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Explainer: What's Paschal Donohoe's plan for Local Property Tax and how will it affect your wallet?

Changes to the Local Property Tax are delayed for another year – but are higher bills on the way?

PLANNED CHANGES TO the Local Property Tax are to be deferred by another year, Finance Minister Paschal Donohoe announced last night

What does this mean? 

Essentially, it means no one will see an increase in their bills until at least 2021.

Donohoe has denied that such a move has anything to do with the local elections being held this May, but the opposition has said the government is kicking the can down the road. 

While the tax took in about €482 million last year, it could have collected up to €770 million if the minister had pushed ahead with the planned home revaluation date this year. 

Yesterday, Donohoe decided to defer the revaluation date for properties from 1 November 2019 to 1 November 2020.

With this new valuation date, there will be no change in LPT bills sent out by government until 2021.

There have been concerns in recent months about changes to the property tax. 

Amid speculation about revised property tax rates, Donohoe said in January that any changes will be “affordable and predictable”.

Currently, property tax is based on the market value of a house, but due to the rapid increase in house prices, there have been concerns about the massive leap in tax homeowners will have to pay.

So, there will be no rise in the bills for now, but what about the future? What’s the plan?

The Local Property Tax (LPT) review report examined the impact on LPT bills and considered a number of possible changes to the tax such as different rate and tax band structures.

It was published last night and listed a number of possible options the government could choose from.

Speaking to reporters today, the minister indicated one option might be a model the government could work with.

Under this plan, the lowest income families will be hit with higher bills and limit the impact on those living in bigger homes.

If the government goes for this option, what does mean in terms of what people pay? 

While Donohoe said he is not committing to any bands or thresholds, he indicated the preferred option “is a model that could be made work”.

The department states that 82% of properties will see no increase in their property tax bills (about 77% of this group are living in Dublin).

Meanwhile 16% will see an increase in their bills of between €51 to €100 (around 80% of these people are also living in the capital).

About 2% of properties would see an increase in their bills of between €101 to €150 – with 60% of this group getting the higher bills living outside of Dublin.

Around 0.5% of properties will have an increase of between €151 to €200

No household would see their bill rise by more than €200 under this plan. 

When looking at the impacts on lower-income households (the group of people whose house valuations are on the lower end of the scale) department officials said there would be a “significant increase” for lower-income families, and would impact about 25,000 homes. 

This is because the proposed changes would see them move upwards from band one to band two, and result in them paying an extra €135.

“There are winners and losers no matter what option is worked thought,” they said, adding that the increase in that band rate could “look a little aggressive”. 

shutterstock_7459702 Shutterstock / Patricia Hofmeester Shutterstock / Patricia Hofmeester / Patricia Hofmeester

Could anything be done to offset that increase in the bills for lower-income households?

Probably not. The department officials said options were looked at to offset that category paying higher bills, but once you begin tinkering with the bands, it creates “inconsistencies” for the others, and could result in some paying less than they actually do now.

They added that the Budgetary Oversight Committee, that will undertake a review of the options, will investigate if further refinements can be made. 

If the government goes for the favoured option, 40% of Dublin households will move up one property tax band, resulting in a €90 increase (except for the households listed above which will see their bills rise by €135).

Properties valued at €630,000 to €720,0000, those homeowners will pay an additional €90. Currently they pay between around €1,215 to €1,305. 

The deferral also means that the thousands of homeowners who currently do not pay any property tax will continue to avoid the bills. 

Who is exempt from paying property tax?

Thousands of homeowners continue to avoid paying local property tax following last night’s announcement.

Putting a figure on it, Donohoe said about 48,000 homes will pay nothing. 

The loss to the Exchequer for not including these households is about €25 million. 

Under the current rules, which are not changing this year, homes that are self-built after 1 May 2013 and before 1 November 2019 do not pay property tax.

Self-builds between 1 January and 1 May 2013 are also exempt until the end of 2019 are also not liable.

New and previously unused properties purchased from a builder or developer between 1 January 2013 and 31 October 2019 also do not pay. 

Residential properties constructed and owned by a builder or developer that remain unsold are also not liable to pay the tax, as are ‘ghost estates’ and mobile homes. 

Seems unfair some people pay and others do not? Does the government want to change this?

Yes. The Taoiseach Leo Varadkar said last December that the government would consider removing these exemptions in 2019.

The Taoiseach said it was not fair that some householders pay and others do not.

“That is not fair because they benefit from the same local services as everyone else. That was done for a particular reason in 2013 to encourage increased housing supply but that is now going in the right direction. So we need to consider that and it will bring in extra money for local authorities,” he said.

Donohoe repeated that sentiment today, stating “there is an inequity there… it is something I’m going to fix”. 

However, he won’t be fixing it this year.

Had he made changes to include the 48,000 householders in the mix, it would have “proved very difficult”, he said. 

The minister said a price would have to be placed on the homes of those who have, to date, not had to pay local property bills.

He added that many of these homes were not even built until after 2013, or after the 2016 price freeze.

This would mean some people would be paying a rate based on the 2013 rate, and the newcomers to the system, would be paying the 2019 rate.  

shutterstock_789653941 Shutterstock / Olena Yakobchuk Shutterstock / Olena Yakobchuk / Olena Yakobchuk

A previous report on the property tax recommended that those over 80 years of age should be exempt from the property tax – did the latest report find that? 

No. The Thornhill report on property tax, which was previously published, did recommend that those over 80 years old should be exempt.

However, department officials stated today that it was decided to not include that recommendation for government.

The group looked at this, but instead decided that other social welfare initiatives would be best placed to deal with that issue. 

Will local authorities be able to increase or decrease the tax by 15%?

The review group recommends that the rules be amended to permit upward only adjustments by local councillors to a maximum of 15%.

This is likely to cause some concern among local authorities. The minister is understood to have an “open mind” when it comes to this recommendation, but officials state that the flux can create a “vulnerability” around the yield the tax returns, with the downward adjustments opening the Exchequer up to “exposure”. 

Can people defer their property tax payments?

There are several reasons why people might defer their property tax payment such as a person seeing a decrease in their income or people entering into an insolvency arrangement. 

Screenshot 2019-04-03 at 17.32.33

The number of people who have deferred their payment because they are below the income threshold has risen dramatically since 2013, when 29,800 people deferred the tax. In 2018, 56,3000 people applied to defer the tax. 

There has also been a dramatic rise in the number of people who have deferred due to entering insolvency, rising from 300 people in 2013 to 900 in 2018. Deferrals mean people can pay their tax liability at a later date, for instance when the property is sold. 

A Revenue official stated that it is important people who are in financial difficulty check if there are eligible to defer, stating that there could be people who are paying the property tax who have right to defer it to a later date. 

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