Q – I am a house owner and following recent press discussion on the Local Property Tax I am completely confused. Can you clarify the law for me please?
A – The Local Property Tax (LPT) was established by the Finance (Local Property Tax) Act 2012. The tax came into effect on the 1st July 2013 and is now collected by the Revenue Commissioners.
Who is liable? The owner of a Residential Property, on any liability date, is the person liable to pay the tax. A residential property is defined in the legislation as any building or structure (or part) which is used or suitable for use as a dwelling and includes a shed, outhouse, garage of other building.
Exemptions-There are a number of exemptions from LPT. Here are a few examples;
(a) New and unused properties bought from a builder between the 1st January 2013 and the 31st October 2016 will be exempt until the end of 2016.
(b) Properties bought by a first time buyer between the 1st January 2013 and the 31st December 2013 will be exempt until the end of 2016.
(c) A property where the occupant has vacated for 12 months or more due to physical or mental infirmity.
(d) Certain properties in Ghost estates.
Rates of tax- The amount of tax to pay will depend on the value of the property on the 1st May 2013. The rates are arranged in tax bands. The lowest band is for properties valued up to €100,000 with new bands thereafter for every €50,000 increase in value. The rate of tax for properties valued below €1 million is 0.18% of the value of the property per annum. You select the tax band and apply the rate to the mid point value in the band. For example if you believe that your property is worth €190,000 then it falls within the band €150,000-200,000. You select the mid point of that band at €175,000 and apply the rate of 0.18% giving an annual tax of €315.
How to value the property?- It is a self assessment tax and it is up to the owner to estimate the value themselves. The Revenue has issued various guidelines but if in doubt then the owner can have the property professionally valued which will offer some comfort to them that they have selected the correct value for the tax. The value selected for the property as of 1st May 2013 will remain the value until the end of 2016. That in itself can produce some apparent unfairness. If a person valued a property as of May 2013 in €125,000 genuinely believing it to be worth that amount and then sells it for €92,000, is it fair that the purchaser should be stuck with the €125,000 valuation until the end of 2016?
What about 2014? A lot of controversy arose recently when the Revenue sent home owners letters notifying them of their obligation to register now for 2014 and to elect for a payment option. The owner of the property on the 1st November 2013 is the person liable for the LPT for 2014-even if the owner plans to sell or actually sells the property before the end of 2013. Revenue requires residential property owners to notify them of the manner in which they intend to pay the LPT for 2014. This notification if done by paper should have been made by the 14th November 2013 but if notifying by the Revenue online system then it must be done by the 27th November 2013. There are 7 different payment options from which to select. Whilst some methods do result in the taxpayer having to pay the 2014 tax this year (e.g. Credit or debit card payment), if you elect to pay by a single debit authority then the payment date is the 21st March 2014.
House sales? LPT is a charge on property and therefore must be paid before a property is sold. For a limited period of time between now and the 21st March 2014 this will cause quite a lot of frustration and complexity for sellers and buyers of residential properties.
If you sell your house today then you must pay the 2014 LPT before the sale completes whereas if you do not sell it you are not obliged to pay until the 21st March 2014.
If your sales contract contains the Law Society recommended apportionment clause then the seller must pay the 2014 liability in full now and the purchaser must repay that sum on closing to the seller. This is so even in circumstances where the purchaser might otherwise be exempt for 2014 (e.g. by being a first time buyer). This will undoubtedly strike the purchaser as being very unfair.
If the sales contract does not contain this apportionment clause then the seller will still have to pay the 2014 LPT and will not be able to reclaim it from the buyer. This will undoubtedly strike the seller as being very unfair as the seller will not be living in the house at all in 2014 yet will have to pay the tax even in circumstances where the buyer would not be liable.
There is also some controversy concerning whether the wording of section 8 of the Finance (Local Property Tax) Act 2012 exempts all purchasers who conclude a purchase before the end of 2013 or only certain categories of purchasers as originally intended (eg 1st time buyers).
Generally speaking the Revenue do not issue clearances certificates for the tax so the buyer still has to take great care to make sure that the correct tax has been paid by the seller.
All in all, this tax and its administration is proving confusing for owners, sellers and buyers and their representatives. All new taxes are unwelcome when introduced and take time for the tax payer to understand them. Some anomalies and unfairness have arisen this year particularly in relation to house sales which could have been avoided. These will occur towards the end of next year again and it remains to be seen whether any amendments will be made to correct these problems. The clearer the tax is and the fairer it’s implementation, the more likely it is to be accepted by tax payers.
Val Stone is the managing partner of Stone Solicitors, a law firm that has been practicing from 14 North Main Street, Wexford, for the last 21 years. The firm will be relocating in January 2014 to the former National Irish Bank building on the corner of The Bull Ring and North Main Street, Wexford. Stone Solicitors can be contacted on 053 9146144 or by e-mail firstname.lastname@example.org .