RESIDENCES:AN ANNUAL tax on residential property should be introduced and stamp duty on the purchase of main homes reduced to zero, the commission has recommended.
In its 550-page report, the 17-member commission called for the introduction of an annual property tax “at the earliest possible date”. Such a tax would be based on the market value of the property, using valuation bands, and would apply to all residential homes, except local authority and social housing units.
However, homeowners who have paid stamp duty would be exempt from the annual property tax for seven years from the time they bought their property.
The proposed annual property tax would also apply to second homes, holiday homes and rented properties and would replace the €200 levy introduced earlier this year, which applies to such properties. Vacant residential properties would also fall within the net.
Speaking yesterday at the launch of the report, commission chairman Frank Daly said recurring or annual property taxes have the least dampening effect on economic activity, when compared to other taxes.
An annual property tax would provide a “recurrent and sustainable revenue stream” and would help to move away from the over-reliance on volatile transaction-based taxes, the report said.
Setting the rate of the annual property tax was a matter for Government, it said, but the report sets out scenarios to illustrate the potential impact of the tax.
For example, if a rate of 0.25 per cent were introduced, the annual tax on a home valued between €150,001 and €300,000 – the most common category in the State – would be €563.
For homes falling into the €450,001 to €600,000 category, the annual tax would rise to €1,313. If the rate applied was 0.3 per cent, the annual tax on these properties would rise to €675 and €1,575 respectively. The net tax yield if the rate was set at 0.25 per cent is estimated at €926 million per year, rising to €1.112 billion for a tax rate of 0.3 per cent. These estimates are based on 2004 house prices.
The commission believes that revenue raised from the new tax should be earmarked for local government financing. By 2014, the Government should give local authorities the flexibility to set the annual property tax rate themselves, Mr Daly said.
The tax would be self-assessed, rather than being directly assessed by the Revenue Commissioners. Therefore it would be vital that appropriate monitoring and auditing be carried out.
The report advised that homeowners should have to file a property tax return every three to five years. The return would then be used to calculate the tax for the following three to five years.
Mr Daly acknowledged the difficulties in accurately valuing property in the current market. “It’s not as easy . . . as it was, [but] most people will have an idea of the value of their home,” he said. “It doesn’t have to be absolutely precise,” he added, referring to the wide valuation bands proposed.
Only if the value of the property exceeded €1.5 million would an exact valuation be required.
A property database, which would facilitate homeowners in valuing their properties, should be established “as a priority issue”, it advised.
In addition, if a householder gets a professional assessment of the value of their property, they should get a tax credit of up to €75 in the first year to compensate them for the cost incurred.
The commission also recommended that a waiver be provided to exempt homeowners below a certain low-income threshold from the tax. The threshold for the waiver should take into account criteria such as social welfare rates and the annual minimum wage, it said.
In other cases where the taxpayer is unable to pay the property tax, an option to defer and roll up the tax should be offered.
It advised that a wide range of payment methods for the proposed property tax should be made available so that homeowners will have the option of making periodic payments.
“In particular, we would like to see PAYE taxpayers have the option to pay their property tax through the PAYE system,” the report said.
Once the annual property tax is in place, the commission recommends that stamp duty for purchasers of principal private residences (ie a persons main home) be reduced to zero.
However, stamp duty would continue to apply to investors buying residential housing. The rate of stamp duty applicable in this case should be competitive in relation to the rates and thresholds that apply across the EU, so that it does not deter people from buying residential housing in Ireland, the report warned.
Mr Daly argued that the proposed property tax differs significantly from the residential property tax (RPT) in place from 1983 to 1996. The income and house valuation thresholds that applied to RPT were “very high”, he said, with the result that it applied to very few properties. By contrast, the proposed tax should apply to all homeowners, apart from those on very low incomes.