Underpaying your property tax could cost you thousands
It's your money
Most of us will snarl at the postman over the next few weeks when he delivers the much-dreaded letter telling us exactly how much Local Property Tax (LPT) the Revenue thinks we should be paying.
If you're liable for the property tax, refusing to pay it isn't an option – the taxman has the power to take money for the tax out of your bank account, wages or social welfare.
If you are self-employed and do not pay property tax in a particular year, you will be hit with a 10 per cent surcharge on your income tax bill for that year – even if you have filed your income tax return.
Powerless against Big Brother, some of us will try to get away with paying as little of the property tax as possible – by undervaluing our homes.
Doing so, however, could land you with a tax dodger's bill running into thousands.
If you knowingly undervalue your home to the taxman in a bid to keep your property tax bill low, you could be hit with a penalty of up to €3,000. The penalty is set at the amount of property tax you would have paid had you valued your property correctly. Along with that, you will have to pay back the tax you underpaid – and 8 per cent interest a year on the underpaid tax.
It is up to you to decide the market value of your home when paying the property tax. If you rely on Revenue's online guide to value your home, you could easily undervalue your home – particularly if your home is in better nick than your neighbours'.
The Sunday Independent totted up some figures to find out how much of a bill (including unpaid tax, penalties and interest) you could be chased for if you deliberately undervalue your property or use the valuation cited in Revenue's online guide – even though you know your home is worth more.
As the value you put on your home when paying property tax this year will apply up until and including 2016, we calculated the bill you could face if you pay less property tax than you should until then.
CLONTARF SEA VIEW & SOUTH-FACING GARDEN €5,049 TAX DODGER'S BILL
Let's say you own a three-bed semi-detached home in Clontarf East (near St Anne's Park and Dollymount), Dublin. Revenue's online guide values your property at between €450,001 and €500,000.
The property tax due on a home of this value is €427 for this year, as you only pay a half-yearly bill in 2013. This bill will, however, rise to €855 a year in 2014, 2015 and 2016.
A sea view could add another €100,000 to the value of your property while a south-facing garden could be worth €15,000. Your home therefore could be worth €615,000 – which means you should pay property tax for a house in the €601,000 to €650,000 band. The property tax due on a home in this band is €562 in 2013 and €1,125 annually over the following three years.
'If you rely on Revenue's online guide to value your home, you could easily undervalue the tax liability'
If you use Revenue's online guide to determine the property tax you pay, you could therefore underpay the amount of tax you should pay over the next three-and-a-half years by €945. If Revenue catch up with you, as well as paying this €945 in underpaid tax back, you will have to pay interest on the amount underpaid.
Our calculations found that the interest bill in this case would be €167 after three-and-a-half years. On top of that, you have to pay a penalty equivalent to the correct amount of property tax you should have paid in a given year.
In this case, the penalty will be €562 for 2013 and €1,125 a year in the subsequent three years. Add all this together and you're faced with a whopping bill of €5,049.
BRUSHED UP GLASNEVIN HOME WITH LARGE GARDEN & EXTENSION €4,790 TAX DODGER'S BILL
Revenue's online guide values a semi-detached home in Glasnevin, Dublin 11, which was built after 2000, at between €300,001 and €350,000. The property tax due on a home of this value is €292 in 2013 and €585 a year between 2014 and 2016.
If you have a large garden with development potential, however, this could add €50,000 to the value of your home. If you spent €100,000 on an extension, this could bump up its value by about €50,000. Good insulation and double-glazed windows could be worth at least €15,000; and a new kitchen and bathroom, as much as €40,000.
All these features could increase the value of your home to €505,000 – which makes you liable for a property tax of €472 in 2013 and €945 a year in the following three years.
In this case, if you use Revenue's online guide to decide what property tax you pay over the next three-and-a-half years, you could underpay your property tax by €1,260. The interest due on this amount of underpaid tax after three-and-a-half years is about €223 – while the penalties (the amount of property tax you should have paid in LPT each year) are €472 for 2013, and €945 for 2014, 2015 and 2016.
So between the underpaid tax, interest, and penalties, you face a total bill of €4,790.
POWERSCOURT REFUGE ON ONE ACRE €3,474 TAX DODGER'S BILL
Imagine you own a well-insulated detached home near Powerscourt in Co Wicklow with a one-acre garden and attic conversion.
Revenue's online guide values detached homes in this area built before the year 2000 at between €200,001 and €250,000. You'll pay €202 property tax this year for a home of this value – and €405 a year between 2013 and 2016.
Your one-acre garden however could increase the value of your home by €100,000, an attic conversion could add another €10,000 to its value – while good insulation and double-glazed windows could be easily worth €15,000. All these features could therefore increase the value of your home to €375,000.
The property tax due on a €375,000 home is €337 for this year and €675 a year after that.
You could therefore underpay your property tax by €945 over the next three-and-a-half years if you use Revenue's online guide. This could leave you facing a €3,474 tax dodger's bill in 2017 including unpaid tax, interest and penalties.