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.
Homeowners in a debt settlement or insolvency arrangement may also qualify for a deferral for the duration of that agreement.
There is also a three-year deferral for people handling the estates of deceased people.
Is anyone fully exempt?
Yes, but very few people.
Properties bought from developers since the beginning of this year will be exempt until 2016 if they have not yet been lived in.
People who have had to vacate a property, bought as their home, because of long-term illness are exempt, while people who own a house in ghost estates will not have to pay the tax.
Properties used by charities have been excluded once they are used for recreational purposes, while homes adapted for use by people with disabilities could be exempt if the property was grant-aided by the local authority.
Some householders whose homes are affected by pyrite will be exempt for three years.
I don’t fall into any of those categories but I don’t want to pay. What are my options?
None. Unlike the €100 household charge which many people put on the long finger or ignored, this tax will be policed much more assiduously.
If you don’t pay it, the Revenue has all manner of ways to get it from you.
It has the power to deduct it from your wages or have it taken out of your pension. It can go after your bank accounts. It can withhold tax clearance certs, tax refunds and can impose fines and penalties. In short, it is not to be messed with.
Fine! How do I pay?
There are a number of options.
You can pay online at revenue.ie. The taxman says this is the “quickest and most straightforward option to file your return”.
It does not say why anyone would want to pay their tax quickly, however. Using the online system you can pay by credit card – a bad idea because of the high rate of interest on credit card transactions – or by debit card (better).
You can also fill in your bank details on the letter you will get and pay in full or you can pay by direct debit.
Bear in mind that if you pay by direct debit you will incur charges imposed by your bank so a better, cheaper option would be to have the money taken from your salary by your employer.
Other payment methods include cheques and cash payments through the post office or possibly utility companies, although the latter has yet to be confirmed. In short, Revenue has come up with all manner of ways to help you pay up.
When will I have to pay?
There are a number of important dates to remember.
May 1st is the date on which the property will be valued and if you are paying using regular post, the tax will have to be paid by May 7th.
If you use the online system, you have until May 28th.
If you opt to have the payment deducted at source – by your employer – that will begin at the beginning of July, while if you decide to pay by direct debit the first payment will come out of your account in the middle of July.
Back up . . . the household charge? I forgot about that. If it is being scrapped and I haven’t paid it yet, am I in the clear?
Absolutely not. If you pay the household charge by April 30th, you will have the fee capped at €130 – the original charge plus €30 in arrears and penalties.
If the tax is still outstanding in July, it will be increased to €200 and added to the local property tax due on your property.
Who determines the value of my property?
Ultimately you, but you will get some help from the Revenue.
When you get your letter next week, there will be a suggested tax band for your house but the ultimate decision on which tax band your property will fall into falls into your hands.
You will be expected to take into account things like the state of your property, any extensions, home improvements or rowdy neighbours when determining the actual value.
Be warned, however, that you will be expected to tell the truth so if you assess your gorgeous three-storey over basement red-brick house on a leafy Rathgar avenue in Dublin to be worth just €100,000, there is a good chance you will get a visit from Revenue before you can say “audit? I don’t want an audit.”
These estimates the Revenue are making, where do they come from?
Ah, you thought the property price register was for our benefit, didn’t you?
The register, which went live six months ago, has been a nosey-parker’s dream come true as it allows them to see exactly how much their neighbours are buying and selling their homes for.
Its main purpose is to help the Revenue determine how much properties across the State are selling for and then tax you accordingly.
That is not all, however.
The Revenue is also going to use a database developed by the Ordnance Survey of Ireland and An Post which contains information on the services and amenities near your home.
This is good news if you live on a barren and windswept stretch of the M50 where there is nothing that will add value to your home, but perhaps not so good if you live in Ranelagh.
So what happens if the Revenue underestimates the value of my house because it doesn’t know about my basement swimming pool and gazebo?
You have to tell them the truth.
If you have the best house on the worst street and the Revenue pitches you at a tax band below what your house is worth you will get away with it for some time.
However, if you come to sell the house, you will have to tell the buyer what band you are in and if that is out of whack with the price you are looking for, questions will be asked.
And when you sell the property for a price in a band two or three steps above the one you have declared, the Revenue will come looking for you.
I’m scared. I don’t want to get into trouble but I don’t know if my house is worth €195,000 or €205,000. What should I do?
Revenue will have 1.9 million houses to tax and are unlikely to be poring over every return with forensic detail.
It wants to get the money in and will make allowances for people who make honest mistakes in pricing.
If you put €195,000 instead of €205,000 on the form, it seems unlikely you would have your door broken down by the authorities demanding an extra €2 a week.
What will happen if my home is worth more than €1 million?
You will have to get the property professionally valued.
Yes, you will have to pay for that valuation but if, unlike the rest of us, you live in a house worth more than €1 million, you can probably afford the €200 it will cost to make sure the price is right.
So what do I do when I get the letter?
You select a payment option and complete the relevant details. You indicate the band number that corresponds to your property and you indicate the tax due.
You sign the form and post it back to Revenue.
Then you wait for them to take the money.
The online process is easier but the same questions will have to be answered.
What happens if I don’t get a letter looking for the tax?
It doesn’t matter. If you are liable to pay the tax, you are liable to pay the tax, even if the letter gets lost in the post.
I am a landlord – who pays: me or my tenants?
It is very simple. The owner pays. In the event that a property has multiple owners or if it is owned by a business, a number of children or a separated couple, then they are all liable, but they need to designate one person to pay the tax.
And if I just don’t pay?
To paraphrase Liam Neeson in Taken: They will find you. And they will kill you.
Or at least they will charge you 8 per cent interest on whatever you owe.