Q&A: What will the changes mean for your property tax bill?

Full details of new changes as owners of newer and most valuable homes to be hardest hit

Reform of the Local Property Tax has been widely been long expected but will prove still unpopular with those who end up losing out. File photograph: Yui Mok / PA

Reform of the Local Property Tax has been widely been long expected but will prove still unpopular with those who end up losing out. File photograph: Yui Mok / PA

 

Why is the local property tax being reformed?

The tax was introduced in 2013 after the financial crash. It was intended that the valuations on which the tax would be based would be updated every three years, but this has been put off by successive governments. Until now.

As the tax is based on 2013 valuations and excludes all properties bought by first-time buyers in 2013, along with all new homes bought since then, it is hopelessly outdated and could even have been open to legal challenge.

So what will happen now?

Houses will be revalued in November in line with the increase in property prices since 2013. This averages around 80 per cent plus although it varies from region to region.

To ensure that most homeowners do not face higher bills, the bands used to calculate what homeowners pay are being widened – by 75 per cent – and the rate at which the tax is charged is being cut . If this had not happened, the revaluation would have meant payments would have soared.

As it is, most current bills – about 53 per cent– will remain as they are. About 11 per cent will actually fall but 33 per cent will rise by €90 and three per cent will rise by more. This variation is due to different trends in house prices across the country.

Houses will be revalued later this year on a self-assessed basis and payment amounts will change next year. The impact will vary between regions and within regions because of the different rate of house price increases depending on location, type of property and so on,

So how do I work out how much I will pay?

There will be 20 price bands – as they are now – but they will be structured differently ( see table).

You will have to value you house in November based on current market trends to see what band you fall in to. This will be difficult in some cases given the low level of property transactions. If you are comparing what you pay now with what you will pay, remember that some local autorities have taken the option to cut current bills by up to 15 per cent from the baseline figure – and they may or may not decide to continue to do this.

If you fall in to either of the first two bands, up to €200,000 or €200,000 to €262,500 you face a fixed annual charge. This will be €90 if your house is in band one and €225 in band two.

For properties in bands three to 11, the charge will work out at 0.1029 per cent of the property value based on the middle of the band. Everyone in the band will pay at the midpoint and so will face the same cash bill. So people in the €525,001 to €612,500 band will pay €585, for example.

As is the case now, the picture changes for more expensive homes, valued at over €1.05 million . These will be taxed, as they are now, on the exact prices. So a rate of 0.1029 per cent will be charged on the portion of the price up to €1.05 million, 0.25 per cent on the amount between €1.05 million and €1.75 million and 0.3 per cent on the balance. So, for example, a €1.75 million house will face a bill of €2,830.

What about people who don’t currently pay?

The two main time-based exemptions will end. The tax will in future apply to houses bought by first-time buyers in 2013 and all new homes bought in the meantime. So, for example, people who fall into one of these categories with homes valued now at €350,000 to €500,000 might pay roughly €400 to €500 a year from next year on. This is a significant extra amount for this group, though there has been a clear unfairness in the fact they were exempt up to now. There are believed to be more than 100,000 homes in this category.

Who else is likely to pay more ?

There is no clear pattern as it will depend on the rise in house values in different areas.

A widening of the bands will ensure that the cost remains the same for the majority. Currently houses are charged within €50,000 bands – for example, homes valued at between €200,000 to €250,000 are charged the same rate - but the bands are being widened to more than €80,000.

Looking at the Department of Finance 2019 report and what we know so far, the higher rate of house price increase in Dublin and the commuter counties – as well as in Cork – are likely to mean somewhat more houses in these areas face tax increases, likely to be around €90 in most cases. There will be some more modestly-priced houses in other areas where prices have increased which will jump two bands.

Higher increases in cash terms will apply to some €1 million plus houses – typically in Dublin – because of the higher tax rate which applies to these homes combined with their rise in value. Houses whose price has risen sharply and are now valued at €1.5 million or more could see €400 to €500 increases in some cases.

In general, however, the impact will vary because it will depend on whether the old house value was close to the top of its band and how the restructuring of the band impacts. A lot of ordinary houses whose value has increased by 70 to 80 per cent since 2013 will see no increase and a small number of probably modestly priced properties in areas where prices have not increased sharply will actually see a €90 a year fall.

What will this raise for local authorise and the exchequer?

The main increase in revenue will come from the inclusion of homes currently excluded. This will increase the annual yield from €480 million now to around €560 million. The tax is a minor one in overall terms, but significant for local authorities. A move to allow each authority to keep all the LPT collected in its own area has been signalled.

Previously, 20 per cent was paid by higher yielding authorities into a pool which was then redistributed. The central exchequer would have to make up any shortfall to less well-off authorities. Local authorise will retain the power the increase or cut the tax each year by up to 15 per cent.

What about the future of the tax ?

It is expected that the tax will be put on a firmer footing. Homes will be revalued every four years, as opposed to every three years now. There will be a system to bring houses bought between valuation dates into the net, based on an estimate of what they would have been worth at the last valuation date.

So, for example, a house bought in 2023 will be taxed on the November 2021 valuation.

Any other changes ?

Yes. The exemption for people living on so-called ghost estates is also being phased out and the temporary exemption for pyrite-damaged homes in eastern counties and Limerick will be phased out.

The Govenrment says it has invested significant sums in helping people address pyrite problems. In 2020, 1,886 homes were exempt on this basis. A separate exemption is being introduced for households in Donegal and Mayo whose houses were constructed using defective concrete blocks.

In another change, houses vacated by their owners due to illness are currenly not liable to LPT, on the condition the property remains vacant. In future, the condition of vacancy will not apply, meaning that the home could be rented out and the LPT would still not apply.

Income limits which allow people to defer payment of the tax are being increased from €15,000 to €18,000 for a single person and to €30,000 for a couple, from €25,000 previously.

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