Friday, 16 July 2021
Finance (Local Property Tax) (Amendment) Bill 2021: Second Stage
The Programme for Government, Our Shared Future, includes a commitment to bring forward legislation on the local property tax, LPT, on the basis of fairness and that most homeowners will face no increase in their LPT liability. In addition, there is a commitment to bring new homes, which are currently exempt from this tax, into the taxation system. It is necessary to enact this legislation before the summer recess. This is required to enable the Revenue Commissioners to make the essential technical and administrative preparations to implement the various changes to the LPT regime that are contained within the Bill before the valuation date of 1 November 2021.
Ideally, legislation to give effect to reform of the local property tax would have been enacted in 2020. However, the process leading to the formation of the Government, and finalisation of the programme for Government, took longer than anticipated. Last year, our immediate focus was, appropriately, on the response to the Covid pandemic which meant there was not sufficient time to implement the LPT commitments during the remainder of 2020. The Minister, therefore, deferred the revaluation date for local property tax of 1 November 2020 to 1 November of this year.
The local property tax was introduced in 2013 and was designed to serve a dual function. First, to provide a stable funding base for the local authority sector and incorporating appropriate elements of local authority responsibility. It reinforces local democratic decision-making and encourages greater efficiency by local authorities on behalf of their electorates. Second, the local property tax has broadened the tax base in a manner that does not directly impact on employment and has replaced some of the revenue from transaction-based taxes with an annual recurring property tax.
Perhaps the most significant proposal in the Bill is a revised method for calculating LPT liabilities contained in section 24. A key challenge encountered during both the work of the review of the tax in 2019 and the more recent analysis is the significant variation of property price increases geographically and, in particular, the uneven pace and rate of increases in residential property values throughout the country since the original valuation on 1 May 2013. A guiding principle informing the design of the LPT is simplicity for taxpayers and Revenue, which collects the tax. In that regard, the new basis for calculating LPT liabilities builds on the existing band structure and is a variation of one of the approaches examined in the 2019 LPT review, which was listed as scenario 5 in the report.
The new approach will maintain the number of bands at 20. Band 1 will be expanded from €0 to €200,000 and band 2 will contain valuations from €200,000 to €262,500. The LPT charge will be fixed at the current charge for bands 1 and 2, which are €90 and €225, respectively. The other bands will be widened by 75% to create bands of €87,500, which will be increased from the current range of €50,000, with a lower mid-point rate charged to maintain the existing broad structure. Currently, a higher rate applies to properties valued at more than €1 million, with the first €1 million charged at 0.18% and everything in excess of that at the higher rate of 0.25%. Properties are charged on a self-assessed valuation of the individual property. Under the proposed approach, it is likely that owners of high value properties, that is, values of more than €1 million, would benefit from reductions in LPT liability due to the widening of the bands and the reduced rate. To address this, a higher rate will be applied to properties valued at more than €1 million by charging it at a higher mid-point rate on bands above €1.05 million - these are known as bands 12 to 19 - and introducing a third rate for properties valued at more than €1.75 million.
An important principle underlining the LPT is that by keeping the number of exemptions low, it helps to keep the tax rate low for those who are liable to pay it. Sections 10, 13, 14 and 15 of the Bill accordingly provide that the exemptions for first-time buyers and homes in unfinished estates will lapse. Section 16 provides that the current exemption in respect of pyrite-damaged properties will cease to apply for new applicants after the end of a two-year period following the enactment of this Bill. Any taxpayer qualifying before that date may avail of the exemption.
In relation to damaged properties, the Government has been very active in addressing the problem of pyrite damage and the more recent manifestations of mica-related damage in some western counties. Since 2014, approximately €166 million has been provided for the pyrite remediation scheme for certain eastern counties and County Limerick.In recognition of the stressful situation facing homeowners affected by pyrite and mica in certain counties, section 18 of the Bill provides for a similar temporary exemption from LPT for homes in those counties that have been damaged due to the use of defective concrete blocks in their construction and are eligible for the defective concrete blocks grant scheme.
Section 20 of the Bill provides that property valuations will be reviewed every four years, rather than the current three years. This provides a balance between the timely capture of changes in the property market and the need to limit compliance and administrative costs.
Section 21 provides that all new residential properties built between valuation dates will be retrospectively valued, as if they had existed on the previous valuation date. Revenue will provide assistance to property owners to determine the value. This will maximise the LPT base and ensure equity.
Section 38 implements the 2019 review group recommendation that the income thresholds for LPT deferrals be increased to €18,000 from €15,000 for a single owner and to €30,000 from €25,000 for a couple.
Section 37 provides for a reduction in the rate of interest on deferred LPT from 4% to 3%. The Bill contains a number of other measures intended to improve the administration of the tax. These amendments are in the nature of minor and technical adjustments.
In conclusion, I thank Senators for their attention. I look forward to hearing their contributions on the Bill, which I commend to the House.