Local Property Tax: What’s changing and what will it mean for you?

Hello again, and welcome to our latest edition of our personal finance newsletter. This week, we’re talking tax, and more specifically the Local Property Tax (LPT).

It’s a tax that everyone gives out about even though it accounts for just a fraction of most people’s personal tax bill.

Even politicians do their best to ignore, reduce or when forced to address it, blunt its intended effect.

But like it or loathe it, failing to register for and pay LPT can have consequences that you might never even consider.

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And so it is that LPT is back in the news, with Minister for Finance, Paschal Donohoe last week announcing yet more legislative tinkering in advance of an intended revaluation this November – with the specific intent of making sure no one sees any dramatic increase in the tax bill despite rapid growth in the value of their homes.

Part of the issue with the local property tax perhaps is the reminder of the grim post-crash year. The tax was introduced in 2013 at the behest of the troika put in place to help oversee the State’s economic recovery.

It was designed to broaden the tax base – something successive governments tend to talk about even as they narrow the tax base – and provide a steady predictable stream of income for local authorities to fund services without hiking the cost of employment.

Taxing property also had the advantage of addressing some of the growing clamour for a wealth tax: bigger, more expensive houses would face a higher charge.

[ Local Property Tax: Will Revenue chase me over rising home value?Opens in new window ]

Even as it was envisaged originally, it was only a very timid step in this direction. In the event, it hasn’t proved to be even that.

The other part is that people will always object to new taxes – whether it is local property tax, water charges or the universal social charge. And family homes in Ireland had been sacrosanct. Previous iterations of property taxes had targeted only second homes or investment properties.

The LPT was designed to cover all habitable properties – regardless of whether they were actually occupied or not – on the basis of their value on May 1st, 2013.

[ The Irish Times view on the local property tax changes: a missed opportunity ]

As originally planned, properties were due to be revalued every three years but successive governments’ fears about a voter backlash. As property prices recovered from the crash and continued to rise, the prospect of levying significantly higher sums from homeowners was a step to far.

The 2016 revaluations was deferred to 2019 initially, then to 2020 and, finally, 2021. One impact of these repeated delays was that all first time buyers in 2013 and anyone who bought a newly built home after November 2013 stayed outside the LPT system for nine years until that 2021 revaluation kicked in 2022.

The November 2021 valuation was carefully calibrated – through wider valuation bands for properties and a lower rate at which the tax was levied – to ensure that any increase in bills was modest.

Another revaluation looms in November this year.

And that brings us to Mr Donohoe’s latest intervention. The 2021 revaluation, which he oversaw, changed the legislation to set down four-yearly revaluations: now he has decided to reset those rules to leave a five-year gap between revaluations.

A cynic might suggest that was with one eye at ensuring that the current Government does not face a potentially awkward revaluation in November 2029 just weeks before it faces into a general election, assuming it runs full term.

He has again widened the valuation bands – by 20 per cent- to soften the impact of rising prices on local property tax bills and also again cut the base rate that determines the bill.

From next year, property owners will pay the tax at the rate of 0.0906 per cent of the middle of the band into which the value of their property falls – at least if their home is valued at less than €1.05 million. That’s down from 0.1029 per cent currently, and just half the 0.18 per cent rate that applied when the tax came in under the Troika.

While bills will rise, for most people it will be insignificant. As long as you stay in the same valuation band – as the Department of Finance estimates 96 per cent of households will – you are likely to be paying no more than €25 more over the year.

The other change is to the “local adjustment factor”. This is the feature that allows local authorities adjust the charge to suit their budgetary requirements. Until now, councils could raise the standard LPT rate by up to 15 per cent or lower it by the same amount.

Under the new rules, the reduction threshold remains the same but councils will be allowed increase the charge in their areas by up to 25 per cent.

As is stands this year, every local authority in the State is charging above the “standard rate” except for the four Dublin councils which have each “maxed out” the potential for lowering LPT bills and Meath and Louth which just levy the standard LPT rate.

So what does all that mean at a practical level?

Later this year, you will be required to submit a new valuation for your home or other property you own to Revenue and then let them know how you intend to pay the bill on that valuation.

How can you work out the valuation?

LPT valuation is by self-assessment. In other words, it is up to you to let Revenue know what your genuine view of your property’s value

Revenue does have a valuation tool which you can access here but it does carry a fairly strong health warning that it is a guide only.

“You should consider the specifics of your own property in comparison to other properties in your area. Your property may have unique features that you should take into account,” Revenue counsels, adding that the tax office retains the right to request further information from you on how you reached your figure “even if it is in line with the average valuation band for your area” as suggested by its valuation tool.

The two other main approaches are either to look for details of similar properties in your area that have recently sold on the Property Price Register or, in the absence of recent transactions, to use the CSO residential property price index to adjust either the purchase price of your own home or of others in the area to bring them up to date.

Of course, you can get a formal valuation but that will cost close to a year’s tax which seems a bit excessive.

Whatever, you do, keep a file with any details of how you sourced a valuation and any supporting documents – like a print out of the relevant Property Price Register entry.

You can register through Revenue’s MyAccount (PAYE) or ROS (self-employed) services, or alternatively through a dedicated LTP Online form which you can find here.

Decide how you pay

Monthly direct debit is the most popular way and it has the advantage of the bill being taken automatically each year between valuations without you having to worry about it.

The same is true of annual debit instruction deduction at source from salary or welfare payment. Otherwise it is up to you to get in touch and make the payment.

Failure to do so will have repercussions. If the property is registered – either by you previously or by a previous owner – it will be on the database which makes their job easier in pursuing you. But even with new homes, it is generally only a matter of time before one of their compliance initiatives catches up with you.

First up, they will charge interest at the rate of 8 per cent annually. They will also withhold any tax refund you might be due for things like rent, mortgage interest, college fees or medical costs until your affairs are in order.

And if they get really antsy, they can send the sheriff after you to collect the debt, or a solicitor, or seek mandatory deduction from your wages or pension through the courts.

In addition, you will not be able to secure a tax clearance certificate while you have arrears on your LPT file, or have failed to register. And that can come back to haunt you if you are looking to get certain public sector payments – including State grants – or access to many schemes or licences, such as those needed to operate a taxi/limousine service, act as an estate agent, run a bar, sell mortgages or many other types of business.

Nor will you be able to move on if you are looking to sell your home. Revenue can, and routinely does, block the closing of a property sale until they are comfortable that any LPT arrears have been paid.

And while every seller is looking to maximise the price they secure, Revenue will want you to explain any substantial difference between a sale price and your LPT valuation – with the strong prospect of an adjusted bill.

For an annual payment that amounts to less than 0.1 per cent of the value of your home, failure to engage or to pay seem like a pointless risk to take.

You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter - on complaints to the Financial Services and Pensions Ombudsman - you can read it here.