Homeowners' guide to calculating and paying the new tax

Q&A:Next week letters will arrive on how to pay the property tax. Need some help?

I can’t afford my mortgage so I’ve been living in a cave for the last three months. What’s this I hear about a property tax?

From next week 1.9 million homeowners will start getting letters from the Revenue outlining how they are to pay a new local property tax which is to replace the household charge that was introduced two budgets ago.

Property tax? But I paid a fortune in stamp duty when I bought my house at the height of the boom. Surely I can’t owe more money on a property that is now worth half of what I paid for it?

Yes you can. The Government, has decided to ignore the massive amounts of money it collected from us in property-related stamp duty over the last decade or so and start on a blank page when it comes to property tax.

The good news (for the Government) is that it should raise €500 million a year from the new tax.

How much will this one cost me?

Well it depends on where you live, but the good news is that the majority of people will be expected to pay less than €500 a year thanks to the all but total collapse of the Irish property market in recent years – a case of every cloud and all that.

There are 20 tax bands of €50,000 which go up as far as €1 million.

If your property is deemed to be worth more than that, the bands are dispensed with and you pay tax on the actual value of the property.

A band of €50,000 is a lot and there is a difference between €200,001 and €250,000. How is the tax worked out?

The rate is at the mid-range of each €50,000 bracket, so if your house is valued at either €210,000 or €245,000 the tax assessment will be based on €225,000.

I still don’t know how much it is going to cost me.

Patience. The tax is going to be charged at 0.18 per cent of the value of the property up to that €1 million mark, with a rate of 0.25 per cent being attached to all sums over that figure.

About 90 per cent of Irish houses are now estimated to be worth less than €300,000 which will see the tax liability for most people coming in at €50 a month or less.

Only half the tax is payable for 2013.

Break the numbers down for me.

If your house is worth between €200,001 and €250,000 you pay 0.18 per cent of €225,000, or €405 in a full year.

If your house is worth €500,000 you will end up paying €945 a year.

If you are lucky enough to own a house that is worth €1 million, you will be hit with a tax bill of €1,755.

On the other hand, if your house is worth between €150,001 and €200,000, you can expect to pay €315 a year.

I don’t have an extra fiver a month once all my bills are taken care of. What if I can’t afford it?

There will be some circumstances in which some people will be allowed to defer the tax. There will be three tests for people applying for deferrals.

The first is a straightforward income test.

If your gross income does not exceed €15,000 for a single person or €25,000 for a couple and you have no mortgage, you can defer the payment.

If you are in that income bracket and you have a mortgage, you can add 80 per cent of the gross mortgage interest repayments to that income ceiling.

You can also apply for a partial deferral if, as a single person, you earn no more than €25,000, or €35,000 for a couple.

Tax deferred accrues interest. For example, if you owe €206 at the end of this year, that becomes, with interest, €215 in 2014 and €228 in 2015.

Deferral will also be considered if someone is suffering “excessive hardship”, which applies if a person has suffered a significant financial loss or incurred a significant expense. Neither of these phrases is properly defined in the new law.