that encourages efficient use of property, or something similar.

Importantly, this is a self assessment tax. This means the property owner is responsible for the timely and accurate return of the statement to Revenue. How you decide to complete the detail is up to you. You can accept the Revenue figure, or you can obtain your own. Revenue will provide a set of guidelines on how to complete the statement and, I presume, this assists in assessing the value of the property yourself.

There are already several sources, including property websites and the house-price register. Section 50 of the act does state that Revenue will accept a professional valuation that adheres to the guidelines.

I plan a “wait and see” approach. This is a new tax, with new assessment methods. Allow Revenue to prepare its guidelines and indicative figures. Allow it to contact you with the information and see what’s contained. You might be surprised. You might just be satisfied with its figure. I’ve rarely attended a house appraisal where the owners genuinely hadn’t a clue as to a ball-park figure on their house. Few people can say they’ve never looked at a website to guess the value of their house. The information will provide for appeals and the provision of your own valuation.

Property taxes are not a new phenomenon – the surprise is that it’s taken so long. Many EU countries have local and state property taxes.

Could it be done better? Certainly, but this is what we have and we now need to deal with it. The valuation exercise is only one aspect of a 159-section act that provides for deductions by employers and pension providers, certain social welfare payments, State payments and agricultural and marine scheme payments.

I expect the rates of non-compliance to be virtually zero.

* Ed Carey is chair of the Residential Property Group of the Society of Chartered Surveyors Ireland