Jill Kerby

SHOULD PENSIONERS PAY NO PROPERTY TAX?

A decision is expected shortly on how local property tax will be revalued and assessed from next November when the current valuation period, which was introduced in May 2013, expires in November 2019.  

The Taoiseach, Mr Varadkar is reported to have said that he prefers that the overall 15% threshold to raise the valuation bands be retained, but that they should be allowed to be lowered by a higher percentage.

Pressure is already mounting on the government from opposition parties to exclude some homeowners altogether, specifically pensioner homeowners who live on low fixed incomes and people with disabilities.

Currently, a single person who has no mortgage on their home and has income of €15,000 a year or less is entitled to fully defer the LPT or a 50% partial deferral if they earn up to €25,000. (For a married couple with no mortgage their income limits are €25,000 and €35,000 for the full or partial deferral.)

Single persons/couples with mortgages can qualify for the same income deferral plus the value of 80% of their gross mortgage interest.

The deferral can also be claimed by people who are insolvent or are experiencing a period of serious hardship until their circumstances improve or the property is sold.

Annual interest of 4% applies to the LPT arrears.

The Independent Alliance party’s call to exclude pensioners and people with disabilities would significantly increase the number of people who are already deferring the tax.  (People who bought a new or second hand home from a builder or developer between May 2013 and 2016 are already exempt from LPT until November 2019.

According to the Revenue Commissioners, there are nearly 1.7 million residential properties in the state and in 2017 approximately 30,600 homeowners sought a deferral.

About €500 million tax will be collected in 2018. Even if every one of the 30,600 properties fell into the lowest tax valuation band (€0 - €100,000) and didn’t pay the €90 due, the foregone revenue would only amount to €2,754,000 in revenue. But what if the majority of those homes fall into the €100,001 - €150,000 valuation band, which carries a €225 annual tax? The deferred revenue now jumps to €6,885,000 plus interest.

The dilemma the government now has is how to set a fair tax rate next May that acknowledges that the initial valuations were set in May 2013 when just about every residential property in the state had fallen to its lowest post-2008 value.

To compound the problem, instead of property values being reassessed in 2016, as intended, the government extended the same terms and tax payment thresholds for another three and a half years, to November 2019.  Today, with higher employment numbers, strong inward migration and a serious house shortage, many areas especially in greater Dublin and adjoining counties have seen property prices recover to pre-2008 values.

If the new LPT assessment remains based on market value and not on the percentage increase in value since 2013, there will be very few areas of the country where property taxes will not go up.

For example, a very nice family home was worth just €200,000 in 2013, even though it had been valued at €360,000 at the peak of the property boom.  This represents a nearly 45% drop in value. Today, because the house is within easy commuting of Dublin, Cork or Galway it has recovered its 2007 value of €360,000.

The LPT bill is currently €315. If the local council has reduced it by the maximum 15%, it could be as low as €276. However, if there is no change to the current assessment system, the same house, now €360,000 again, will end up with an LPT bill next year, 2020 and 2021 of €675 because this is the tax payable on properties worth between €350,001 and €400,000.

Only homeowners living in areas of the country where house prices have increased by a very slight percentage in value since 2013 and still fall within the existing valuation band – places like Leitrim and Roscommon where prices have moved the least in the past five years - may end up with little or no rise in their LPT bill. In Dublin, where many house prices have more than doubled since 2013, many people are going to struggle to pay their new tax rates.

It is estimated that nearly half of all pensioners depend on the state pension of €12,650 a year as their only source of income and already qualify for the LPT deferral. This doesn’t take into account any other assets they own – such as cash in the bank or even the value of the property itself.

But if the revised  LPT system again favours market value over the percentage rise in value since 2013, it won’t just be low income pensioners who will be aggrieved if they don’t qualify for a deferral or outright exemption.

Letters to jill@jillkerby.ie  The TAB Guide to Money Pensions & Tax 2018 is available in all good bookstores. See www.tab.ie for ebook edition.)