Friday 13 December 2019

Property Tax: why Revenue should err on the low side

Roland O'Connell

The valuation of homes for the Local Property Tax may present home owners with challenges for how to decide a fair value for their homes.

While the Revenue Commissioners will give an initial value to each residential unit, which the owner can then decide to accept or reject, there is a concern as to how the Revenue can provide accurate valuations considering the high number of units to be valued in a very short timescale.

While an exact value is not necessary, nevertheless for the sake of fairness and equity, values should be accurately calculated.

With around two million residential units in the country it would not be possible to have all units professionally valued within the Government's timescale.

It would take 1,000 valuers a full year to complete the task. It's clear, therefore, that it would be best if professional valuations are undertaken only for a smaller number of units where Revenue's calculations need to be rectified.

So by definition the values Revenue ascribes will be inaccurate as they will not have inspected each unit and will not be aware of their condition or size.

While the Property Price Register has brought transparency, the prices it lists cannot be ascribed to every house on a street.

For example, a house which has been newly renovated and extended, which has a south-west facing garden and which has a conservatory backing on to a generous garden, will have a much higher valuation than an ageing badly maintained house with a north-east facing garden on the other side of the same street.

Indeed, there are many properties which will be difficult to value without a full inspection such as: farmhouses close to agricultural buildings, units in unfinished housing estates and apartment blocks without management companies.

Consequently it is incumbent on Revenue to work with taxpayers and develop a system which achieves the best result within a limited timescale.

To that end Revenue need to provide clear guidance on the basis of their valuation and to clarify for taxpayers whether or not they need to get their own valuation.

The first question which needs to be answered is: 'What is the basis of the valuation?' The internationally recognised definition of market value is "the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion."

This should be the value on which the tax is levied, regardless of whether it is calculated by Revenue or by the homeowner.

Secondly, if a homeowner decides to get a professional valuation, who do Revenue regard as a competent valuer? Does the person need a valuation qualification and to conform to international valuation standards? The answer to this question is critical for ensuring that a taxpayer's valuation is acceptable to Revenue.

A third question which needs to be addressed is whether Revenue require a full valuation report including a detailed description of the unit, or if a letter stating the market value from a competent party will be sufficient?

Will Revenue prescribe a report format for the purpose? Furthermore, a method for resolution of a disputed valuation should not be complicated, costly or time-consuming.

Until Revenue clarifies these issues there is no action taxpayers can take. However, the Society of Chartered Surveyors Ireland (SCSI) hopes that Revenue will give taxpayers as much support and guidance as possible in order to assist them in calculating their liability and ensure the tax is implemented correctly.

SCSI also hopes that Revenue will take the prudent approach of erring on the low side when assessing the values which they will fix for a three-year period.

This would allow most taxpayers to comply without the need to get individual valuations.

It would also buy three years of time for the Revenue to develop a more comprehensive database of house details and values which would enable it to levy a more accurate tax in three years' time.

Roland O'Connell is president of the Society of Chartered Surveyors Ireland

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