Paschal Donohoe (Dublin Central, Fine Gael)

I move: "That the Bill be now read a Second Time."

The local property tax is due for revaluation on 1 November of this year. I am introducing this Bill to make a number of important changes to the structure of the local property tax so that they can take effect from this date, in line with the commitment given in the programme for Government.

This tax was introduced in 2012. The design of it was considered by an interdepartmental group chaired by Dr. Don Thornhill. It became payable in 2013. This was the largest extension of self-assessment in the history of the State. It is now well embedded within our tax system. It has broadened our tax base, and has now brought in approximately €6 billion for local services since its introduction in 2013.

This year will mark the second revaluation of LPT since it was introduced. The first one occurred in 2021. In July 2021, the Finance (Local Property Tax) (Amendment) Act 2021 was enacted and made a number of important changes. These included a revised method for calculating LPT liabilities, regular revaluations and the bringing of new properties into the LPT charge. It ceased certain exemptions, increased income thresholds and decreased the interest rate for deferrals and included a number of administrative and technical reforms. These changes had a significant impact. More properties were brought into the scope of the tax which broadens the base. The 2021 Act provides for the inclusion of new properties for LPT purposes on 1 November each year. In 2020, there was €480 million collected in LPT. This increased to €521 million in 2023, an increase of 9%. The Act also provided that the next revaluation would take place on 1 November 2025.

According to the Central Statistics Office, property prices have increased by more than 20% nationally since November 2021. The largest growth in property values has been experienced in Border, midland and western regions, with average inflation of 33% recorded. Average property price growth in Dublin, for all types of residential properties, was 18%. The programme for Government commitment in relation to LPT was to "ensure fairness and stability in Local Property Tax payments and continue to retain revenue collected locally in the same local authority." Analysis from the Revenue statistics branch has shown the expected yield from LPT under 2021 valuations for this year would be €566 million. If revaluation of properties were to proceed without any amendments to the bands or rates, the yield from LPT would increase by one quarter. Approximately 70% of properties would move up at least one band.

In light of the programme for Government commitment, and to avoid a significant increase in LPT liabilities for householders, this Bill proposes to the amend the charging structure for LPT, and to make a number of other important administrative and technical amendments. Section 7 is the most noteworthy aspect of the Bill, which is the provision to amend the charging structure of LPT. The new approach maintains the number of bands at 20, with all bands being expanded by 20%. Revenue modelling predicts that 96% of homeowners will remain in their existing band.

The basic rate of LPT, which applies to all properties valued up to €1.26 million, is to be reduced from 0.1029% to 0.0906%. This will result in an increase in base LPT charges because the LPT charge is calculated on the basis of the midpoint of the valuation band, and midpoints increase as a result of band widening. The fixed charges for bands 1 and 2 will be increased from €90 to €95 for band 1 and from €225 to €235 for band 2. Properties valued between €1.26 million and €2.1 million will be charged at 0.0906% on the first €1.26 million, with a subsequent 0.25% on the balance of a midpoint value in excess of €1.26 million. Properties in band 2 will be charged on individual property values as before, namely 0.0906% on the first €1.26 million, 0.25% between €1.26 million and €2.1 million and 0.3% on the balance.

The changes we are making are fair and progressive. LPT charges will increase by 5% or 6% for homes valued under €1.26 million. Homes valued between €1.26 million and €2.1 million will see their base charges increase by 7% to 14%. The increases are modest but will yield an additional €45 million in revenue that will provide important funding for local services.

Section 10 provides for an increase in the income thresholds for LPT deferrals to be increased to €25,000 for a single person or €40,000 for a couple. It also provides that the income threshold for a partial deferral be increased to €40,000 for a single person and to €55,000 for a couple. The 2019 interdepartmental review of LPT recommended that these income thresholds be reviewed regularly with reference to movements in the consumer price index, wage growth in the economy and changes in fixed-income payments by the State. These changes have been made considering all these factors and the high inflation of recent years.

Section 8 proposes a change to the local adjustment factor, LAF. Local authorities have discretion to adjust the LPT rate collected in their areas up or down by 15%. The Bill as published would allow local authorities to vary the LPT upwards by up to 25% from 2026 onwards. This will provide local authorities with greater flexibility in relation to the LPT yield for their respective areas. I wish to highlight that I intend to bring forward an amendment to this section on Committee Stage. The Minister for housing has outlined the significant administrative challenges for local authorities if the changes come into effect for 2026. The amendment I will propose will defer the introduction of the increase to 25% for one year to 2027.

In a revaluation year, local authorities are required to notify the Revenue of their LAFs by 31 August. As county councillors do not meet in August, this means decisions must be made by the end of July. Before the LAF meeting, local authorities are required to hold a public consultation of 30 days, prepare a report on this consultation and a financial report for elected members a week before the meeting. Given the likelihood of when this Bill will be enacted, enough time would not be available for local authorities to undertake the public consultation required on the increase to 25%, hold the necessary meetings and notify the Revenue with the time now available. Additionally, many local authorities have made the LAF decision for next year under the current provision of a maximum increase of 15%. In light of the time available, it is not now possible for them to revoke the previous decisions made and conclude a new LAF process. For these reasons, and after consultation with the Minister, Deputy Browne, I intend to seek a deferral of this provision by one year on Committee Stage.

I also wish to highlight a second amendment of a more technical nature that I intend to introduce on Committee Stage. This concerns the partial relief on LPT for a property adapted for use by a person with a disability. The Finance (Local Property Tax) Act 2012 provides for a reduction of €50,000 in the chargeable value of a property for homes that have been adapted in this matter. This is equivalent to the differences in LPT valuation bands between 2013 and 2021. The policy objective of this is to ensure that disabled homeowners whose properties have realised an increase in value due to necessary adaptations having been made are not liable to a higher LPT charge as a result of these changes.

While the bands were widened in 2021 to €87,400, the Finance (Local Property Tax) (Amendment) Act 2021 did not introduce a corresponding amendment to the Finance (Local Property Tax) Act 2012. This was due to a drafting oversight. When this was identified, my Department requested the Revenue to allow a reduction in the chargeable value of €87,500 on an administrative basis to ensure a reduction of one valuation band for impacted taxpayers, and that has been the practice since then. As part of this Bill, the valuation bands will be widened to €105,000. The second amendment I am proposing will reduce the chargeable value of a property by this amount for homes that have been adapted in this manner and where the conditions are met. This will ensure that the administrative practice in place since 2021 will be put on a legislative footing. It will also ensure that homeowners with a disability who have had their homes adapted to make them more suitable and whose homes are worth more as a result of these adaptations can avail of a reduced valuation band and, ultimately, pay the LPT charge that would be due if they had not made the necessary adaptations.

Returning to the main provisions of the Bill, sections 4, 5 and 11 relate to the six-year exemption from LPT for homes damaged as a result of the use of defective concrete blocks. The six-year exemption currently only applies to properties in counties Donegal and Mayo, as provided for in the Dwellings Damaged by the Use of Defective Concrete Blocks in Construction (Remediation) (Financial Assistance) Regulations 2020. However, the scheme has now been amended to include counties Clare, Limerick and Sligo since the LPT was last amended in 2021. These sections will ensure that homes in these additional counties eligible for the scheme are also eligible for a six-year LPT exemption.

Section 9 allows eircodes to become a mandatory field in LPT returns. This will help in eliminating errors such as written correspondence issuing to the wrong property as a result of identical or similar addresses.

Section 6 sets the duration of the upcoming valuation period to five years, commencing in 2026 and ending in 2030, with future valuation periods also lasting five years. This will help to provide certainty to homeowners on their LPT charges, while ensuring properties continue to be revalued on a frequent basis. The next revaluation will be on 1 November 2030.

The Bill also contains two sections that relate to other taxation matters. The Finance (No.2) Act 2023 introduced defensive measures in relation to outbound payments of interest, royalties and distributions, including dividends, to jurisdictions on the EU list of non-co-operative jurisdictions for tax purposes and no-tax and zero-tax jurisdictions to counter aggressive tax planning. The passing of this legislation was listed as one of the four tax-related matters in Ireland's national recovery and resilience plan, NRRP, and was the final one to be completed. My Department subsequently notified the European Commission of the implementation of the reform. During its preliminary review of the legislation, a potential avoidance issue arose and an amendment was identified that would broaden the criteria whereby entities are considered to be associated with and, as such, inside the scope of defensive measures.

Section 12 provides for a technical amendment to extend the definition of "associated entities" to include entities that are associated by reference to the ownership or control by the same individuals, or individuals connected with those individuals, within the meaning of section 10 of the Taxes Consolidation Act 1997. This update to the legislation will ensure it operates as intended and future NRRP funding requests will not be hindered.

Deputies will also know that I introduced a financial resolution in April this year to extend the temporary reduction in VAT on gas and electricity charges. This was due to expire on 30 April and revert to the original 13.5% rate from 1 May.

The financial resolution extended the measure to 31 October 2025. The Bill provides the required legislative basis to underpin the financial resolution. As previously outlined, the estimated cost of this extension was €85 million. I will handle all VAT-related issues after that point as part of the normal budget process.

It is important for this Bill to be enacted before the summer recess. This is to ensure Revenue has enough time to implement the necessary IT changes to support the changes this Bill is making. It is also to ensure Revenue has enough time to contact the approximately 1.4 million property owners to advise them of their obligations in respect of evaluation. In light of the tight timelines for passing this Bill, I wrote to the Chair of the Joint Oireachtas Committee on Finance, Public Expenditure, Public Service Reform and Digitalisation, and the Taoiseach to ask for a waiver of pre-legislative scrutiny for this Bill. I thank the Chair for granting this waiver.

Together with my Government colleagues, I sought to deliver on our programme for Government commitments to ensure fairness and stability in local property tax, LPT, payments. By asking property owners to pay a small amount more, we project this will deliver an additional €45 million in yield for LPT which will go towards local services. It will give homeowners and local authorities stability and certainty regarding LPT for the next five years. I thank the Deputies for their attention to this Bill and I look forward to hearing their contributions across the evening.

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