Tuesday 25 October 2016

Millionaire mansion owners big winners in LPT freeze

Tens of thousands of homes are also exempt from property tax

Published 19/10/2015 | 02:30

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Owners of the most expensive homes in the State will save at least €1,000 a year after the Government decided to freeze Local Property Tax (LPT) rates until 2019.

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And tens of thousands more home owners are escaping the property tax because of a series of exemptions introduced to boost the property market.

The State will lose out on a €30m tax windfall from the wealthiest in society after it was announced that revaluing properties for LPT purposes would be deferred for at least four years.

The decision to postpone the revaluation was announced on Budget Day by Finance Minister Michael Noonan amid mounting political pressure.

The delay will benefit those on higher incomes most, with some 3,600 households living in €1m-plus homes expected to save at least €1,000 a year.

A 'Review of the Local Property Tax' report said that in Dublin, 86pc of homeowners would have faced an annual increase of a minimum of €135 a year.

Read more: Garden is no bigger and neighbours are the same - so why pay more tax?

But for those owning expensive properties costing €1m or more, the expected hike was far more pronounced.

The yield from these properties would increase by a staggering 650pc, or €30m in a year.

A detailed analysis shows that the owner of a €1m house currently pays €1,755 a year in LPT. Factoring in a 41pc increase, this bill would rise to €2,825 - an increase of €1,070.

Outside of Dublin, most would escape a hike, or 61pc of all homeowners. The increases would be most profound in the capital, where a shortage of homes coming onto the market has led to double-digit price increases in recent years.

Introduced in 2013, the LPT is based on property prices as of May 1 that year. Homes were to be revalued in November 2016, with new rates due to come into force the following January.

But the move has been postponed after the report warned that more than half of all households would be forced to pay more - which would present the Coalition with a political difficulty in the run-up to a general election. And it has also emerged that exemptions introduced two years ago to boost the property market mean that anyone buying a new home until October next year will not have to pay any LPT at all.

This is because a number of provisions were included which exempted anyone buying a new property as their primary residence between January 2013 and October 2016.

These were designed to boost the market and encourage people to buy, but remain in place despite bidders fuelling double-digit price hikes.

There is no limit on the exemption, the Irish Independent has learned, as long the property is new, bought from a developer, and is not a one-off house.

Read more: Homeowners in capital would be hammered in revaluation

It has emerged that around 15,000 homeowners who bought a second-hand home in 2013, or a new property between 2013 and October next year, benefit from exemptions.

Developers have claimed waivers for another 6,900 properties, which they say are completed but unsold.

In his report, Dr Don Thornhill warns that the exemptions reflected the "very difficult conditions prevailing in the economy" at the time they were introduced, and were designed to stimulate demand for housing. "However, the tax exemptions are not costless and are paid for by other taxpayers…they can also give rise to inequities," he warned.

The 'Review of the Local Property Tax' adds that the LPT system needs to be restructured to avoid homeowners being hit with steep hikes in their bills.

Its recommendations include scrapping the exemptions for purchasing new homes, and deciding tax rates at a local level.

The Department of Finance said a review would get underway after the Finance Bill, which gives effect to Budget measures, is passed.

The LPT is calculated at 0.18pc of the value of the home to a maximum of €1m, with a higher rate of 0.25pc applying on the portion of the value above €1m.

The decision to postpone the revaluation process comes after Dr Thornhill's report found that just over half of all homeowners faced a property tax hike from 2017, as the value of their homes rocketed in the face of unprecedented demand.

Irish Independent

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