The Minister for Finance, Paschal Donohoe, announced proposed changes to the Local Property Tax (LPT) regime on 2 June 2021 publishing heads of the Finance (Local Property Tax) (Amendment) Bill 2021.
In summary, the Government states that it expects to boost revenue generated from the LPT changes to €560 million next year by ending some exemptions and increasing the amount paid by a minority of homeowners.
What is LPT and what changes will homeowners face?
LPT is an annual charge on all residential properties in Ireland which came into effect in 2013. The amount paid is based on a self-assessed value of the property in 2013 with the valuations set into 20 LPT bands.
From its introduction in 2013 there have been no changes in LPT rates or the valuation of properties for LPT purposes notwithstanding the significant increases in property values over the last 8 years. The revaluations intended to take place in November 2016 were postponed to 2019 without change before being pushed out again in 2020 in response to the COVID-19 Emergency.
Key changes proposed
New properties will be brought into the system
The biggest change under the Bill will be to bring tens of thousands of new properties built from 2013 and all properties bought by first-time buyers in 2013 (both currently exempt from LPT) into the local property tax net. The change will also see an end to the exemption for those living in ‘ghost-estates’ and a phasing out of the temporary exemption for pyrite damaged properties.
Property valuations will be reviewed every four years, as opposed to the current three years, in an aim to capture the changes in the property market, facilitate the regular addition of new properties into the LPT charge and limit compliance and administration costs.
Rate cut and bands widened for calculating LPT liabilities
The new regime will keep the number of bands at 20 but will see a widening of the value range within each band to ensure that costs remain the same for the majority.
On the lower end of the scale, Bands 1 & 2 will be expanded to €200,000 and €262,500 with the LPT charge fixed at their current charges of €90 and €225 respectively. Bands 3 - 19 will be widened by 75% and the rate at which the tax is charged will be cut while properties in Band 20 will be charged on individual property values as before. The Minister has provided a number of indicative examples of how this will play out which can be found here
Local authorities to retain 100% of LPT collected in their area
Currently, wealthier local authorities must hand over 20% of LPT raised into a pool to be redistributed to less well-off local authorities. In the future, 100% will be retained in the local authority with central government making up any shortfall.
Who is likely to pay more?
From what we know so far, the impact will vary and will most likely depend on the location of the property. Commuter counties such as Dublin and Cork with higher rates of house prices are likely to have increased numbers facing increased LPT. Higher increases in cash terms will apply to properties whose price has risen sharply having perhaps jumped 2 tax bands and, in some cases, will face increases of €400 - €500.
How will this impact on the house sales process?
No residential property can be sold without either general or specific LPT clearance from Revenue. This clearance is for the benefit of the purchaser because an underpayment of LPT, liable prior to the date of sale, can remain a charge on the property.
Currently, properties qualify for general clearance if they comply with certain conditions and there is no need to engage with Revenue in respect of the sale. However, if these conditions are not met, specific clearance would have to be applied for and a seller must complete and submit Form LPT5 and provide Revenue with evidence to support the 2013 self-assessed valuation. This process inevitably takes time and the seller must act promptly in making any necessary application so as not to delay the conveyancing transaction.
Under the current clearance rules, once a vendor has obtained clearance, either general or specific, for a designated property, receipt of this clearance certificate remains valid for future sales of the property within the valuation period.
The proposed changes recently announced by the Minister for Finance, however, remain silent on the matter of clearance. It remains to be seen whether the changes will impact on a property’s eligibility for general clearance following the implementation of the new legislation or whether more applications for specific clearance will be required.
Similarly, it is assumed that given the proposed revaluation date of 1 November 2021, any clearance received for a property between 1 May 2013 and 1 November 2021 will no longer be applicable. We assume that vendors selling their property after this date will need to reapply for LPT clearance irrespective of whether the property had previously obtained general or specific clearance although all these rules are yet to be made clear
The Minister for Finance has stated that it is his intention to have the Bill enacted before the summer recess to enable Revenue to make the essential technical and administrative preparations to implement the various changes to the LPT regime in advance of the valuation date of 1 November 2021. It is hoped that further detail might come through in the Bill that will offer guidance to solicitors on the matter of clearance and how this will play out in practice.
For more information on the changes to the regime and how they may affect your business, contact a member of our Real Estate team.
This article was contributed by Rachel Gribben, Associate and Sinéad Counihan, Knowledge Lawyer.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
