So the property tax is finally here. Or at least it will be come July 1st next year.
It would have been no surprise to anyone to see the new charge announced in Wednesday’s Budget. However, that doesn’t make it any less easy to bear for households who are already struggling – many of whom have already paid an abundance of tax on their home in the form of stamp duty.
Now that the long talked about tax is here though, what next?
Well, nothing really in the short term. The exact legislation will be drafted shortly but homeowners will have nothing to do until March, when they will receive an information pack from the Revenue Commissioners explaining what the Local Property Tax will fund and why it is necessary.
In that pack will be tips on how to estimate the value of your home and an estimation guide for your area. The tax, which will be paid at a rate of 0.18% for homes valued at up to €1 million and at 0.25% for homes valued at over €1 million, will be self-assessed and people will have a LPT Return form to fill out, which must be returned by next June.
There are those who will try to devalue their home for the purposes of saving money but the Revenue will have the right to reject a valuation they believe to be too low.
MyHome.ie have developed a property tax calculator to give people an idea of what they can expect to pay out for the charge when it is introduced while people have been encouraged to use the recently launched Property Price Register to determine the current selling price of homes in their area.
The Register will not be of use to many. For a start it doesn’t give an idea of how many bedrooms a house has or what size it is. It also doesn’t take into account any developments that a homeowner might have carried out over the years such as putting on an extension, developing their garden or insulating their home.
What hasn’t been too widely reported, however, is that valuations will be based on the market value of your property on May 1st 2013. With the likes of mortgage interest relief abolished and everyone worse off as a result of this week’s Budget, the likelihood is that prices will fall further in the next six months meaning certain people might benefit from lower house values.
It all represents a major blow though for anyone looking to sell, particularly the select few selling for in and around the €1 million mark but also those who fall in and around select bands. If you pay €275,000 for a house next year, for example, it will be very hard to argue that it is only worth €250,000 when you go to pay the tax.
That could drive prices down either more and have an impact on the slight recovery the market has seen in recent months.
Of course, there are exemptions for the next four years for first time buyers and they are, in the main, driving the revival at present. Those exemptions though in no way make up for the loss of mortgage interest relief. Instead of saving up to €25,000, the savings for the average first time buyer now amount to just over €1,200.
Surprisingly, one of the main headlines in the build-up to the Budget surrounded the new so-called Mansion Tax, whereby owners of properties valued at €1 million or more pay at a higher rate of 0.25%.
However, based on our summaries below that is unlikely to have a major impact on the market given that only around 1% of houses in Ireland are valued above that mark with less than 200 properties per year selling for that. Where problems could arise, however, is in the rental market. With owners of properties liable for the charge, they will more than likely pass this on to their tenants, who in turn will be facing higher rental costs from next summer.
Property transactions over €1 million
2010
Total number of properties sold: 20,816
Total number of properties sold for €1 million or more: 194
Percentage of total sales over €1 million: 0.93%
2011
Total number of properties sold: 18,070
Total number of properties sold for €1 million or more: 150
Percentage of total sales over €1 million: 0.83%
2012 (up to November 30th)
Total number of properties sold: 20,478
Total number of properties sold for €1 million or more: 172
Percentage of total sales over €1 million: 0.84%
Source: Price Register.
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