Local Property Tax – Your Ultimate Guide
Why Did the Government Introduce the LPT?
One of the terms of the 2010 EU/IMF bailout agreed with the then Fianna Fail government was the introduction of a property tax. The rationale was that one of the many reasons for the boom and ultimate bust of the Irish economy was our over reliance on one-off, transactional taxes such as stamp duty and capital gains. When the transactions dried up as the economy started to slow, so did these transitory tax receipts and the country’s finances were badly exposed. The attraction of a property tax, versus stamp duty for example, is that it must be paid every year regardless of the prevailing economic conditions and is paid by those who can afford it i.e. asset owners. It gives the government a steady, recession-proof, smooth income stream versus the more erratic, lumpy, pro-cyclical income associated with transaction taxes; these transaction taxes contract dramatically precisely when the state needs them i.e. during a downturn.
Do All Residential Property Owners Have to Pay LPT or Are There Exemptions?
There are exemptions to the LPT.
- Properties purchased in 2013
So long as the property continues to be used as the buyer’s sole or main residence, the exemption remains in place. This cohort of property owners will be liable for LPT from 2021 onward as the next valuation date is scheduled for 1 November 2020, having been delayed a number of times, presumably for political expediency.
- Properties that were self-built between January 1 and May 2013
This exemption remains in place so long as the property remains the owner’s sole or main residence; the exemption ceases to apply if the property is sold ie the new owner will be liable for LPT. These property owners will be liable for LPT from 2021.
- Properties that were self-built after May 1 and before 1 November 2019
This exemption remains in place for the property until 2021 even if sold.
- New & previously unused properties purchased from a builder between Jan 1 2013 and October 2020
These properties remain exempt until 2021 even if sold during this period.
For a full list of exemptions, see https://www.citizensinformation.ie/en/money_and_tax/tax/housing_taxes_and_reliefs/local_property_tax_exemptions.html
How Do I Pay the LPT?
The Revenue is responsible for the collection of the LPT. They offer a range of payment mechanisms including the option to pay in instalments over the course of the year. The options are listed below with further information available at the Revenue website here:
Options for making phased payments over the year include:
- Deduction at source from your salary or occupational pension
- Deduction at source from certain payments received from the Department of Employment Affairs and Social Protection (DEASP)
- Deduction at source from scheme payments received from the Department of Agriculture, Food and the Marine
- Direct debit
- Cash payments (including debit or credit card) through approved payment service providers
Options for paying in full in a single payment:
- Annual debit instruction
- Debit or credit card
- Cash payments (including debit or credit) through approved payment service providers
What are the Criticisms of the LPT?
One of the major criticisms of the LPT is that it penalises, often elderly, asset rich, cash poor citizens. For example, retired empty-nesters on modest pensions may be liable for large LPT bills as their family home has increased in value over the years. However, the income of the retirees does not rise commensurately each year and so they can be put under pressure to pay a tax based on their ownership of a valuable asset, that they never intend to sell. One could argue that this tax offers an incentive to retirees to downsize to avail of a lower LPT instead of living in a largely empty property that incurs a substantial annual LPT liability.
The government has continually put off the next valuation date for LPT until after the next general election. The reason is that 2013 marked the approximate bottom of the cycle in terms of house prices in Ireland. Many properties have doubled in value since then so property owners, when forced to revalue to today’s levels, will be in for a nasty surprise and presumably will be furious with the government in the context of many of these homeowners already paying over 50% marginal income tax. As of now, the next valuation date is set for 1 November 2020 with that liability having to be discharged over the course of 2021.
Selling a Property - LPT Implications
When buying a property, the purchaser will want to be satisfied that all LPT liabilities have been cleared in full. The owner of the property on 1 November is liable for the LPT charge for the following year ie if you own a property on November 1st 2020 and sell it at any point between then and October 31st 2021, you are liable for the property's LPT charge for 2021. Whoever owns the property on November 1st 2021 is liable for the 2022 charge and so forth. If a property sells for less than €350,000, the vendor can apply for general clearance from Revenue. This is the Revenue's confirmation that the property has no outstanding LPT liabilities and so the purchaser can proceed with confidence if general clearance has been provided by Revenue and proof of same presented to the purchaser's solicitor. Where a property sells for more than €350,000, Specific Clearance from the Revenue will be required if one of the following 4 conditions are not met:
- 1. Price Under €350,000
- The sale price of your property does not exceed €350,000* (If the sales price exceeds €350,000* you will need to obtain specific clearance if conditions 2-4 are not met.)
- 2. Sales Price within Allowable Range
- The difference between the declared valuation (as of 1 May 2013) and the sales price must fall within specific limits set by Guidelines effective from 01/09/2017 for the Sale or Transfer of Ownership of a Relevant Residential Property
- 3. Refurbishment
- The difference between the valuation and the sale price is due to expenditure on improvements to a property
- 4. The Valuation Was Fairly Calculated
- The declared valuation (as of 1 May 2013) for the property was made in line with: Revenue’s valuation guidelines and the sales price achieved, within the period of nine months prior to 1 May 2013, for other comparable properties in the area.
If none of the 4 conditions above are met, specific clearance will need to be applied for and granted. Specific clearance is an application that essentially says that while the property doesn't meet any of the pre-defined criteria for general clearance, the band chosen was correct and proper. For example, a property's value may have increased substantially owing to a Luas stop having been built nearby. In this instance, the propery's value may have been correctly assessed as of May 2013 but when sold many years later, a far higher value may be achieved owing to the Luas stop increasing all prices substantially in the area. In such an instance, it would be expected that the Revenue would grant specific clearance. In Revenue's literature on LPT, it says: ,
Revenue will consider specific written clearance on request from a vendor where the conditions in sections 4.2.1 to 4.2.4 above are not met but the vendor, nevertheless, claims that the valuation at the 1 May 2013 valuation date was made in good faith. It is envisaged that this specific clearance should only be required in exceptional circumstances. Unnecessary recourse to the specific clearance procedure may result in significant delay.