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.) 

THE STATE IS A BIG WINNER ON THE PROPERTY TAX FRONT BUT CONFUSION REIGNS ON TAX FREE INHERITANCE RULES

One of the great ironies of our perpetually dysfunctional property market and the housing/rental crisis into which it has morphed, is that the state is reaping a very tidy tax windfall out of it.

So far this year, according to the latest, pre-Budget Exchequer tax estimates, capital acquisition tax, or inheritance tax has come in at came at nearly €500 million. 

This is twice what was raised in 2010 when the inheritance tax exemption levels were about €100,000 higher between parent and child and the great property value slide was underway. (Before the property crash the parent/child tax-free limit was c€550,000.)

All the government would have to do now to make a real killing on the property market would be to re-introduce the sort of eye-watering levels of Stamp Duty that applied before the crash and/or hike property tax rates. Even doubling the ludicrously low original 0.18% rate (which has been reduced by many local authorities and is only going to rise in 2020) would add many extra hundreds of millions of euro to the Exchequer’s coffers. (About €460 million will be raised this year; many valuations date back to 2013.)

Today, the surge in property values, especially in Dublin and the other cities and their suburban orbits means that the state is again raking in a fortune -  a fortune that most property owners would prefer to leave to their children and grandchildren, according to Irish Life, which has also just published the results of their latest survey into our attitudes towards inheritance.

According to the life and pensions company, 20% of over 55’s expect to leave at least €500,000 in assets – mostly property as well as qualifying pension funds and cash to their families. 50% expect to leave assets worth at least €100,000.

The current inheritance tax rate is 33% of any value that exceeds the three tax-free thresholds: Group A between parents and children - €310,000; Group B between lineal descendents such as brothers, sisters, nieces and nephews at €32,500 and Group C - between strangers, €16,250. 

With house prices in the Dublin area nearly back to 2007 levels this is where the windfalls are the most substantial for families and the state.

Which is why a review and some forward estate planning isn’t a bad idea before next month’s Budget, when it is anyone’s guess whether capital acquisition tax (CAT) thresholds will be further adjusted upward to reflect the continuing rise in property and per capita household wealth, not set at €151,650 by the CSO.

A surprise that emerged from Irish Life’s timely survey is that the vast majority of participants (up to 84%) have no idea what the tax-free thresholds are or the tax rate. Up to 50% mistakenly believe that the family home is exempt from CAT.  

Only a spouse inherits entirely tax-free, but under what it known as ‘Dwelling House Relief’ anyone who has lived with the owner of a property continuously for the previous three years as their main residence and who has no other interest in any other property may inherit it tax-free so long as the disponer has made a legal will naming them as the beneficiary. They must also keep the property for at least six years, but should they sell it before then only the proceeds that go towards another residence will remain tax-free.

Property can be a very tricky asset to pass on, especially if you haven’t made a will but your intention may have been protect the interests of someone who may have been living with you or you may have only wanted to have a lifetime’s interest in the house after your death.

Dying ‘intestate’ means the Succession Act 1965 prevails and your family home, along with the proceeds of life insurance policies, pension funds (like an ARF – Approved Retirement Fund), cash and any other property or valuables will be subject to those rules.

Specifically where there are no children the entire estate goes to a spouse; where children are present, 2/3rds goes to the spouse and the remaining 1/3rd equally to them.

Parents are the sole inheritor where the deceased is single if they haven’t made a will, and then their siblings if there are no parents, and nieces and nephews if there are no siblings, etc.

Disinheriting a child where there is a will, can throw up all kinds of difficulties, but a more common problem say financial advisers are the tax complications that arise quite frequently in the estates of Irish people who may have lived abroad and may still have some financial interests outside Ireland. 

Pensions, investments and property still held in the myriad of countries where the Irish diaspora worked or even retired to, could end up subject to very different disposal rules and taxes.

If any doubt, consult a good solicitor and knowledgeable tax adviser.

(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.) 

BANK SCAMMERS TARGET THE VULNERABLE:  COLLEGE STUDENTS

Bank fraud is so common that nearly everyone who uses the internet and has a bank account has been targeted.

Today, the fraudsters are members of international gangs and use the information we voluntary post on our social media sites to target the most vulnerable. And no one is more vulnerable (or bigger users of social media) than young people and students, including the tens of thousands of foreign students, who are struggling to find accommodation, let alone pay for soaring rent.

Next month [OCT] the Irish Banking and Payments Federation Fraud Alert section will launch an anti-fraud campaign as third level students return to college. It will warn them of the dangers of being caught up in money laundering scams and identity theft that could result not just in considerable financial loss, but also possibly being charged with money-laundering. 

Two such elaborate frauds making the rounds right now involve outright theft using fake invoicing and the other involving the use of student’s current accounts by foreign money laundering gangs.

I heard about the first one from a reader whose son, a second year medical student in Dublin who was sharing a leased house with other students, ended up being scammed out of €10,708 this summer. 

After deciding to return home to work for the summer to help pay for this next year’s expenses, the son, ‘Sean’, decided to sub-let his room in his shared house on a popular Irish-based property rental website. The rent was €1,708 but the English woman who answered his ad, and with whom he was in touch, sent him a paper bank draft drawn on a Lloyds Bank account for €10,708, not €1,708. 

After quickly contacting her - she claimed she thought he was ‘sub-letting’ his room for the remainder of his lease and not just for the summer - he naively, but promptly, transferred back her €9,000 ‘overpayment’ via an electronic transfer, but this time to a bank in Turkey.

Within a few days of the draft being deposited, €1,708 worth of rent and utilities at his rented house had also been drawn down. A few days later, the bank, which had told him the payment could take “a number of days to clear”, informed Sean that the draft had been returned unpaid.  His account was now ‘overdrawn’ for the entire €10,708.

The banks’ investigators subsequent found that the original bank draft was a counterfeit; it also reported that the Turkish bank to which the €9,000 was transferred refused to cooperate with their investigation.

Sean is now taking an official complaint to the Financial Ombudsman on the grounds that his bank facilitated the drawing down of the funds to both pay his outstanding bills as well as the electronic transfer of the €9,000 ‘overpayment’ before the foreign draft was cleared.

Does he have a case?

Two years ago, in May, 2016 the IBPF published an article on their website about how small Irish merchants had been targeted with a similar version of this scam: a new overseas customer sends the merchant a paper cheque or draft payment to pay for an order. Their payment is a multiple of the correct amount. Once contacted, the buyer apologises for the ‘overpayment’ and suggests that the merchant refunds it by electronic payment.  A few days later, the bank reports that the original invoice payment has effectively ‘bounced’.

According to the IBPF, the Irish banks have reported ‘hundreds’ of such cases of this sophisticated, international fake invoice clearing scam to them over this past summer alone, many of them now involving student account holders. But had the banks learned from their 2016 experience and taken proper preventative measures – say, a software programme to stop on-line customers from accessing funds before they cleared, or to alert them by SMS, a text or email when they did clear, none of these frauds could have happened.

The other major scam that involves the student community, and that will feature in the IBPF’s anti-fraud campaign in October is being dubbed ‘The Money Meal’. 

This time, the international fraudsters identify Irish and foreign students here via their social media sites on which they reveal a great deal of personal information. The fraudsters might claim to be a member of an agency or organisation that is helping support the student community but haven’t yet finalised the setting up of their office or bank. Could the student let them use their account to bring funds to Ireland, for which they will receive a small reward, say €50 or €100? The student is then as ked to transfer the balance to another account, but as with the other scams, the banks pay out before the money from the original transaction has cleared.

The October college information campaign by the IBPF will be warning students that anyone making their account available for such transactions could end up being prosecuted.

But as one banker told me, “Rents are so high now and students are so desperate for money. The scammers know what they’re doing.”

(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.)