The bottom line on paying the correct property tax

After years of speculation and controversy, householders around the State will this week start to receive an estimate of just how much they owe the Revenue Commissioners for the new Local Property Tax (LPT).

Determining the market value of a property in today’s climate is not a straightforward task, while many homeowners, who forked out exorbitant amounts on stamp duty during the boom, rightly feel aggrieved at being further taxed on those same properties.

Remember those dinner party conversations which focused on the seemingly inexorable rise of house prices? Now it’s all about downplaying your home’s value while still ensuring you’re compliant with the tax. Below are the steps you need to consider when filing your LPT return.

1 Assess whether you're liable

The Revenue Commissioners yesterday started sending out a tax return form as well as an explanatory booklet on the new tax. The letter may take up to four weeks to reach you, but once you get it you should find the process a little bit clearer.

The booklet will provide guidance on assessing the value of a property, working out how much LPT will have to be paid, completing the LPT return form and what range of methods are available to pay LPT.

If you get the form but don’t think you are liable for the tax – perhaps because you are a tenant or you have sold the property indicated – you will need to contact Revenue within 30 days, providing information as to why you don’t think you are liable. Failure to do this within this time frame will mean that you will be liable to pay the tax.

Remember, if you don’t receive a form, the onus is on you to file a return if you are liable for the tax, and if you haven’t received a form by the beginning of April, then you need to contact Revenue.

2 Consider whether you qualify for an exemption

While there is no exemption for those who paid exorbitant amounts of stamp duty during the boom, a number of homeowners will, however, be exempt from the tax.

Firstly, if you buy a new home from a builder or developer that was not lived in previously, you will be exempt from the tax until the end of 2016. This exemption will apply for purchases between January 1st, 2013 and October 31st, 2016.

If you’re a first-time buyer, an exemption also applies if you buy a property by the end of the year – provided that you live in it. If you are purchasing with a spouse/civil partner/co-habitant who isn’t a first-time buyer, you will jointly benefit from this exemption. A co-habitant is someone with whom you have children and have been living together for two years – or five years if there are no children.

Houses in so-called ghost estates are also exempt from the tax, while self-builds constructed after May 1st of this year and before November 1st 2016 will not be liable for the property tax until 2017.

An exemption also applies for pyrite affected homes, while mobile homes, vehicles and vessels are not subject to the tax.

However, just because a property might be vacant, it doesn’t mean that the tax doesn’t apply. Also, if a granny flat or home office can be sold as an independent property, then the tax also applies.

3 Work out how much you owe

If neither of the two aforementioned steps applies to you, you will need to work out how much you owe. Revenue is allowing you, the homeowner, apply a valuation to your property, but a penalty applies for underestimating the market value.

According to Revenue, if you undervalue your property, you will be fined the full amount of the tax, in addition to the tax which you have already paid, up to a maximum of ¤3,000.

To assist you in your valuation, your form will include an estimate of your liability from Revenue. Remember that this is not binding, and may be in excess of – or lower than – what you should actually pay. It is derived from a number of sources, including the property price register, and is based on the average price of homes in your area. To get a headstart on the process, you can check out Revenue’s indicative guide to property values in the valuation guide at revenue.ie.

Remember however, that this is just to help you assess the market value of your property. As Revenue notes, “if your property has certain exceptional or unique features, is smaller or larger than the average for your area, or is in a significantly poor state of repair, you will have to factor this into your assessment of the valuation band of your particular property”.

The key, for Revenue, is that you follow its guidance “honestly”. Revenue retains the right to challenge cases where it feels deliberate undervaluation is occurring, even when declared values are in line with the guidance.

This is where the most confusion is likely to occur. For example, according to the Property Price Register (see property priceregister.ie or myhome.ie), two four-bed detached properties on Merville Road, Stillorgan, south Dublin sold in February: one for ¤528,000 and one for ¤473,000. But according to Revenue’s valuation guide, houses in this area fall into Band 7: ¤350,001-¤400,000. So what should a homeowner in the area do? Follow Revenue’s valuation guide and risk underpaying or potentially overpay by going by the property register?

According to Revenue, the guide just gives “average” values. So if your property is better than average, and this is backed up by the price register, then you need to price your property above average, in order to act “honestly”.

The tax works by selecting a particular value band for your property. The initial band is ¤0-¤100,000, with subsequent bands organised in values of ¤50,000 up to ¤1 million. The tax liability, at 0.18 per cent, will be calculated by applying the tax rate to the mid-point of the band.

Properties with a value in excess of ¤1 million will be assessed at the actual value at 0.18 per cent on the first ¤1 million in value and 0.25 per cent on the balance.

To avoid unnecessary complication, the easiest option is to work out your liability quickly by using an online calculator such as: revenue.ie/lpt _reckoner/index_en. html

Key in how much your property is worth and it will come back with a figure. Put this figure into Section B “Liability” of your form, along with the relevant band number.

4 Apply for a deferral (if appropriate)

It was announced in the recent Finance Bill that in certain cases, a deferral (100 per cent), or partial deferral (50 per cent), of the tax can be applied for. Property owners who may qualify for a deferral include those representing a deceased person's estate, who will benefit from a three-year deferral period; those who meet the criteria for "excessive financial hardship"; and those applying for bankruptcy under the Personal Insolvency Act.

Remember however, that only owner-occupiers are eligible to apply for a deferral, and it will cost in the order of 4 per cent a year in interest charges. The cost of the tax may ultimately be deferred from the proceeds of a sale the property.

5 File and pay

The easiest way to account for your tax liability is to file online. Doing so via revenue.ie also gives you an extended deadline of May 28th.

Alternatively, you can submit the form, by post, to Revenue by May 7th. Don’t forget to sign and complete Section C before you file.

There are six ways to pay:
Pay and file online with a credit or debit card.
Complete the "single debit authority" on the form, instructing your bank to debit the sum from your account.
Complete the direct debit mandate option on the form. This allows you to pay what you owe over a period of 12 months starting on July 15th .
By giving details on your salary, occupational pension, social welfare or Department of Agriculture, Food and the Marine payments, you can have the tax deducted at source.
You can pay the tax in cash at outlets including An Post.
If you file by post, you can also include a cheque or bank draft for the amount you owe.

6 Start saving for next year

This year the tax is being applied on a half-year basis, which means that you will need to pay double this in 2014.

The good news, however, is that, in the unlikely event that property prices start to rocket any time soon, your property tax will be fixed at this year’s level until 2016. This makes buying a doer-upper more attractive for potential homebuyers. Regardless of how much they spend doing up a home, the price will be fixed based on a market value of May 1st, 2013. The next valuation date will be November 1st, 2016.

Late payment penalties are steep, with interest charged at 8 per cent a year. Where Revenue fails to collect the LPT, a charge will be attached to the property, preventing a sale or transfer until it is discharged.