Friday 14 December 2018

Sellers beware: stealth-tax bill on homes could cost thousands

Owners must settle outstanding charges introduced during the recession and provide proof before they can close a house sale

'Should you be selling a property which was originally your home — but which you moved out of in recent years, you must prove that the NPPR has been paid for that property' (stock image)
'Should you be selling a property which was originally your home — but which you moved out of in recent years, you must prove that the NPPR has been paid for that property' (stock image)
Louise McBride

Louise McBride

Today's house sellers are facing a headache never encountered by those who sold property in - or before - the boom years: sorting out the loose ends arising from the stealth taxes introduced during the recession.

So while rising house prices mean that more boom-time buyers are now in a position to sell their home, such sellers will also be among the first to face the ordeal of proving that any stealth taxes owed on their property have been paid - and settling any unpaid bills and penalties. Such bills could run into the thousands.

Here are the main tax loose ends which house sellers must tidy up before closing a sale.

Second home tax

The second home tax, also known as the Non-Principal Private Residence charge (NPPR), could catch many sellers out - particularly the so-called 'accidental landlords' of recent years. This €200 annual charge was first introduced in 2009 and then abolished in 2014 when it was replaced by the property tax.

Should you be selling a property which was originally your home - but which you moved out of in recent years, you must prove that the NPPR has been paid for that property.

If you owned a residential property between 2009 and 2013 which was not your only or main residence (even for just one of the years that fell during that five-year period), you should in most cases have paid the NPPR for that property. For example, if you moved out of - and then rented out - a home which you bought during the boom, you should have paid the NPPR for any of the years between 2009 and 2013 that you rented out the property. Similarly, should you have inherited a residential property which you have only ever used as a holiday home, you should have paid the NPPR on that property for any of the years between 2009 and 2013 that you owned the property.

You must pay the original NPPR due, as well as late fees and penalties, if you have never paid the NPPR for a property you owned which was liable for the charge. The total NPPR bill due now - for a property owned for each of the five years between 2009 and 2013 and for which the second home tax was never paid - is €7,230.

The NPPR was paid to local authorities but many people paid the charge through an online payments system (nppr.ie).

You should have got a receipt at the time you paid the charge (assuming you paid it) - and it is this receipt which you provide to your seller as proof that you have paid the NPPR. If you can't find this receipt and are unsure if you paid the NPPR, check with your local authority. As long as you have paid the charge, your local authority can then issue you with a certificate of discharge to confirm that the NPPR has been paid.

Should you be selling a property which was liable for the NPPR for some years but not liable for it for other years, you must get a letter of exemption from your local authority specifying the years that the property was not liable for the NPPR. (For example, if the property was your sole home for some of the years which fell between 2009 and 2013, you would have been exempt from the NPPR for the years that you lived in the home.)

Getting a letter of exemption can be tricky. Some local authorities require proof that you were living in the home for the years that the property was exempt from the NPPR. That proof could include utility bills or tax letters (in your name) to the property address. With some local authorities, you must fill out a statutory declaration form where you state the years that the property was exempt from the NPPR. You must fill out and sign this form in the presence of a practicing solicitor, peace commissioner or commissioner for oaths - who must then stamp the document. The solicitor in this case cannot be the same solicitor as the one you have appointed to handle the sale of your property. You can expect to be charged about €10 by a solicitor for this service (often referred to as the swearing of a document).

There are some properties (such as granny flats, mobile homes and caravans) which were exempt from the NPPR. Some people (such as those who had an interest in a second property as a result of a judicial separation or divorce) - were exempt from the NPPR. Full details of exempt properties and people can be found on nppr.ie.

Property tax

The Local Property Tax (LPT) was introduced in 2013 - with a half-payment due that year. A full-year LPT payment was due in 2014 and subsequent years.

There was also a precursor to the LPT - the €100 household charge - in 2012. Should you be selling a home which you have owned since - or before - 2012, you must prove that all LPT due (including the household charge) on the property has been paid. To do this, get a print-out of your LPT record from the Revenue Commissioner's property tax website (lpt.revenue.ie/lpt-web). This record should also indicate whether or not you have paid the household charge. Alternatively, you can write to Revenue and request a letter confirming that there is no outstanding LPT due on the property.

If you have not paid all the LPT bills due on the property, you must settle any outstanding bills (and any subsequent penalties) before you sell. You may also need to get clearance from Revenue if there has been a significant increase in the declared value of your home (for property tax purposes) in May 2013 - and the sale price which you have secured for your home. The difference between the declared value and the sale price must fall within specific limits set by the Revenue. Otherwise, you may need to pay additional property tax before you can sell your home - particularly if you deliberately undervalued your home so that you would pay a lower property tax.

There are some properties which are exempt from the LPT. For example, properties bought in 2013 are exempt until the end of 2019 as long as the property is and has been used as your sole or main residence. Certain properties in ghost estates are also exempt, as are properties with a lot of pyrite damage. You must provide the seller with details of any exemption to the LPT or household charge which you have claimed.

Water charges

Water charges were introduced in 2015 but they have since been suspended and refunds are expected to be posted to all customers who paid those charges by the end of this year. Despite this, you must still currently prove that no water charges are owed on your home if you are selling it. "Under current government legislation, a property seller needs to provide evidence that the property has no outstanding bills with Irish Water - or that the property is not connected to the Irish Water network," said a spokeswoman for Irish Water.

Should there still be water charges outstanding on your home, you must pay whatever is owed.

You must get a certificate of discharge from Irish Water confirming that all water charges have been paid - and then provide your solicitor with this certificate. Alternatively, you can instruct your solicitor to deduct any unpaid water charges from the sale proceeds.

Landlords are in a different position. Should you be selling a property which you have rented, it is typically the tenants who pay the water charges and so you must get a letter of non-liability from Irish Water stating that you are not liable for water charges at the home you are selling.

Capital gains tax

Capital Gains Tax (CGT) is a long-standing tax which was in operation before the recession. However, it is another one which could catch out accidental landlords and those who inherited property.

You don't have to pay CGT on any profits made from the sale of your home - as long as it was your sole or main residence. However, should you be selling a second home or an investment property, you must pay CGT on the profit earned. The first €1,270 (or €2,540 if you are a married couple or in a civil partnership) of taxable profits in a tax year is exempt from CGT. Your CGT bill will also be reduced for any years that the property was your sole or main residence. Furthermore, you can write certain expenses off your profits when calculating your CGT bill. These expenses can include stamp duty paid on the original purchase of the property, and solicitor fees paid on the sale and purchase of the property.

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